AMENDED AND RESTATED STOCK PURCHASE AGREEMENTShareholder Agreement |
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Exhibit 2.01
August 2, 2004
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vii AMENDED AND RESTATED STOCK PURCHASE AGREEMENT This Amended and Restated Stock Purchase Agreement ("Agreement") is made as of August 2, 2004, by and among KMG America Corporation, a Virginia corporation ("Buyer"), the holders of all of the outstanding shares of capital stock of Kanawha Insurance Company, a South Carolina corporation (the "Company"), identified on Schedule A (each a "Shareholder" and collectively, the "Shareholders"), and the holders of all of the options to purchase the outstanding shares of capital stock of the Company identified on Schedule A (collectively, the "Optionholder", and together with the Shareholders, "Sellers"). RECITALS WHEREAS, the Shareholders are the owners of all of the outstanding shares of capital stock of the Company, namely shares of common stock, $1,549.4254 par value per share (the "Shares"). WHEREAS, the Optionholder is the owner of all of the options to purchase Shares (the "Options"). WHEREAS, following the exercise of options by Elliott S. Close (as described in Schedule 6.1(d) ), the number of Shares owned by each Shareholder and the number of Options owned by the Optionholder will be as set forth on Schedule A . WHEREAS, Buyer and Sellers are parties to a Stock Purchase Agreement dated as of June 9, 2004 (the "Original Agreement"), pursuant to which Buyer agreed to acquire, and Sellers agreed to sell, all of the outstanding Shares (including Shares to be issued upon the exercise of the Options); and WHEREAS, Buyer and Sellers mutually desire to amend and restate the Original Agreement as set forth herein. NOW, THEREFORE , in consideration of the foregoing and of the mutual covenants, conditions and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, it hereby is agreed that: ARTICLE I When used in this Agreement, the following terms shall have the meanings specified: 1.1. Accounts. "Accounts" shall mean all accounts receivable, notes receivable and associated rights owned by the Company and the Subsidiaries. 1.2. Action. "Action" shall mean any action, claim, suit, litigation, arbitration, or governmental investigation or proceeding. 1.3. Actual Net Worth. "Actual Net Worth" shall mean, as of any applicable date, the amount by which the consolidated total assets of the Company on the applicable date exceed the 1 total liabilities on such date, with total assets and total liabilities calculated in accordance with the Net Worth Methodology. 1.4. Administrative Agreements. "Administrative Agreements" shall have the meaning given in Section 4.22 . 1.5. Affiliate. "Affiliate" shall mean, with respect to any Person, any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person. As used in this definition of the term "Affiliate" and elsewhere herein with respect to any Affiliate of any Person, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by voting trust, contract or similar arrangement, as trustee or executor, or otherwise. 1.6. Agreement. "Agreement" shall mean this Amended and Restated Stock Purchase Agreement, together with the Exhibits and Schedules attached hereto, as the same may be amended from time to time in accordance with the terms hereof. 1.7. Annual Statement. "Annual Statement" shall mean the annual statement of the Company filed with or submitted to the Insurance Department in the State of South Carolina on forms prescribed or permitted by such authority. 1.8. Assets. "Assets" shall mean all of the assets of the Company and the Subsidiaries, including, without limitation, the Accounts, Bank Accounts, Books and Records, Contracts, Equipment, Intellectual Property and Real Property. 1.9. Bank Accounts. "Bank Accounts" shall mean the checking accounts, savings accounts, custodial accounts, brokerage accounts, certificates of deposit, safe deposit boxes and other bank or brokerage accounts maintained by the Company or any of the Subsidiaries being listed on Schedule 4.6 . 1.10. Books and Records. "Books and Records" shall mean original or true copies of all of the books, records, ledgers, files, data and information of the Company and the Subsidiaries (including customer and supplier lists, personnel records, plans, architectural plans, drawings and specifications, creative materials, financial and accounting records, advertising materials, promotional materials, purchase orders and invoices, credit and collection records, correspondence and miscellaneous records with respect to customers and supply sources and all other general correspondence). 1.11. Business Day. "Business Day" shall mean any day other than Saturday, Sunday or other day that commercial banks in South Carolina, are generally authorized to close. 1.12. Buyer. "Buyer" shall have the meaning given in the first paragraph of this Agreement. 1.13. Buyer Claim. "Buyer Claim" shall mean any Loss indemnifiable by Sellers pursuant to Section 8.1(a) . 2 1.14. Buyer Claim Notice. "Buyer Claim Notice" shall have the meaning given in Section 8.1(c) . 1.15. Buyer Election Notice. "Buyer Election Notice" shall have the meaning given in Section 8.2(c) . 1.16. Buyer Indemnified Parties. "Buyer Indemnified Parties" shall have the meaning given in Section 8.1(a) . 1.17. Buyer's Intentional Fraud. "Buyer's Intentional Fraud" shall mean any act of intentional fraud by Buyer or Kenneth Kuk in connection with this Agreement. 1.18. Closing. "Closing" shall mean the consummation of the purchase and sale of the Shares to be held at 10:00 a.m., local time, on the Closing Date, at the offices of Hunton & Williams LLP, 951 East Byrd Street, Richmond, Virginia, or at such other place as Buyer and Shareholders' Representative may mutually agree. 1.19. Closing Date. "Closing Date" shall mean the third Business Day following the satisfaction of the conditions set forth in Article VII or such other date as Buyer and Shareholders' Representative may mutually agree. 1.20. Closing Date Balance Sheet. "Closing Date Balance Sheet" shall mean the consolidated balance sheet of the Company as of the last day of the quarter end immediately prior to the Closing Date, to be prepared and delivered as set forth in Section 2.5 . 1.21. Closing Date Net Worth. "Closing Date Net Worth" shall mean the Actual Net Worth reflected on the Closing Date Balance Sheet. 1.22. COBRA. "COBRA" shall have the meaning given in Section 4.18(f) . 1.23. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, and (where appropriate) any predecessor or successor provision of law. 1.24. Company. "Company" shall have the meaning given in the first paragraph of this Agreement. 1.25. Company Beneficiary. "Company Beneficiary" shall have the meaning given to such term in Section 4.18(a) . 1.26. Company Benefit Plans. "Company Benefit Plans" shall have the meaning given to such term in Section 4.18(a) . 1.27. Company ERISA Affiliate. "Company ERISA Affiliate" shall have the meaning given to such term in Section 4.18(c) . 1.28. Company Investment Assets. "Company Investment Assets" shall have the meaning given in Section 4.23 . 3 1.29. Confidentiality Agreement. "Confidentiality Agreement" shall mean that Confidentiality Agreement dated January 22, 2004 by and among the Company, Starring Financial Marketing Company and Buyer. 1.30. Contracts. "Contract" shall mean any contract, obligation, commitment or agreement, whether written or oral, that is legally binding, together with all amendments and other modifications thereto. 1.31. December Balance Sheet. "December Balance Sheet" shall mean the audited consolidated balance sheet of the Company as of December 31, 2003 included in the GAAP Financial Statements. 1.32. December Net Worth. "December Net Worth" shall mean $173,476,529, the Actual Net Worth as of December 31, 2003 as reflected on the December Balance Sheet and calculated in accordance with the Net Worth Methodology. 1.33. Deferred Amount. "Deferred Amount" shall mean $25,000,000.00. 1.34. Deposit. "Deposit" shall have the meaning given in Section 4.20 . 1.35. DOL. "DOL" shall have the meaning given in Section 4.18(b)(iii) . 1.36. Environmental. "Environmental" shall mean relating to the Management of any Hazardous Material, the response to contamination, or the protection of human health, the environment or natural resources. 1.37. Equipment. "Equipment" shall mean all machinery, vehicles, equipment, furniture, fixtures, furnishings, parts, tools, engineering and other items of tangible personal property owned or leased by the Company or any Subsidiary. 1.38. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.39. Escrow Agent. "Escrow Agent" shall have the meaning given in Section 2.3 . 1.40. Escrow Agreement. "Escrow Agreement" shall have the meaning given in Section 2.3 . 1.41. Escrow Fund. "Escrow Fund" shall have the meaning given in Section 2.3 . 1.42. Exceptional Claim. "Exceptional Claim" shall mean a Buyer Claim based on Sellers' Intentional Fraud or arising from breaches of Sellers' representations and warranties set forth in Section 3.4 . 1.43. Extended Deductible. "Extended Deductible" shall have the meaning given in Section 8.1(d)(i) . 4 1.44. Fair Value. "Fair Value" shall mean the amount at which an asset could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale; provided , however , that if a quoted market price is available for an asset, fair value will be the product of the number of units of the asset times its market price. 1.45. Final Purchase Price. "Final Purchase Price" shall mean the Initial Purchase Price as adjusted pursuant to Section 2.6 (exclusive of the interest on such adjustment as contemplated in such Section 2.6 ). 1.46. GAAP. "GAAP" shall mean generally accepted accounting principles as in effect in the United States as of the date of the subject financial statement. 1.47. GAAP Financial Statements. "GAAP Financial Statements" shall have the meaning given in Section 4.13 . 1.48. Governmental Authority. "Governmental Authority" shall mean any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court or self-regulatory organization, in each case whether of the United States, any of its possessions or territories, or of any foreign nation. 1.49. Hazardous Material. "Hazardous Material" shall mean any material the exposure to, access to or Management of which is now prohibited or regulated by any Law. 1.50. HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a), as amended, and the rules promulgated thereunder. 1.51. Independent Accountant. "Independent Accountant" shall have the meaning given in Section 2.5 . 1.52. Initial Deductible. "Initial Deductible" shall have the meaning given in Section 8.1(d)(i) . 1.53. Initial Purchase Price. "Initial Purchase Price" shall mean $150,000,000.00. 1.54. Insurance Department. "Insurance Department" shall mean, for each of the states listed on Schedules 4.1 and 4.3 , the appropriate insurance regulatory authority of such state. 1.55. Intellectual Property. "Intellectual Property" shall mean (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith and all applications, registrations and renewals in connection therewith, (c) all copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, (d) all trade secrets and confidential business information (including ideas, customer and supplier lists, pricing and cost information and business and marketing plans and proposals), (e) all computer software (including data and related documentation), (f) all other 5 proprietary rights, (g) all rights as a licensee or authorized user of the intellectual property of any third party, and (h) all copies and tangible embodiments thereof (in whatever form or medium) used in the business of the Company or any of the Subsidiaries, including the Intellectual Property listed on Schedule 4.11 . 1.56. IRS. "IRS" shall mean the Internal Revenue Service of the United States. 1.57. IRS Notice. "IRS Notice" shall mean the notice from the IRS concerning the tax year ending December 31, 2001 and identified in Schedule 4.17 . 1.58. Knowledge of Buyer. "Knowledge of Buyer" shall mean the actual knowledge of any person listed on Schedule 1.58 . 1.59. Knowledge of the Company. "Knowledge of the Company" shall mean the actual knowledge of any person listed on Schedule 1.59 . 1.60. Law. "Law" shall mean any federal, state, local or other law or governmental requirement of any kind, and the rules, regulations, orders, judgments and decrees of any Governmental Authority promulgated thereunder. 1.61. Lien. "Lien" shall mean any and all liens, encumbrances, mortgages, charges, claims, restrictions, pledges, security interests, title defects, tenancies (and other possessory interests), easements, rights of way, covenants, encroachments, conditional sale or other title retention agreements and other impositions. 1.62. Loss. "Loss" shall mean all losses, damages, costs, expenses, liabilities, obligations and claims of any kind, including reasonable attorneys' fees and other legal costs and expenses. 1.63. Manage or Management. "Manage" or "Management", with respect to any material, shall mean the manufacture, disturbance, generation, use, transportation, emission, discharge, treatment, storage, disposal, release, assessment or remediation thereof. 1.64. Material Adverse Effect. "Material Adverse Effect" shall mean any change or effect that is materially adverse to (i) the business, operations, properties, prospects, or financial condition of the Company and the Subsidiaries, taken as a whole, excluding any changes or effects (y) caused by changes in general economic conditions or changes generally affecting the industry of the Company and the Subsidiaries or (z) specifically reserved for in the December Balance Sheet or (ii) the ability of any Person to perform his or its obligations under this Agreement. 1.65. Material Contracts. "Material Contracts" shall have the meaning given in Section 4.8 . 1.66. Minimum Net Worth. "Minimum Net Worth" shall mean $172,476,529. 6 1.67. Net Worth Methodology. "Net Worth Methodology" shall mean the methodology utilized to calculate December Net Worth and Closing Date Net Worth for purposes of this Agreement as set forth on Exhibit 1.67 . 1.68. Opinion of Buyer's Counsel. "Opinion of Buyer's Counsel" shall mean the opinion of Hunton & Williams LLP, counsel to Buyer, substantially in the form of Exhibit 1.68 . 1.69. Opinion of Sellers' Counsel. "Opinion of Sellers' Counsel" shall mean the opinion of Kennedy Covington Lobdell & Hickman, L.L.P., counsel to Sellers, substantially in the form of Exhibit 1.69 . 1.70. Option Price. "Option Price" shall mean the exercise price associated with the Options, and shall be at least $6,000,000.00. 1.71. Optionholder. "Optionholder" shall have the meaning given in the first paragraph of this Agreement. 1.72. Options. "Options" shall have the meaning given in the Recitals to this Agreement. 1.73. Original Agreement. "Original Agreement" shall have the meaning given in the Recitals to this Agreement. 1.74. Ownership Percentage. "Ownership Percentage" with respect to each Seller, shall mean that percentage set forth opposite each Seller's name on Schedule A . 1.75. Performance Share Plan. "Performance Share Plan" shall mean the Performance Share Plan of the Company, effective January 1, 2000. 1.76. Permitted Liens. "Permitted Liens" shall mean (i) any mechanic's, materialmen's or similar statutory lien incurred in the ordinary course of business for monies not yet due, (ii) any Lien for Taxes not yet due and payable and other Liens for Taxes that the Company or a Subsidiary is contesting in the amounts and through proceedings disclosed in Schedule 4.7 , (iii) any purchase money lien or lien securing rental payments under capital lease arrangements to the extent related to the Assets, (iv) any recorded easement, covenant, zoning or other restriction or Lien on the Real Property that, together with all other Permitted Liens, does not prohibit or impair the current use or occupancy of the property subject thereto and does not impair, in any material respect, the value or marketability of title of the property subject thereto, and (v) any other Lien described on Schedule 1.76 . 1.77. Person. "Person" shall mean any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government, Governmental Authority, and any regulatory or self-regulatory authority or agency or other entity. 1.78. Pro Rata Share. "Pro Rata Share", with respect to each Seller, shall mean that percentage set forth opposite each Seller's name on Schedule 1.78 . 7 1.79. Quarterly Statement. "Quarterly Statement" shall mean the quarterly statement of the Company filed with or submitted to the Insurance Department in the State of South Carolina on forms prescribed or permitted by such authority. 1.80. Rating Agencies. "Rating Agencies" shall have the meaning given in Section 4.24 . 1.81. Real Property. "Real Property" shall mean all real property owned or leased by the Company or any of the Subsidiaries, together with the improvements located thereon, including all appurtenant rights, claims and interests, all of such Real Property being listed on Schedule 4.10 . 1.82. Reinsurance Agreement. "Reinsurance Agreement" shall have the meaning given in Section 4.29 . 1.83. Required Consents. "Required Consents" shall mean those consents required from parties to the Material Contracts, any Governmental Authority or other third parties that are required in order to give effect to the Transactions. 1.84. Required Permits. "Required Permits" shall have the meaning given in Section 4.19 . 1.85. SAP. "SAP" shall mean the statutory accounting practices required or permitted by the National Association of Insurance Commissioners. 1.86. Seller Claim. "Seller Claim" shall mean any Loss indemnifiable by Buyer pursuant to Section 8.2(a). 1.87. Seller Claim Notice. "Seller Claim Notice" shall have the meaning given in Section 8.2(c) . 1.88. Seller Election Notice. "Seller Election Notice" shall have the meaning given in Section 8.1(c) . 1.89. Seller Indemnified Party. "Seller Indemnified Party" shall have the meaning given in Section 8.2(a) . 1.90. Sellers. "Sellers" shall have the meaning given in the first paragraph of this Agreement. 1.91. Sellers' Intentional Fraud. "Sellers' Intentional Fraud" shall mean any act of intentional fraud by any Seller or William G. Taylor in connection with this Agreement. 1.92. Sellers Liabilities. "Sellers Liabilities" shall mean the following obligations: (a) all obligations of the Company or any of the Subsidiaries for legal fees and other expenses incurred in connection with the Transactions in excess of $300,000.00 (excluding, however, any expenses payable to Hart & Hickman, P.C. in connection with its Environmental 8 review of the Company, any costs related to the abatement of asbestos or the remediation of other Environmental conditions in response to such Environmental review by Hart & Hickman, P.C. or other environmental consultants, or any payments due Ernst & Young, LLP in connection with the accounting matters associated with the offering described in Section 7.1(v)) ; (b) any obligations of the Company under the Performance Share Plan to the holders of Stock Units (as defined therein) upon a Change in Control (as defined therein) in excess of the specific accruals on the December Balance Sheet; and (c) any obligation of the Company or any of the Subsidiaries to pay any special bonuses, transaction bonuses, or other special compensation, other than (i) base compensation and bonuses for performance paid in the ordinary course of its business consistent with past practice, (ii) base compensation and bonuses accrued on the December Balance Sheet, or (iii) bonuses as specifically provided in Section 6.7 . 1.93. Shares. "Shares" shall have the meaning given in the Recitals to this Agreement and shall be deemed to include the corresponding number of shares of capital stock issued upon the exercise of the Options. 1.94. Shareholders. "Shareholders" shall have the meaning given in the first paragraph of this Agreement. 1.95. Shareholders' Representative. "Shareholders' Representative" shall mean The Springs Company, a South Carolina corporation, having those duties more fully provided in Section 2.7 . 1.96. SAP Financial Statements. "SAP Financial Statements" shall have the meaning given in Section 4.12 . 1.97. Subsidiaries. "Subsidiaries" shall mean all corporations or other entities with respect to which the Company owns or otherwise controls, directly or indirectly, through one or more subsidiaries, partnerships, joint ventures or other business associations, shares representing 50% or more of the votes eligible to be cast in the election of directors or others performing similar functions of each such entity, all of such Subsidiaries being listed on Schedule 4.3 . 1.98. Tax Returns. "Tax Returns" shall mean any report, return, information statement, payee statement or other information required to be provided to any Governmental Authority, with respect to Taxes. 1.99. Taxes. "Taxes" shall mean any and all taxes, fees, levies, imposts, duties, assessments, withholdings and other charges of any kind imposed or required to be collected by or paid over to any Governmental Authority, including any interest, penalties, fines, assessments or additions imposed in respect of the foregoing, or in respect of any failure to comply with any requirement regarding Tax Returns. 1.100. Transactions. "Transactions" means the transactions contemplated by this Agreement. 9 2.1. Purchase and Sale. At the Closing, each Seller shall sell, and Buyer shall purchase, all right, title and interest of such Seller in and to the Shares, respectively, as set forth opposite such Seller's name on Schedule A. Immediately prior to the Closing, (i) the Optionholder shall exercise the Options and pay to the Company the Option Price and shall be issued the corresponding number of Shares with respect to such exercise, and (ii) Elliott S. Close will exercise the option referred to in Schedule 6.1(d) . 2.2. Initial Purchase Price. (a) Amount. The Initial Purchase Price for the Shares will be $150,000,000.00. The Initial Purchase Price may be decreased in accordance with Sections 2.5 and 2.6 . (b) Closing Payment. The Initial Purchase Price, less the Deferred Amount, shall be paid as follows by Buyer at the Closing: (i) First, as a contribution to the capital of the Company in an amount sufficient to satisfy the Sellers Liabilities, if not satisfied prior to the Closing Date; and (ii) Second, in immediately available funds to Sellers with each Seller to receive his or its share of the balance of the Initial Purchase Price based on his or its Ownership Percentage. (c) Deferred Amount. Buyer shall pay the Deferred Amount at Closing to the Escrow Agent pursuant to Section 2.3 . 2.3. Escrow Fund. At the Closing, Buyer shall deposit the Deferred Amount into an escrow account (the "Escrow Fund") with Wachovia Bank, N.A. (the "Escrow Agent"). The Deferred Amount shall be held by the Escrow Agent in accordance with the provisions of an escrow agreement substantially in the form of Exhibit 2.3 (the "Escrow Agreement"). 2.4. Deliveries at Closing. At the Closing, in addition to the deliveries required to be made at or prior to the Closing pursuant to Article VII , (i) each Seller shall deliver to Buyer certificates representing the Shares sold by such Seller duly endorsed for transfer or accompanied by a duly executed stock power and (ii) Buyer shall make the payments provided in Sections 2.2 and 2.3 by wire transfer of immediately available funds to such accounts as the Shareholders' Representative and the Escrow Agent, as applicable, shall specify to Buyer in writing at least two (2) days prior to the Closing Date. 2.5. Closing Date Balance Sheet. (a) Within thirty (30) days after the Closing Date, Buyer shall prepare and deliver to Shareholders' Representative a draft Closing Date Balance Sheet, which shall be prepared (i) in accordance with GAAP applied in a manner consistent with the past practice of the Company, except as otherwise specifically required by the Net Worth Methodology and (ii) in a manner consistent with the December Balance Sheet. 10 (b) If Shareholders' Representative has no objections to the draft Closing Date Balance Sheet, such draft shall constitute the Closing Date Balance Sheet. If Shareholders' Representative has any objections to the draft Closing Date Balance Sheet, it will deliver a detailed statement describing its objections to Buyer within thirty (30) days after receiving the draft Closing Date Balance Sheet. Shareholders' Representative and Buyer will use their commercially reasonable efforts to resolve any such objections. If Shareholders' Representative duly gives Buyer such notice of objection, and if Buyer and Shareholders' Representative fail to resolve the issues outstanding with respect to the Closing Date Balance Sheet and the calculation of the Closing Date Net Worth within thirty (30) days of Buyer's receipt of Shareholders' Representative's objection notice, Buyer and Shareholders' Representative shall submit the issues remaining in dispute to PricewaterhouseCoopers, certified public accountants (the "Independent Accountants"). If issues remaining in dispute are submitted to the Independent Accountants for resolution, (i) Buyer and Shareholders' Representative shall promptly furnish or cause to be furnished to the Independent Accountants such work papers and other documents and information relating to the disputed issues as the Independent Accountants may request and are available to that party or its agents and shall be afforded the opportunity to present to the Independent Accountants any material relating to the disputed issues and to discuss the issues with the Independent Accountants; (ii) the determination by the Independent Accountants, as set forth in a notice to be delivered to both Buyer and Shareholders' Representative within thirty (30) days of the submission to the Independent Accountants of the issues remaining in dispute, shall be final, binding and conclusive on the parties and shall be used in the calculation of the Closing Date Net Worth; and (iii) Buyer shall bear fifty percent (50%) of the fees and costs of the Independent Accountants for such determination and fifty percent (50%) of such fees and expenses shall be paid from the Escrow Fund. (c) Buyer will make the work papers used in preparing the draft Closing Date Balance Sheet and the Closing Date Balance Sheet available to Shareholders' Representative at reasonable times and upon reasonable notice at any time during the preparation by Buyer of the draft Closing Date Balance Sheet and the resolution of any objections with respect thereto. 2.6. Settlement of Final Purchase Price. (a) To the extent that the Closing Date Balance Sheet (as finally determined pursuant to Section 2.5 ) shows that Closing Date Net Worth is less than the Minimum Net Worth, Shareholders' Representative shall direct the Escrow Agent to pay out of the Escrow Fund the amount by which the Closing Date Net Worth is less than the Minimum Net Worth to Buyer by wire transfer of immediately available funds within three (3) Business Days after final determination of such Closing Date Balance Sheet. (b) All payments made pursuant to this Section 2.6 shall be accompanied by accrued interest thereon from the Closing Date at an annual interest rate of one percent (1%). 2.7. Shareholders' Representative. Sellers hereby irrevocably appoint Shareholders' Representative as their lawful attorney-in-fact to act in the name, place and stead of Sellers to execute and deliver the Escrow Agreement, stock powers for the Shares, and the certificates referred to in Section 7.1(f) , and any amendments, supplements, modifications, waivers or terminations of this Agreement and to receive disbursements from the Escrow Fund pursuant to 11 the Escrow Agreement and, as their agent with respect to, and with the full power to resolve, all questions, disputes, conflicts and controversies concerning (a) amounts held under the Escrow Agreement, (b) matters concerning the adjustment to the Initial Purchase Price under Sections 2.5 and 2.6 , and (c) all matters concerning Buyer Claims under Article VIII . Shareholders' Representative is authorized to give all notices and take all actions deemed appropriate by and with respect to such matters, to direct the Escrow Agent to disburse funds from the Escrow Fund and will have no liability or obligation to any Seller for any act or omission taken in good faith in such capacity. Notwithstanding the foregoing, Shareholders' Representative shall have no authority as the lawful attorney-in-fact to act in the name, place and stead of the Optionholder with respect to any amendment, supplement, modification, waiver or termination of this Agreement. This appointment is coupled with an interest and is irrevocable by each Seller, and shall terminate only upon termination of Sellers' obligations pursuant to Article VIII. Notwithstanding the foregoing, in the event Shareholders' Representative resigns, is incapacitated, makes a general assignment for the benefit of its creditors, or is the subject of bankruptcy, reorganization, liquidation, dissolution or similar proceedings, Sellers shall use reasonable efforts to appoint a new Shareholders' Representative by the vote of a majority of the Sellers, with each Seller to have that number of votes determined by multiplying 100,000 by such Seller's Pro Rata Share. 2.8. Withholding Taxes. Buyer shall be entitled to deduct and withhold, from any amount otherwise payable to Sellers under this Agreement, any amount Buyer is required to withhold pursuant to a revision or change in any provision of the Code or any other Law relating to Taxes arising after the date of this Agreement. Any amount so withheld shall be treated for purposes of this Agreement as having been paid to Sellers. Notwithstanding any provision of this Agreement, each Seller shall severally and not jointly, only as to himself or itself and with respect only to his or its Options and Shares, as applicable, indemnify Buyer, the Company and their respective Affiliates for all Losses arising from any failure or omission by Buyer to withhold any required withholding Tax (or portion thereof) from any payment to Sellers hereunder. ARTICLE III Each Seller severally and not jointly, only as to himself or itself and with respect only to his or its Options and Shares, as applicable, hereby represents and warrants to Buyer that: 3.1. Organization of Sellers. Each entity Seller is duly organized, validly existing and in good standing under the Laws of its respective state or jurisdiction of organization. Each Seller has full power to enter into this Agreement and to perform his or its obligations hereunder. Each entity Seller is duly qualified as a foreign entity to do business, and is in good standing, in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect on its ability to perform its obligations under this Agreement, all of such jurisdictions being set forth on Schedule 3.1 . 3.2. Authorization; Execution and Delivery; Enforceability. The execution, delivery and performance by each Seller of this Agreement, and of all of the other documents and instruments required hereby from such Seller, are within the power of such Seller and have been 12 duly authorized by all necessary action of such Seller. No approval of the shareholders, partners or beneficiaries of any Seller is required in connection with the execution, delivery and performance by such Seller of this Agreement. This Agreement has been duly executed and delivered by each Seller. This Agreement is, and the other documents and instruments required hereby to which each Seller is a party will be, when executed and delivered by the parties thereto, the valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, except to the extent that enforcement may be affected by applicable bankruptcy, reorganization, insolvency or other similar Laws affecting creditors' rights and remedies generally and by general principles of equity (regardless of whether enforcement is sought at Law or in equity). 3.3. No Violation or Conflict by Sellers; Consents. The execution, delivery and performance by each Seller of this Agreement, and the consummation of the Transactions, do not and will not (a) conflict with or violate any Law binding on such Seller or the organizational documents of such entity Seller or (b) constitute a violation or breach of any Contract to which such Seller is a party or by which he or it is bound. Other than the Required Consents of Sellers set forth on Schedule 3.3 , no notice to, filing or registration with, or authorization, consent or approval of, any Person is required to be made or obtained by such Seller in connection with the execution and delivery by such Seller of this Agreement or the consummation by such Seller of the Transactions. 3.4. Title to Shares and Options. Upon exercise of the option referred to on Schedule 6.1(d) , each Shareholder will be the legal owner and owns of record good and valid title to the outstanding Shares set forth next to his or its name on Schedule A , free and clear of any and all Liens, except restrictions on transferability imposed by securities Laws, the provisions of this Agreement and as set forth on Schedule A. The Optionholder owns of record good and valid title to the outstanding Options set forth next to his or its name on Schedule A , and, upon exercise of the Options, to the corresponding Shares free and clear of any and all Liens, except for restrictions on transferability imposed by securities Laws. Upon delivery of the certificates representing the Shares to Buyer at the Closing and upon Buyer's payment of the Initial Purchase Price as provided in Sections 2.2 and 2.3 , good and valid title to the Shares, free and clear of all Liens, except for restrictions on transferability imposed by securities Laws or Liens created by Buyer, will pass to Buyer. Notwithstanding the foregoing, assuming the accuracy of Buyer's representations in Section 5.6 any restrictions on the transferability of the Shares imposed by securities Laws will not restrain or restrict the transfer of the Shares to Buyer. ARTICLE IV Each Seller severally and not jointly warrants to Buyer that: 4.1. Organization and Authority of the Company. The Company is duly organized, validly existing and in good standing under the laws of the State of South Carolina. The Company is domiciled in the State of South Carolina and, to the Knowledge of the Company, is not considered by any Governmental Authority to be domiciled in any other jurisdiction. The Company has full corporate power to carry on its business as it is now being conducted and to 13 own, operate and hold under lease its assets and properties as, and in the places where, such properties and assets now are owned, operated or held. The Company is duly qualified as a foreign entity to do business, and is in good standing, in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect, all of such jurisdictions being set forth on Schedule 4.1 . 4.2. Capitalization. As of the date of this Agreement, the authorized equity capitalization of the Company consists of 2,612.83494 shares of common stock, $1,549.4254 par value per share. The Shares set forth on Schedule A are all of the issued and outstanding capital stock of the Company, have been duly and validly issued and are fully paid and non-assessable, and were not issued in violation of any preemptive or other similar right. All of the Shares were offered and sold in compliance with all applicable securities Laws. Other than as set forth in this Agreement or on Schedule A , there are no options, warrants or other rights to subscribe for or purchase any capital stock of the Company or securities convertible into or exchangeable for, or which otherwise confer on the holder any right to acquire, any capital stock of the Company, nor are the Company or Sellers committed to issue any such option, warrant or other right. 4.3. Subsidiaries. (a) Ownership; Capitalization. Schedule 4.3 is a true, correct and complete list of the Subsidiaries. Schedule 4.3 accurately sets forth for each Subsidiary, (i) its name and jurisdiction of incorporation, (ii) the number of shares of authorized capital stock, (iii) the number of issued and outstanding shares of capital stock and (iv) the holders thereof and the number of shares held by each such holder. The Company or another Subsidiary owns, of record and beneficially, good and valid title to the outstanding shares of capital stock of each Subsidiary, free and clear of any and all Liens, except for restrictions on transferability imposed by securities Laws. All of the issued and outstanding shares of capital stock of the each Subsidiary have been duly and validly issued and are fully paid and non-assessable, and were not issued in violation of any preemptive or other similar right. There are no options, warrants or other rights to subscribe for or purchase any capital stock of any of the Subsidiaries or securities convertible into or exchangeable for, or which otherwise confer on the holder any right to acquire, any capital stock of any of the Subsidiaries, nor are the Company, any of the Subsidiaries or Sellers committed to issue any such option, warrant or other right. (b) Organization and Authority of the Subsidiaries. Each Subsidiary is duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of incorporation set forth on Schedule 4.3. Each Subsidiary has full corporate power to carry on its business as it is now being conducted and to own, operate and hold under lease its assets and properties as, and in the places where, such properties and assets now are owned, operated or held. Each Subsidiary is duly qualified as a foreign entity to do business, and is in good standing, in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect, all of such jurisdictions being set forth on Schedule 4.3 . (c) Each Subsidiary has all licenses required to operate as a third party administrator or agency (or agent) in the jurisdictions shown on Schedule 4.3. Except as set forth on Schedule 4.3 , no such license is the subject of a proceeding for suspension or revocation or other similar proceeding with respect to which the Company, any Subsidiary, or an authorized agent 14 has received any notice, and, to the Knowledge of the Company, there is no pending threat of such suspension or revocation by any Insurance Department. 4.4. No Violation or Conflict by the Company or the Subsidiaries; Consents. The execution, delivery and performance by the Company of this Agreement, and the consummation of the Transactions, do not and will not (a) conflict with or violate any Law binding on the Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries or (b) constitute a violation or breach of any Material Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound. Other than the Required Consents of the Company and the Subsidiaries set forth on Schedule 4.4 , no notice to, filing or registration with, or authorization, consent or approval of, any Person is required to be made or obtained by the Company or any of its Subsidiaries in connection with the consummation of the Transactions. 4.5. Title to and Sufficiency of Assets. The Company and the Subsidiaries own good, valid and marketable title to all Real Property and good and valid title to the remaining Assets (except for leased or licensed Assets that are the subject of a valid and enforceable Contract), free and clear of any and all Liens, except the Permitted Liens. The Assets constitute all tangible and intangible assets, Contracts and rights currently used in the business of the Company and the Subsidiaries as such business is presently conducted. 4.6. Bank Accounts. The Bank Accounts constitute all checking accounts, savings accounts, custodial accounts, certificates of deposit, safe deposit boxes or other similar accounts maintained by or on behalf of the Company or any of the Subsidiaries. Schedule 4.6 is a true and complete listing of the Bank Accounts, and sets forth the name of each person with signature authority for each such account. 4.7. No Litigation. Except as listed in Schedules 4.7 and 4.18 , there is no suit, litigation, arbitration proceeding, governmental investigation or governmental action of any kind pending with respect to which the Company, any Subsidiary, any Company Benefit Plan, or an authorized agent has received notice, or, to the Knowledge of the Company, proposed or threatened (a) against the Company, any of the Subsidiaries, or any Company Benefit Plan (b) relating to the business, assets or properties of the Company or any of the Subsidiaries or (c) that seeks restraint, prohibition, damages or other relief in connection with this Agreement or the consummation of the Transactions. Except as set forth in Schedule 4.7 , there is no outstanding judgment, injunction, order, decree or ruling to which the Company or any of the Subsidiaries is subject. 4.8. Material Contracts. Schedule 4.8 lists the following Contracts (except for the Reinsurance Agreements, the Administrative Agreements, the Real Property Contracts referred to in Section 4.10 , the plans, arrangements or Contracts referred to in Section 4.18 , the regulatory Contracts referred to in Section 4.21 , the Contracts referred to in Section 4.25 , the Contracts referred to in Section 4.29 , the Intellectual Property Contracts referred to in Section 4.11 , the insurance policies referred to in Section 4.14 and the forms of insurance policies set forth on Schedule 4.19 ) to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any asset of the Company or any Subsidiary is subject (collectively, the " Material Contracts " ): (a) each Contract that involves delivery or receipt of 15 products or services of an amount or value in excess of $250,000; (b) each lease, license, rental agreement, and other Contract affecting the use of, ownership of or leasing of any leasehold or other interest in, any real or personal property (except personal property leases having a value per item or aggregate payments of less than $50,000 and with terms of less than one year); (c) each joint venture, partnership or Contract involving a sharing of profits, losses, costs or liabilities with any other Person; (d) each Contract containing any covenant that purports to restrict the business activity of the Company or any Subsidiary or limits the freedom of the Company or any Subsidiary to engage in any line of business or to compete with any Person; (e) each power of attorney; (f) each Contract for indebtedness; (g) each employment Contract; (h) each guaranty or other undertaking in support of the obligations of a third party; and (i) each other Contract not terminable without penalty on less than six months notice. Each Material Contract is in full force and effect and is enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting generally the enforcement of creditors' rights and (ii) the availability of equitable remedies (whether in a proceeding in equity or at Law). The Company and the Subsidiaries have performed in all material respects and, to the Knowledge of the Company, every other party thereto has performed in all material respects each term, covenant and condition of each of the Material Contracts that is to be performed by any of them at or before the date hereof. No event has occurred that would, with the passage of time or compliance with any applicable notice requirements, constitute a default by the Company and the Subsidiaries or, to the Knowledge of the Company, any other party under any of the Material Contracts. To the Knowledge of the Company, no party to any of the Material Contracts intends to cancel, terminate or exercise any option under any of the Material Contracts. 4.9. Accounts. The Accounts all have arisen from bona fide transactions in the ordinary course of business. 4.10. Real Property. Schedule 4.10 is a true and correct list of all Real Property. With respect to each such parcel or premises of Real Property, except as set forth on Schedule 4.10 : (a) there are no pending condemnation proceedings, lawsuits or administrative actions with respect to which the Company, any Subsidiary, or an authorized agent has received notice, or, to the Knowledge of the Company, with respect to which have been threatened (i) relating to such parcel or premises or (ii) other matters affecting adversely the current use, occupancy or value thereof; (b) with respect to owned Real Property, and with respect to leased Real Property as to actions by or through the Company or any Subsidiary, there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of such parcel or premises; (c) with respect to owned Real Property, there are no outstanding options or rights of first refusal to purchase such parcel, or any portion thereof or interest therein; and (d) there are no parties (other than the Company or any of the Subsidiaries) in possession of such parcel or premises. 16 4.11. Intellectual Property. Schedule 4.11 contains a list of the Intellectual Property that is owned by or licensed to the Company or any of the Subsidiaries (other than off-the-shelf software products) and that is material to the business of the Company or such Subsidiary. Schedule 4.11 sets forth separately (a) all such Intellectual Property which the Company or any of the Subsidiaries exclusively owns, identifying the subject matter, any related registration and the owner, (b) all such Intellectual Property which the Company or any of the Subsidiaries uses pursuant to license or other authorization of a third party (other than off-the-shelf software products), listing the subject matter, any ancillary registration, and the source of authorization and (c) all such Intellectual Property that the Company or any of the Subsidiaries owns jointly with a third party. As to such Intellectual Property, the Company or a Subsidiary either (i) owns the entire right, title and interest thereto, or (ii) holds such Intellectual Property pursuant to an existing, valid and enforceable license, which license is listed in Schedule 4.11 , except where the failure of the Company or such Subsidiary to own or have a right to use such Intellectual Property would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.11 , there are no proceedings instituted or pending to which the Company, any Subsidiary, or an authorized agent has received notice or, to the Knowledge of the Company, proposed or threatened by any third party pertaining to, or challenging the Company's or such Subsidiary's use of, or right to use, any of the Intellectual Property. To the Knowledge of the Company, the conduct of the business of the Company and its Subsidiaries does not infringe upon any intellectual property rights owned or controlled by any third party. 4.12. SAP Financial Statements; Reserves. (a) Sellers have previously delivered or made available (or, with respect to the quarters ended June 30, 2004 or September 30, 2004, will deliver or make available if required to be filed with the South Carolina Department of Insurance or in any other jurisdiction prior to Closing) to Buyer true and complete copies of the following (the "SAP Financial Statements"): (i) the Annual Statements for the Company for each of the years ended December 31, 2001, 2002 and 2003, in each case as filed with the South Carolina Department of Insurance, including all exhibits, interrogatories, notes and schedules thereto and any actuarial opinion, affirmation or certification filed in connection therewith; (ii) the Quarterly Statements for the Company for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, including all exhibits, interrogatories, notes and schedules thereto; and (iii) the statutory annual statements, if any, for each of the years ended December 31, 2001, 2002, 2003 and unaudited quarterly statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 of the Company which were filed in any jurisdiction other than South Carolina and that differ from the corresponding Annual Statements and Quarterly Statements for such periods. (b) Except as set forth on Schedule 4.12 , the SAP Financial Statements were (or will be) prepared in all material respects in accordance with SAP, applied on a basis consistent with the Company's past practice. Except as set forth on Schedule 4.12 , the SAP Financial 17 Statements present (or will present) fairly the statutory financial position of the Company as of the respective dates thereof and the related summary of operations and changes in capital and surplus and in cash flows of the Company for and during the respective periods covered thereby in conformity with SAP, applied on a basis consistent with the Company's past practice. (c) Except as set forth on Schedule 4.12 , all statutory reserves with respect to insurance as established or reflected in the SAP Financial Statements of the Company were (or will be) determined in all material respects in accordance with SAP, applied on a basis consistent with the Company's past practice based on actuarial assumptions and methodologies that were (or will be), as of the date of preparation, in compliance with, and met the requirements of the insurance Laws of the State of South Carolina. Except as set forth on Schedule 4.12 , the Company owns assets that qualify as legal reserve assets under insurance Laws applicable to the Company in an amount at least equal to all such reserves and other similar amounts required by such Laws to be owned by the Company. 4.13. GAAP Financial Statements; Financial Controls. (a) Sellers have previously delivered or made available (or, with respect to the quarters ended June 30, 2004 or September 30, 2004, will deliver or make available if such quarter end occurs forty-five (45) or more days prior to Closing) to Buyer true and complete copies of the following (the "GAAP Financial Statements"): (i) the audited consolidated financial statements for the Company for each of the years ended December 31, 2001, 2002 and 2003, including all notes thereto; (ii) the unaudited consolidated financial statements for the Company for the quarter ended March 31, 2004, June 30, 2004 and September 30, 2004, including all notes thereto; and (b) Except as set forth on Schedule 4.13 , the Company's balance sheets included in the GAAP Financial Statements, including the notes thereto, present (or will present) fairly the consolidated financial condition of the Company and the Subsidiaries as of the respective dates thereof, in accordance with GAAP applied on a basis consistent with the Company's past practice, except that the unaudited GAAP Financial Statements lack footnotes and are subject to normal year-end adjustments. Except as set forth on Schedule 4.13 , the Company's consolidated statements of earnings and stockholder's equity and cash flows included in the Financial Statements, including the notes thereto, present (or will present) fairly the consolidated results of operations and cash flows of the Company and the Subsidiaries for such periods, in accordance with GAAP applied on a basis consistent with the Company's past practice. (c) Except as set forth on Schedule 4.13 , neither the Company nor any of the Subsidiaries is a party to any "off-balance sheet arrangements" (as defined in Item 303(a) of Regulation S-K of the SEC). (d) The Company and each Subsidiary maintain books and records fairly reflecting its assets and liabilities and maintain internal accounting controls which provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated 18 financial statements of the Company and to maintain appropriate accountability for the Company's consolidated assets. 4.14. Insurance Coverage. Except for insurance policies issued by the Company or any Subsidiary as insurer, Schedule 4.14 contains a complete list of all insurance policies (other than fidelity bonds) to which any of the Company or its Subsidiaries is a party, a named insured or otherwise the beneficiary of coverage, showing for each such policy the names of the insurer and the policy holder, the current premiums, policy limits, coverages and expiration dates. The premiums due thereon have been timely paid. Schedule 4.14 sets forth outstanding unpaid claims under such policies. Except as disclosed on Schedule 4.14 , neither the Company nor any of its Subsidiaries has received notice of cancellation or non-renewal of any such policy. 4.15. Ordinary Course Operation. Except as set forth in Schedule 4.15 , since December 31, 2003, there has not been: (a) a Material Adverse Effect, (b) any borrowings by the Company or any of the Subsidiaries other than in the ordinary course of business; (c) any Lien made on any of the properties or assets of the Company or the Subsidiaries, except for Permitted Liens; (d) any sale, transfer or other disposition of assets of the Company or any of the Subsidiaries other than in the ordinary course of business or as contemplated by this Agreement; or (e) any of the events prohibited by Section 6.1(a). Since December 31, 2003, neither the Company, the Subsidiaries nor Sellers have adopted or taken any action in contemplation of any plan of liquidation, dissolution or merger involving the Company or any of the Subsidiaries. 4.16. Absence of Undisclosed Liabilities. Except as set forth on Schedule 4.16 , there are no liabilities or obligations of the Companies or any of the Subsidiaries that are required to be reflected or reserved against on a balance sheet prepared in accordance with GAAP other than (a) liabilities and obligations reflected or reserved against in the GAAP Financial Statements and not heretofore discharged, (b) policyholder benefits payable or other liabilities or obligations arising after March 31, 2004 in the ordinary course of business consistent with past practice and in amounts consistent with past practice, (c) other liabilities and obligations arising in the ordinary course of business since March 31, 2004, or (d) expenses related to the Transactions contemplated by this Agreement to be paid by the Company (except as provided in Section 2.2(b) with respect to the Sellers Liabilities or in Section 11.2 ). Except as set forth in Schedule 4.16 , neither the Company nor any of the Subsidiaries has any liability or obligation on account of any of the operations, businesses, obligations, or liabilities of any Seller or any of its Affiliates (other than the Company and the Subsidiaries). 4.17. Tax Matters. (a) Except as set forth on Schedule 4.17 : (i) neither the Company, any of the Subsidiaries, nor any Person to whose liabilities the Company or any of the Subsidiaries has succeeded, has ever filed a consolidated federal income Tax Return with (or been included in a consolidated return of) an affiliated group within the meaning of Section 1504(a) of the Code; 19 (ii) each of the Company and the Subsidiaries has filed or caused to be filed all Tax Returns required to have been filed by or for it, and all information set forth in such Tax Returns is correct and complete; (iii) each of the Company and the Subsidiaries has paid all Taxes due and payable by it; (iv) there are no unpaid Taxes due and payable by the Company, the Subsidiaries, or any other Person that are or could become a Lien on any asset of, or otherwise adversely affect the business, properties or financial condition of, the Company or any of the Subsidiaries; (v) each of the Company and the Subsidiaries is in material compliance with all applicable Tax information reporting requirements, and the records of each of them contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with all applicable Tax information reporting and Tax withholding requirements; (vi) each of the Company and the Subsidiaries has collected or withheld all amounts required to be collected or withheld by it for any Taxes, and all such amounts have been paid to the appropriate governmental agencies or set aside in appropriate accounts for future payment when due; (vii) the balance sheets included in the GAAP Financial Statements reflect, in accordance with GAAP, as of their dates, the liabilities of the Company and the Subsidiaries for all Taxes for all periods ending on or before such dates, and the Books and Records of the Company and the Subsidiaries reflect, in accordance with GAAP, all liabilities for Taxes for all periods after the date of the most recent GAAP Financial Statements; (viii) neither the Company nor any of the Subsidiaries has granted (nor is any of them subject to) any waiver currently in effect of the period of limitations for the assessment or collection of Tax, no unpaid Tax deficiency has been asserted in writing against or with respect to any of the Company, the Subsidiaries, or (insofar as the Company or any of the Subsidiaries may be liable therefor) any other Person by any Governmental Authority, and there is no pending examination, administrative or judicial proceeding, or deficiency or refund claim or litigation, which has been commenced by the Company or any Subsidiary or for which notice has been given to the Company or any Subsidiary, with respect to any Taxes of the Company, any of the Subsidiaries, or (insofar as the Company or any of the Subsidiaries may be liable therefor) any other Person; (ix) neither the Company nor any of the Subsidiaries has made or entered into, or holds any asset subject to, a consent filed pursuant to Section 341(f) of the Code and the regulations thereunder or a "safe harbor lease" subject to former Section 168(f)(8) of the Code, as amended before the Tax Reform Act of 1984, and the regulations thereunder; 20 (x) none of the assets of the Company or the Subsidiaries is "tax-exempt use property" within the meaning of Section 168(h) of the Code; (xi) neither the Company nor any of the Subsidiaries is required to include in income any amount from an adjustment pursuant to Section 481 of the Code or the regulations thereunder or any similar provision of state Law; (xii) neither the Company nor any of the Subsidiaries is a party to, or obligated under, any agreement or other arrangement providing for the payment of any amount that would be an "excess parachute payment" under Section 280G of the Code; (xiii) there are no excess loss accounts or deferred intercompany gains with respect to the Company or any of the Subsidiaries; (xiv) since April 16, 1997, neither the Company nor any of the Subsidiaries has distributed to its shareholders or security holders stock or securities of a controlled corporation in a transaction to which Section 355(a) of the Code applies, nor have stock or securities of the Company or any of the Subsidiaries been distributed in any such transaction; (xv) neither the Company nor any of the Subsidiaries is a party to, or obligated under, any Tax sharing, Tax allocation, or Tax indemnity agreement, except agreements to which no Person other than the Company and the Subsidiaries is a party or beneficiary; (xvi) for all taxable years for which the applicable statute of limitations on assessment or collection of Taxes has not yet expired, the Company has calculated its insurance reserves and unearned premium reserves in accordance with Section 807 of the Code; (xvii) the Company is not subject to any adjustment under Section 807(f) of the Code; (xviii) as of December 31, 2003, the balance of the Company's "policyholders surplus account" (as defined in Section 815 of the Code) was $4,284,000; (xix) any surplus notes issued by the Company constitute valid indebtedness for federal income Tax purposes; and (xx) none of the Sellers is a "foreign person" for purposes of Section 1445 of the Code. (b) Schedule 4.17 describes all material Tax elections, consents and agreements made by or affecting any of the Company and the Subsidiaries that would be in effect after the Closing Date, lists all material types of Taxes paid and Ta | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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