STOCK PURCHASE AGREEMENT
-------------------------------------------------
DATED AS OF DECEMBER 30, 1999
AMONG
HUMANA INC.
PHYSICIAN CORPORATION OF AMERICA
AND
FOLKSAMERICA HOLDING COMPANY, INC.
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TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS.............................................................1
SECTION 1.01. Certain Defined
Terms....................................1
ARTICLE II PURCHASE AND SALE OF
SHARES.............................................7
SECTION 2.01. Purchase of
Shares.......................................7
SECTION 2.02. Purchase
Price...........................................7
SECTION 2.03. Pre-Closing Adjustments to the Investment
Portfolio......9
SECTION 2.04.
Closing.................................................10
SECTION 2.05. Deliveries and Actions to be Taken at
Closing...........10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND
HUMANA....................12
SECTION 3.01. Incorporation and Authority of Seller and
Humana........12
SECTION 3.02. No
Conflict.............................................12
SECTION 3.03.
Disclosure..............................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
SELLER...............................13
SECTION 4.01. Incorporation and Qualification of the
Company..........13
SECTION 4.02. Capital Stock of the
Company............................13
SECTION 4.03.
Subsidiaries............................................14
SECTION 4.04. No
Conflict.............................................15
SECTION 4.05. Consents and
Approvals..................................15
SECTION 4.06. Financial
Information...................................15
SECTION 4.07. Absence of Undisclosed
Liabilities......................16
SECTION 4.08.
Investments.............................................16
SECTION 4.09. Certain
Events..........................................17
SECTION 4.10. Insurance
Reserves......................................19
SECTION 4.11. Judgments, Decrees and
Orders...........................19
SECTION 4.12.
Litigation..............................................20
SECTION 4.13. Compliance with
Laws....................................20
SECTION 4.14. Environmental, Health and Safety
Compliance.............20
SECTION 4.15. Licenses and
Permits....................................20
SECTION 4.16. Intellectual Property
Rights............................21
SECTION 4.17.
Property................................................21
SECTION 4.18. Company's Property & Casualty Insurance
Coverage........22
SECTION 4.19. Relationships with Affiliates, Officers,
Directors and Interested
Parties........22
SECTION 4.20. Assumed and Ceded Reinsurance
Agreements................23
SECTION 4.21. Other
Contracts.........................................24
SECTION 4.22. Employee Benefit
Matters................................26
SECTION 4.23. Labor
Matters...........................................26
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SECTION 4.24.
Taxes...................................................27
SECTION 4.25.
Agents..................................................30
SECTION 4.26. Accounts with Financial
Institutions....................30
SECTION 4.27. Minute Books; Stock Records; Officers and
Directors.....30
SECTION 4.28. HWCS Management
Contract................................30
SECTION 4.29. Year
2000...............................................31
SECTION 4.30.
Brokers.................................................32
SECTION 4.31.
Disclosure..............................................32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
PURCHASER............................32
SECTION 5.01. Incorporation and
Authority.............................32
SECTION 5.02. No
Conflict.............................................33
SECTION 5.03. Consents and
Approvals..................................33
SECTION 5.04. Absence of
Litigation...................................33
SECTION 5.05. Investment
Purpose......................................34
SECTION 5.06.
Brokers.................................................34
SECTION 5.07.
Disclosure..............................................34
ARTICLE VI ADDITIONAL
AGREEMENTS..................................................34
SECTION 6.01. Conduct of Business Prior to the
Closing................34
SECTION 6.02. Access to
Information...................................38
SECTION 6.03. Books and
Records.......................................38
SECTION 6.04. Regulatory and Other Authorizations;
Consents...........39
SECTION 6.05. No Solicitation of
Employees............................40
SECTION 6.06. No Solicitation of Offers,
Etc..........................41
SECTION 6.07. Fees and
Expenses.......................................41
SECTION 6.08. Investment
Portfolio....................................41
SECTION 6.09. Notice of Certain
Matters...............................41
SECTION 6.10. Interim Financial
Statements............................42
SECTION 6.11. Affiliate Agreements; Intercompany
Accounts.............43
SECTION 6.12. Company
Obligations.....................................43
SECTION 6.13. Further
Action..........................................43
SECTION 6.14. Compliance With
Conditions..............................43
ARTICLE VII EMPLOYEE
MATTERS.......................................................44
SECTION 7.01.
Purchaser...............................................44
ARTICLE VIII TAX
MATTERS............................................................44
SECTION 8.01.
Indemnity...............................................44
SECTION 8.02. Returns and
Payments....................................45
SECTION 8.03.
Refunds.................................................46
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SECTION 8.04. Tax
Contests............................................47
SECTION 8.05. Certain Audit
Adjustments...............................49
SECTION 8.06. Cooperation and Exchange of
Information.................49
SECTION 8.07. Conveyance
Taxes........................................50
SECTION 8.08. FIRPTA
Certificate......................................50
SECTION 8.09. Tax Sharing
Agreement...................................50
SECTION 8.10. Net Operating
Loss......................................50
SECTION 8.11.
Miscellaneous...........................................53
ARTICLE IX CONDITIONS TO
CLOSING..................................................53
SECTION 9.01. Conditions to Obligations of
Seller.....................53
SECTION 9.02. Conditions to Obligations of
Purchaser..................55
ARTICLE X INDEMNIFICATION & CERTAIN
LITIGATION...................................57
SECTION 10.01.
Survival...............................................57
SECTION 10.03. Indemnification by
Seller..............................60
ARTICLE XI TERMINATION, AMENDMENT AND
WAIVER......................................65
SECTION 11.01.
Termination............................................65
SECTION 11.02. Effect of
Termination..................................66
SECTION 11.03.
Waiver.................................................66
ARTICLE XII GUARANTY OF
HUMANA.....................................................66
ARTICLE XIII GENERAL
PROVISIONS.....................................................67
SECTION 13.01.
Notices................................................67
SECTION 13.02. Public
Announcement....................................68
SECTION 13.03.
Headings...............................................68
SECTION 13.04.
Severability...........................................68
SECTION 13.05. Entire
Agreement.......................................69
SECTION 13.06.
Assignment.............................................69
SECTION 13.07. No Third-Party
Beneficiaries...........................69
SECTION 13.08. Amendment;
Waiver......................................69
SECTION 13.09. Governing
Law..........................................69
SECTION 13.10.
Counterparts...........................................69
This STOCK PURCHASE AGREEMENT is made and effective as of
December 30, 1999, by and among HUMANA INC., a Delaware corporation ("HUMANA"),
PHYSICIAN CORPORATION OF AMERICA, a Delaware corporation and a wholly owned
subsidiary of Humana ("SELLER"), and FOLKSAMERICA HOLDING COMPANY, INC., a New
York corporation ("PURCHASER").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares
of common stock, par value $1.00 per share (the "SHARES"), of PCA Property and
Casualty Insurance Company, an insurance company organized under the laws of the
State of Florida (the "COMPANY");
WHEREAS, Seller wishes to sell the Shares to Purchaser, and
Purchaser wishes to purchase the Shares from Seller, on the terms and subject to
the conditions set forth herein; and
WHEREAS, Humana has joined in this Agreement solely for the
purpose of guaranteeing the obligations of Seller under this Agreement and
making certain representations, warranties and covenants for the benefit of
Purchaser.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following meanings:
"ACQUISITION PROPOSAL" has the meaning specified in Section
6.06.
"ADJUSTED PURCHASE PRICE" has the meaning specified in Section
2.02(a).
"ADJUSTMENT" has the meaning specified in Section 8.05.
"AFFILIATE" with respect to any Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For purposes of this definition, "control" (or
"controlled," as the context may require)
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shall have the meaning specified in Section 4-143.045 of the Florida
Administrative Code Annotated, as in effect on the date hereof.
"AFFILIATE AGREEMENTS" has the meaning specified in Section
4.19.
"AMENDED AND RESTATED MANAGEMENT CONTRACT" has the meaning
specified in Section 4.28.
"ANNUAL STATUTORY STATEMENTS" means the Annual Statement of
the Company, as filed with the Florida Insurance Department, for the years ended
December 31, 1998, 1997 and 1996, in each case including all exhibits,
interrogatories, notes and schedules thereto and any auditor's report, actuarial
opinion, affirmation or certification filed in connection therewith.
"ASSUMED PORTFOLIO TRANSACTION" has the meaning specified in
Section 4.20(a).
"BUSINESS" means the business of the Company as it is
currently conducted by the Company as of the date hereof and, when applicable,
as of the Closing Date.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to be closed in the City of New York.
"CLOSING" has the meaning specified in Section 2.04(a).
"CLOSING DATE" has the meaning specified in Section 2.04(a).
"COMPANY" means PCA Property and Casualty Insurance Company,
an insurance company organized under the laws of the State of Florida.
"CONTEST" has the meaning specified in Section 8.04(b).
"CONTRACT" means all written mortgages, indentures,
debentures, notes, loans, bonds, agreements, contracts, leases, subleases,
licenses (excluding governmental licenses, permits and authorizations),
franchises, obligations, instruments or other legally binding commitments,
arrangements or undertakings of any kind (including without limitation all
leases and other agreements referred to in Section 4.17 of the Disclosure
Schedule but excluding Reinsurance Agreements and Insurance Policies written by
the Company) to which the Company is a party or by which the Company or any of
its Properties may be bound or affected.
"DAMAGES" means any and all debts, obligations, losses,
claims, demands, assessments, orders, judgments, writs, decrees, liabilities
costs, damages and other expenses (including any reasonable costs of
investigation, reasonable attorneys' fees and expenses and other costs of
defense) of any kind and of any nature whatsoever.
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"DESIGNATED SECURITIES" has the meaning specified in Section
2.03(c)(i).
"DISCLOSURE SCHEDULE" means the Disclosure Schedule, dated as
of the date hereof, delivered to Purchaser by Seller.
"DOLES APPLICATIONS" has the meaning specified in Section
10.04(c).
"ENCUMBRANCES" means any lien, pledge, mortgage, security
interest, assessment, claim, lease, charge, option, right of first refusal,
imperfection of title, easement, transfer restriction under any shareholder or
similar agreement, encumbrance or any other restriction or limitation of any
kind whatsoever.
"ENVIRONMENTAL LAWS" means any and all federal, state, local,
provincial and foreign, civil and criminal laws, statutes, regulations, orders,
and other provisions having the force or effect of law, all judicial and
administrative orders and determinations to which the Company or Seller or any
Affiliate of Seller is subject, and all common law, in each case concerning
public health and safety, worker health and safety and pollution or protection
of the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations and interpretations thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the regulations and rules promulgated thereunder.
"FLORIDA INSURANCE CODE" means the Florida Insurance Code,
Chapters 624 to 632 and Part I of Chapter 641 of the Florida Statutes, and the
regulations and rules promulgated thereunder.
"FLORIDA INSURANCE DEPARTMENT" means the State of Florida,
Department of Insurance.
"FINAL NET GAIN OR LOSS" has the meaning specified in Section
2.02(b)(i).
"FORM A FILING" has the meaning specified in Section 6.04(a).
"GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time consistently applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or
foreign government, political subdivision, legislature, court, agency,
department, bureau, commission or other governmental or regulatory authority,
body or instrumentality, including any insurance or
3
securities regulatory authority.
"HAZARDOUS SUBSTANCES" means petroleum, petroleum hydrocarbons
or petroleum products, petroleum by-products, radioactive materials, underground
storage tanks, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls, ionizing and non-ionizing radiation including radon
and electromagnetic frequency radiation; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now or hereafter
become defined as or included in the definition of "HAZARDOUS SUBSTANCES,"
"HAZARDOUS MATERIALS," "HAZARDOUS WASTES," "EXTREMELY HAZARDOUS WASTES,"
"RESTRICTED HAZARDOUS WASTES," "TOXIC SUBSTANCES," "TOXIC POLLUTANTS,"
"POLLUTANTS," "REGULATED SUBSTANCES," "SOLID WASTES," or "CONTAMINANTS" or words
of similar import, under any Environmental Laws.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"HUMANA" has the meaning specified in the Preamble.
"HWCS" has the meaning specified in Section 4.16.
"HWCS DIVESTITURE" has the meaning specified in Section 4.28.
"INDEMNIFIED PARTY" has the meanings specified in Sections
10.02(a) and 10.03(a), as applicable.
"INITIAL NET LOSS" has the meaning specified in Section
2.02(b)(i).
"INSURANCE POLICY(IES)" means all binders, policies,
contracts, certificates and other obligations, whether oral or written, of
insurance.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning specified in
Section 4.16.
"INTERIM VALUATION REPORT" has the meaning specified in
Section 2.03(b).
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended.
"INVESTMENT PORTFOLIO" means a list provided by Seller to
Purchaser setting forth all investments, including, without limitation, stocks,
bonds and limited partnership interests, owned by the Company as of the
Reference Date, the issuer of the investments, the amount owned and the Fair
Market Value of the investments as of such date.
"IRS" has the meaning specified in Section 4.24(d).
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"KNOWLEDGE OF SELLER,"or similar words, means the knowledge of
Humana, Seller or the Company.
"MALPRACTICE ACTION" has the meaning specified in Section
10.04(b).
"MANAGEMENT CONTRACT" has the meaning specified in Section
4.28.
"MATERIAL ADVERSE EFFECT" means:
(a) With respect to Seller or the Company, any change in, or
effect on, the Company or the Business which is, or which is reasonably
likely to be, materially adverse to the Business, operations, assets,
liabilities, results of operations, or condition (financial or
otherwise) of the Company, taken as a whole or, as applicable to
Seller, taken as a whole on a consolidated basis with its Affiliates,
or insurance licenses or other material Permits of the Company, or
which will, or is reasonably likely to, prevent the transactions
contemplated by this Agreement; and
(b) With respect to Purchaser, any change in, or effect on,
Purchaser which is reasonably likely to be materially adverse to
Purchaser's operations, assets, liabilities, results of operations, or
condition (financial or otherwise), taken as a whole on a consolidated
basis, or which will, or is reasonably likely to, prevent the
transactions contemplated by this Agreement.
Notwithstanding the foregoing, there shall be no "Material Adverse Effect" if
the change in, or effect on, the Business, operations, assets, liabilities,
results of operations, or condition of a party hereto results from general
economic conditions or general insurance industry conditions in the United
States or in any other jurisdiction where such party's operations or assets are
located, or results from the identity of, or circumstances unique to, the other
party to this Agreement.
"NY FILING" has the meaning specified in Section 6.04.
"PERMITS" has the meaning specified in Section 4.15.
"PERMITTED ENCUMBRANCE" has the meaning specified in Section
4.17(b).
"PERSON" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, governmental or regulatory
authority or other entity.
"POST-CLOSING PERIODS" means any taxable period thereof
beginning after the Closing Date. If a taxable period begins before the Closing
Date and ends after the Closing Date, then the portion of the taxable period
that begins on the day following the Closing Date shall
5
constitute a Post-Closing Period.
"PRE-CLOSING PERIOD" means any taxable period or portion
thereof that is not a Post-Closing Period.
"PROPERTY" means real, personal or mixed property, tangible or
intangible, including without limitation any leased real property.
"PROVISIONAL PURCHASE PRICE" has the meaning specified in
Section 2.02(a).
"PURCHASER" has the meaning specified in the Preamble.
"PURCHASER'S DESIGNATED SECURITIES" has the meaning specified
in Section 2.03(b).
"QUARTERLY STATUTORY STATEMENTS" means the Quarterly
Supplemental Reports of the Company as filed with the Florida Insurance
Department for the quarterly periods ended March 31, June 30 and September 30,
1999.
"REFERENCE DATE" means June 30, 1999.
"REFERENCE SCHEDULE D" has the meaning specified in Section
2.03(a).
"REINSURANCE AGREEMENTS" has the meaning specified in Section
4.20(a).
"RELEVANT GROUP" has the meaning specified in Section 4.24(a).
"RESERVES" means all unearned premium reserves and all
reserves for incurred losses including, without limitation, case reserves,
reserves for incurred but not reported losses and reserves for loss adjustment
expenses, both allocated and unallocated, and also any adjustments to such items
on account of reinsurance receivables, salvage and subrogation, reinsurance
retrospective premiums and reinsurance profit commissions.
"RETROCESSION ARRANGEMENT" has the meaning specified in
Section 4.20(c).
"SAP" means, with respect to a reinsurance or insurance
company, the statutory accounting procedures and practices prescribed or
permitted from time to time by the National Association of Insurance
Commissioners and the Florida Insurance Department and applied in a consistent
manner throughout the periods involved.
"SELLER" has the meaning specified in the Preamble.
"SHARES" has the meaning specified in the Recitals.
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"STRADDLE PERIOD" has the meaning specified in Section
8.01(b).
"SUBJECT SCHEDULE D" has the meaning specified in Section
2.03(a).
"SUBSIDIARY" means any and all other corporations, limited
liability companies, partnerships, joint ventures, associations and other
entities of which the Company, directly or indirectly (through one or more
Subsidiaries or otherwise), owns or controls more than 10% of the voting
securities or other voting interests.
"TAX" or "TAXES" means (i) all taxes, fees, duties and other
assessments imposed by the United States or any state, local or foreign
government or political subdivision or taxing authority thereof or therein,
including, without limitation, any income, estimated, premium, profits, windfall
profits, environmental, alternative, minimum, license, import, transfer,
registration, stamp, franchise, sales, use, value added, gross receipts, excise,
utility, property (real or personal), severance, ad valorem, net proceeds, deed,
lease, service, capital, customs, occupation, payroll, wage, workman's
compensation, employment, withholding and social security taxes, including all
interest, penalties and additions to taxes imposed by any taxing authority with
respect thereto, whether disputed or not and (ii) any liability of the Company
for amounts described in (i) as a result of being a member of any affiliated,
consolidated, combined or unitary group on or prior to the Closing Date.
"TAX RETURN" means any return, report or statement (including
any information returns) required to be filed for purposes of a particular Tax.
"TAX SHARING AGREEMENT" means that certain Tax Payment
Allocation Agreement relating to the payment of Taxes relating to any
affiliated, consolidated, combined or unitary group to which the Company and
Seller are parties and dated as of December 31, 1997.
"THIRD PARTY ACCOUNTANT" has the meaning specified in Section
2.02(b)(ii).
"VALUATION REPORT" has the meaning specified in Section
2.02(b)(ii).
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION 2.01. PURCHASE OF SHARES. Subject to the terms and
conditions contained in this Agreement, at the Closing, Seller shall sell the
Shares to Purchaser, and Purchaser shall purchase the Shares from Seller.
SECTION 2.02. PURCHASE PRICE.
7
(a) The purchase price for the Shares shall be equal to
$125,000,000 (the "PROVISIONAL PURCHASE PRICE"), which shall be adjusted
pursuant to the terms of Section 2.02(b) to reflect the difference, if any,
between the Initial Net Loss and the Final Net Gain or Loss (the Provisional
Purchase Price as adjusted pursuant to the terms of Section 2.02(b) below, is
referred to herein as the "ADJUSTED PURCHASE PRICE").
(b) The Provisional Purchase Price shall be subject to
adjustment at and following the Closing as herein provided.
(i) The parties hereby agree that the net unrealized loss on
the Investment Portfolio as of the Reference Date is $4,349,053 (the
"INITIAL NET LOSS"). The "FINAL NET GAIN OR LOSS" shall be (x) the net
unrealized gain or loss on the Investment Portfolio, determined in
accordance with SAP, as of the Closing Date (provided that the market
values used in determining such unrealized gain or loss shall be the
published market value, rather than the NAIC market value), plus or
minus (y) the gains or losses realized by the Company on the Investment
Portfolio, determined in accordance with SAP, during the period
commencing on the first day following the Reference Date and ending on
the Closing Date.
(ii) Within ten (10) days following the Closing, the Purchaser
shall cause the Company to prepare, and deliver to Seller, a report
(the "VALUATION REPORT") setting forth the Final Net Gain or Loss,
which report shall have been prepared using the same valuation sources
used by Purchaser in the preparation of the Interim Valuation Report
or, if any such source is unavailable, a comparable valuation source.
Seller shall review the Valuation Report delivered to it and comment
thereon within ten (10) days after receipt thereof. Purchaser shall
instruct the Company to provide Seller such information regarding the
Investment Portfolio as may be reasonably requested by Seller in its
review, and Purchaser agrees that Seller may have access to the
accounting records of the Company, during normal business hours, for
the purpose of reviewing such Valuation Report. Any changes in the
Valuation Report that are agreed to by Purchaser and Seller within ten
(10) Business Days of the aforementioned delivery of the Valuation
Report shall be incorporated into a final Valuation Report. In the
event that Purchaser and Seller are unable to agree on the calculation
of the unrealized gain/loss with respect to any item or items within
ten (10) Business Days of the aforementioned delivery of the Valuation
Report, such item or items shall be referred to a nationally recognized
independent accounting firm (the "THIRD PARTY ACCOUNTANT") selected by
mutual agreement of Seller and Purchaser within five (5) days
thereafter for resolution within two (2) weeks and the calculation of
any item of realized or unrealized gain/loss which such Third Party
Accountant shall determine in writing shall be binding and conclusive
on the parties and shall be so reflected in a final Valuation Report.
Seller and Purchaser shall share equally the costs of retaining any
accountants involved in this valuation process.
(iii) If the Final Net Gain or Loss as determined in Section
2.02(b)(ii) is a loss
8
and such loss is less than the Initial Net Loss, or if it is a gain,
Seller shall be entitled to, and Purchaser shall pay promptly, and in
any event within ten (10) Business Days following issuance of a final
Valuation Report, to Seller, an amount equal to the difference between
the Final Net Gain or Loss and the Initial Net Loss. If the Final Net
Gain or Loss as determined in Section 2.02(b)(ii) is a loss and such
loss is greater than the Initial Net Loss, Purchaser shall be entitled
to, and Seller shall pay promptly, and in any event within ten (10)
Business Days following issuance of a final Valuation Report, to
Purchaser, an amount equal to the difference between the Final Net Gain
or Loss and the Initial Net Loss. In either case, such payment will be
made together with interest on the amount of such difference for the
period from the Closing Date until the date of payment at an effective
annual rate equal to the annual interest rate for 90-day United States
Treasury Bills prevailing on the Closing Date plus 50 basis points. The
payment made pursuant hereto shall be made by bank wire transfer of
immediately available funds to an account designated by the recipient
of the funds.
SECTION 2.03. PRE-CLOSING ADJUSTMENTS TO THE INVESTMENT
PORTFOLIO.
(a) As soon as it becomes available, Seller shall deliver to
Purchaser a true and complete copy of Schedule D to the Annual Statutory
Statement of the Company for the year ending December 31, 1999 (the "SUBJECT
SCHEDULE D"). The Subject Schedule D shall be prepared in a manner consistent
with Schedule D to the Quarterly Statutory Statement of the Company for the
period ended on the Reference Date (the "REFERENCE SCHEDULE D").
(b) Within twenty (20) days following receipt of the Subject
Schedule D, Purchaser shall deliver to Seller a valuation report (the "INTERIM
VALUATION REPORT"). The Interim Valuation Report shall contain (i) Purchaser's
valuation, as of December 31, 1999, of each security listed on the Subject
Schedule D, (ii) the identity of the source used by Purchaser to determine such
valuations and (iii) a list of the securities contained in the Investment
Portfolio which Purchaser is designating for replacement by Seller ("PURCHASER'S
DESIGNATED SECURITIES"), PROVIDED, HOWEVER, that the aggregate value of
Purchaser's Designated Securities (as set forth in the Reference Schedule D)
shall not exceed $40,000,000.
(c) Within ten (10) days of receipt of the Interim Valuation
Report, Seller shall:
(i) deliver to Purchaser a list of the securities contained in
the Investment Portfolio which the Seller is designating for
replacement (such securities designated by Seller together with the
Purchaser's Designated Securities, the "DESIGNATED SECURITIES"); and
(ii) replace all of the Designated Securities with money
market instruments or U.S. Treasury securities (as Purchaser may elect)
having an aggregate fair market value (as of the date of replacement)
equal to the sum of (x) the aggregate value of the
9
Designated Securities as set forth in the Reference Schedule D and (y)
the aggregate interest accrued and unpaid on the Designated Securities
between the Reference Date and the date of such replacement.
SECTION 2.04. CLOSING.
Subject to the terms and conditions of this Agreement, the
sale and purchase of the Shares contemplated hereby shall take place at a
closing (the "CLOSING") at 10:00 a.m., local time, on the fifth Business Day
after the satisfaction of the conditions to closing set forth in Article IX, at
the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York
10178, or at such other time or on such other date or at such other place as
Seller and Purchaser may mutually agree upon in writing (the date on which the
Closing takes place being the "CLOSING DATE").
SECTION 2.05. DELIVERIES AND ACTIONS TO BE TAKEN AT CLOSING.
(a) At the Closing, Seller shall deliver or cause to be
delivered to Purchaser (duly executed where appropriate):
(i) stock certificates evidencing the Shares duly endorsed in
blank or accompanied by stock powers duly executed in blank, in proper
form for transfer, with all required stock transfer tax stamps affixed
or provided for;
(ii) a certificate from a duly authorized officer of Seller,
certifying as to the fulfillment of the conditions specified in Section
9.02(a);
(iii) the articles of incorporation of the Company, certified
by the Secretary of State or other appropriate official of the State of
Florida, as of a date not earlier than ten (10) Business Days prior to
the Closing Date and accompanied by a certificate of the Secretary or
Assistant Secretary of the Company, dated as of the Closing Date,
stating that no amendments have been made to such articles since such
date, and the By-laws of the Company, certified by the Secretary or
Assistant Secretary of the Company;
(iv) a certificate of the Secretary or an Assistant Secretary
of Seller certifying (x) the names and signatures of the officers of
Seller authorized to sign this Agreement and any other document
required to be delivered by Seller hereunder, and (y) as to the
resolutions of the Board of Directors of Seller approving the execution
and delivery of this Agreement and the performance of the transactions
and obligations of Seller contemplated by this Agreement
(v) a certificate of the Secretary or Assistant Secretary of
Humana certifying (x) the names and signatures of the officers of
Humana authorized to sign this Agreement and any other document
required to be delivered by Humana hereunder, and (y) as to the
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resolutions of the Board of Directors of Humana approving the execution
and delivery of this Agreement and the performance of the transactions
and obligations of Humana contemplated by this Agreement;
(vi) a good standing certificate for the Company from the
Secretary of State or other appropriate official of the State of
Florida, dated as of a date not earlier than fifteen Business Days
prior to the Closing Date;
(vii) legal opinions from Greenebaum Doll & McDonald PLLC,
counsel to the Seller, and Katz, Kutter, Haigler, Alderman, Bryant &
Yon, regulatory counsel to Seller addressed to Purchaser and dated the
Closing Date, reasonably satisfactory to Purchaser; and
(viii) such other certificates and documents described in
Section 9.02 of this Agreement.
(b) At the Closing, Purchaser shall deliver or cause to be
delivered to Seller (duly executed where appropriate):
(i) the Provisional Purchase Price, by bank wire transfer to
an account designated by Seller in writing at least three (3) Business
Days prior to Closing in immediately available funds;
(ii) a certificate from a duly authorized officer of
Purchaser, certifying as to the fulfillment of the conditions specified
in Section 9.01(a);
(iii) a certificate of the Secretary or an Assistant Secretary
of Purchaser certifying (x) the names and signatures of the officers of
Purchaser authorized to sign this Agreement and any other document
required to be delivered by Purchaser hereunder, and (y) as to the
resolutions of the Board of Directors of Purchaser approving the
execution and delivery of this Agreement and the performance of the
transactions and obligations of Purchaser contemplated by this
Agreement;
(iv) a legal opinion from Morgan, Lewis & Bockius LLP, counsel
to Purchaser, addressed to Seller and dated as of the Closing Date,
reasonably satisfactory to Purchaser; and
(v) such other certificates and documents described in Section
9.01 of this Agreement.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF SELLER AND HUMANA
Seller and Humana hereby jointly and severally represent and warrant to
Purchaser as follows:
SECTION 3.01. INCORPORATION AND AUTHORITY OF SELLER AND
HUMANA.
(a) Each of Humana and Seller is a company duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary corporate power and authority to own, lease and operate
its Properties (including, in the case of Seller, to own the Shares), to conduct
its business as now being conducted, to enter into this Agreement and each other
agreement and instrument required to be executed and delivered by it pursuant
hereto, to carry out its respective obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by each of Seller and Humana of this Agreement and each
other agreement and instrument required to be executed and delivered by Seller
or Humana pursuant hereto, and the consummation by each of Seller and Humana of
the transactions contemplated hereby and thereby, have been duly and validly
authorized by all requisite corporate action and no other corporate proceedings
on the part of either Humana or Seller is necessary to authorize the foregoing.
This Agreement has been, and at the Closing the other agreements and instruments
required pursuant hereto and to which Seller or Humana is a party will have
been, duly and validly executed and delivered by Seller and Humana, as the case
may be, and assuming due authorization, execution and delivery by Purchaser of
this Agreement and such other documents, this Agreement and such other documents
will constitute the legal, valid and binding obligations of Seller and Humana,
enforceable against Seller and Humana, respectively, in accordance with their
terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) As of the date hereof, Humana owns, and as of the Closing
Date, Humana will own, all of the issued and outstanding capital stock of Seller
free and clear of all Encumbrances.
SECTION 3.02. NO CONFLICT. Assuming all consents, approvals,
authorizations, orders and other actions described in Section 4.05 have been
obtained and/or taken, and all filings and notifications described in Section
4.05 have been made, except as may result from any facts or circumstances
relating solely to Purchaser or its Affiliates, and except for enforcement or
other action of a Governmental Authority resulting therefrom which may delay or
prevent consummation of the transactions provided for herein, the execution and
delivery of this Agreement by Humana and its performance of the guarantee
provided for herein, do not and will not (a) violate or conflict with the
certificate of incorporation or bylaws of Humana, (b) conflict with or violate
any material law, rule, regulation, order, writ, judgment, injunction, decree,
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determination or award applicable to Humana, (c) result in any material breach
of, or constitute a material default (or event which with the giving of notice
or lapse of time, or both, would constitute a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of
any material Contract, Permit or other instrument to which Humana is a party or
by which any of its Properties are bound or affected, or (d) require Humana to
obtain any consent, approval, authorization, order or other action by any
Governmental Authority.
SECTION 3.03. DISCLOSURE. No representation or warranty or
other statement made by Seller or Humana in this Article III or in Article III
of the Disclosure Schedule contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
SECTION 4.01. INCORPORATION AND QUALIFICATION OF THE COMPANY.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Florida and has the necessary corporate
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by the Company and to carry on the Business now being
conducted by the Company. Seller has delivered to Purchaser true and complete
copies of the articles of incorporation and by-laws of the Company as in effect
on the date hereof. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes
such qualification necessary, except for such failures which, individually or in
the aggregate, would not have a Material Adverse Effect. Except as disclosed in
Section 4.01 of the Disclosure Schedule, the Company is licensed or authorized
to write insurance or reinsurance in each of the jurisdictions listed in Section
4.01 of the Disclosure Schedule. True and correct copies of the insurance
licenses issued by each such jurisdiction are included in Section 4.01 of the
Disclosure Schedule.
SECTION 4.02. CAPITAL STOCK OF THE COMPANY. The Shares
constitute all the issued and outstanding shares of capital stock of the
Company. Except for 1,800,000 shares of common stock which are authorized but
not outstanding and the Shares, no other class of capital stock, equity
security, preferred stock, bonds, debentures, notes, debt instruments, evidence
of indebtedness or other securities of any kind in the Company are authorized or
outstanding. The Shares have been duly authorized and validly issued and are
fully paid and non-assessable and were not issued in violation of any preemptive
rights. As of the date hereof there is no, and as of
13
the Closing Date there will be no, security, option, warrant, right, call,
subscription, agreement, commitment or understanding of any nature whatsoever,
fixed or contingent, that directly or indirectly, (i) except as contemplated by
this Agreement, calls for the issuance, sale, pledge or other disposition of any
shares of capital stock of the Company or any securities convertible into, or
other rights to acquire, any shares of capital stock of the Company, (ii)
relates to the voting or control of such capital stock, securities or rights, or
(iii) obligates Seller or the Company to grant, offer or enter into any of the
foregoing. As of the date hereof Seller owns, and as of the Closing Date Seller
will own, the Shares, free and clear of all Encumbrances, other than the
obligation hereunder to sell the Shares to Purchaser and except for restrictions
on transfer or resale imposed under applicable federal securities laws. Upon the
conveyance and transfer of the Shares to Purchaser as contemplated hereby,
Purchaser shall acquire good and valid title to the Shares, free and clear of
all Encumbrances (except as may result from any facts or circumstances relating
solely to Purchaser or its Affiliates, and except for restrictions on transfer
or resale imposed under applicable federal securities laws) and Purchaser will
be entitled to all rights of a holder of the Shares.
SECTION 4.03. SUBSIDIARIES.
(a) As of the date hereof, the Company has, and as of the
Closing Date the Company will have, no Subsidiaries.
(b) Except as set forth in Section 4.03(b) of the Disclosure
Schedule (and, with respect to clause (i), except as set forth in the Investment
Portfolio), there are no corporations, partnerships, limited liability
companies, joint ventures, associations or other entities (i) in which the
Company owns, of record or beneficially, any direct or indirect capital stock,
membership or other equity interest or any right (contingent or otherwise) to
acquire the same, or (ii) which the Company controls, directly or indirectly, by
contract or proxy or otherwise, alone or in combination with any other Person.
(c) Except as set forth in Section 4.03(c) of the Disclosure
Schedule, there are no assets or Properties owned by, or in the possession of,
Seller (or any Affiliate of Seller or of the Company) which are used, or
necessary, in connection with the Business (including, without limitation, the
settlement and adjustment of outstanding claims under Insurance Policies and
Reinsurance Agreements) of the Company. Except as set forth in Section 4.03(c)
of the Disclosure Schedule, neither Seller nor any Affiliate of Seller or the
Company has any debts, liabilities, obligations or other commitments (i) which
are guaranteed or secured by the Company or (ii) for which the Company may be
liable.
SECTION 4.04. NO CONFLICT.
(a) Except as set forth in Section 4.04(a) of the Disclosure
Schedule, neither the Seller nor the Company is in violation or default in any
material respect (and is not in default in any respect regarding any
indebtedness, loan or credit agreement) under any indenture,
14
agreement or instrument to which it is a party or by which it or any of its
assets or properties may be bound. The Seller and the Company are in compliance
in all material respects with all orders, writs, injunctions, judgments or
decrees of any Governmental Authority or arbitrator(s).
(b) Assuming all consents, approvals, authorizations, orders
and other actions described in Section 4.05 have been obtained and/or taken, and
all filings and notifications described in Section 4.05 have been made, except
as may result from any facts or circumstances relating solely to Purchaser or
its Affiliates, the execution, delivery and performance of this Agreement by
Seller, the sale of the Shares by Seller pursuant to this Agreement and the
consummation by Seller of the transactions contemplated hereby do not and will
not (a) violate or conflict with the respective charter documents of Seller or
the Company, (b) conflict with or violate any material law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award applicable to
Seller or the Company or the Business, or (c) result in any material breach of,
or constitute a material default (or event which with the giving of notice or
lapse of time, or both, would become a material default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any material Encumbrance on any of the material assets
or properties of the Company pursuant to any Contract, Permit or other
instrument relating to such assets or properties to which Seller or the Company
is a party or by which any of such assets or properties is bound or affected.
SECTION 4.05. CONSENTS AND APPROVALS. The (i) execution and
delivery by Seller of this Agreement and each other agreement and instrument
required to be executed and delivered by Seller in connection herewith, (ii)
sale of the Shares pursuant to this Agreement and (iii) consummation of the
transactions contemplated hereby do not, and Seller's performance of this
Agreement and each other agreement and instrument required to be executed and
delivered by Seller in connection herewith will not, require Seller or the
Company to obtain any consent, approval, authorization, order or other action
by, or require Seller or the Company to file with or notify any Governmental
Authority, except pursuant to (a) the notification requirements of the HSR Act,
(b) the approval of the Florida Insurance Department, (c) information filing
requirements in any other state where the Company is licensed to do business and
(d) the notification requirements described in Section 4.05 of the Disclosure
Schedule.
SECTION 4.06. FINANCIAL INFORMATION. The Company has
heretofore delivered to Purchaser true and complete copies of the Annual
Statutory Statements and the Quarterly Statutory Statements of the Company
prepared and filed with the Florida Insurance Department after September, 1997.
Except as set forth in Section 4.06 of the Disclosure Schedule, the Annual
Statutory Statement of the Company for the period ended December 31, 1998, and
the Quarterly Statutory Statements of the Company for each quarter ended
thereafter were prepared in accordance with SAP, prepared in accordance with the
books and records of the Company, audited by PricewaterhouseCoopers LLP (the
"Company's Auditors"), presents fairly in all material respects the statutory
financial position of the Company at the respective date thereof and the
statutory results of operations and cash flows of the Company for the respective
periods then ended, except that the Quarterly Statutory Statements have not been
audited and are subject
15
to normal recurring year-end audit adjustments and omit footnotes and other
presentation items. Each of the Annual Statutory Statements and Quarterly
Statutory Statements (i) complies in all material respects with the Florida
Insurance Code, (ii) was complete and correct in all material respects when
filed, (iii) was filed with or submitted to the Florida Insurance Department in
a timely manner on forms prescribed or permitted by the Florida Insurance
Department, and (iv) was not prepared utilizing any material accounting
practices that are permitted rather than prescribed by the Florida Insurance
Code. Except as set forth in Section 4.06 of the Disclosure Schedule, no
material deficiency has been asserted with respect to any of the Annual
Statutory Statements or Quarterly Statutory Statements by the Florida Insurance
Department or any other Governmental Authority.
SECTION 4.07. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in Section 4.07 of the Disclosure Schedule, to the Knowledge of Seller
there are no debts, liabilities, obligations or commitments of the Company of
any kind whatsoever, whether accrued, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, contingent, absolute, known or
unknown, determined, determinable or otherwise, other than:
(a) as, and to the extent, specifically disclosed in any of
the subsections of this Article IV or the Disclosure Schedule;
(b) with respect to the tax matters addressed in Section 4.24
and Article VIII (which shall be governed solely by the terms of such Section
4.24 and Articles VIII);
(c) liabilities arising under any Reinsurance Agreements or
any Insurance Policies written by the Company;
(d) liabilities or obligations reflected or reserved against
on the balance sheet included in the Quarterly Statutory Statement dated as of
September 30, 1999; or
(e) liabilities incurred since the date of the most recent
Annual Statutory Statement in the ordinary course of business and consistent
with past practice, which, individually and in the aggregate, would not have a
Material Adverse Effect.
SECTION 4.08. INVESTMENTS. Except as set forth in Section 4.08
of the Disclosure Schedule, the Company has good and marketable title to all of
the investments listed in the most recent Investment Portfolio provided to
Purchaser, free and clear of all Encumbrances except for restrictions imposed
under the Florida Insurance Code. Section 4.08 of the Disclosure Schedule sets
forth the Investment Portfolio as of the Reference Date. Except as set forth in
Section 4.08 of the Disclosure Schedule, none of the investments listed in the
Investment Portfolio is in default in the payment of principal or interest or
dividends. All such investments comply in all material respects with the
investment guidelines adopted by the Investment Committee of the Company's Board
of Directors and comply in all material respects with any and all investment
restrictions under, and qualify as "admitted assets" under, the Florida
16
Insurance Code.
SECTION 4.09. CERTAIN EVENTS.
(a) The Company ceased all underwriting activity as of
November 15, 1996, and since such date the Company has not issued, renewed or
extended (excluding Center Re commutations) any Insurance Policy or Reinsurance
Agreement. Except as set forth in Section 4.09 of the Disclosure Schedule, since
November 15, 1996, the Business of the Company has consisted solely of the
settlement and adjustment of claims arising under Insurance Policies and
Reinsurance Agreements issued, entered into or assumed by the Company prior to
November 15, 1996, and activities directly related thereto.
(b) Except as set forth in Section 4.09 of the Disclosure
Schedule, since the Reference Date there has been no change in the Business,
operations, assets, Properties, condition (financial or otherwise), results of
operations, insurance licenses or Permits of the Company which, individually or
in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect.
(c) Except as set forth in Section 4.09 of the Disclosure
Schedule or as specifically disclosed in the Company's 1998 Annual Statutory
Statement or its interim Quarterly Statutory Statements for 1999, since the
Reference Date the Business of the Company has been conducted only in the
ordinary course of business consistent with past practice and there has not
been:
(i) any material change in the underwriting, reinsurance,
marketing, accounting, establishment of reserves, investment or claims
adjustment policies and practices of the Company, including, without
limitation, any change which has had the effect of accelerating the
recording and billing of premiums or accounts receivable or retarding
the payment of expenses, or changes in the method of establishing
Reserves in connection with any accounts or Business of the Company, or
any change that has had the effect of materially altering, modifying or
changing the historic operating, financial or accounting practices or
policies of the Company, including accruals of and reserves for Tax
liabilities;
(ii) any damage, destruction or casualty loss with respect to
the Property of the Company (whether or not covered by insurance) which
has had or is reasonably likely to have a Material Adverse Effect;
(iii) any direct or indirect repurchase, redemption or other
acquisition by the Company of any shares of capital stock or other
securities of the Company, or any declaration, setting aside or payment
of any dividend or other distribution in respect of shares of capital
stock of the Company;
17
(iv) any employment, bonus, incentive or deferred
compensation, severance or termination agreement or arrangement entered
into between the Company and a director or officer or consultant of the
Company (other than any agreements or arrangements between such persons
and an Affiliate of the Company for which the Company has no
liability);
(v) any indebtedness incurred by the Company for borrowed
money, including, without limitation, obligations in respect of
capitalized leases, or any guarantee by the Company of indebtedness for
borrowed money or any other obligation of any other Person;
(vi) any sale, lease, abandonment or other disposition by the
Company of any interest in Property, other than in the ordinary course
of business and consistent with past practice, in an aggregate amount
of more than $15,000;
(vii) the creation of any Encumbrance on all or any portion of
any material assets, Properties or rights of the Company, except
Permitted Encumbrances;
(viii) any capital expenditure made by the Company, except
capital expenditures not exceeding an aggregate of $50,000;
(ix) any amendment, modification, alteration, failure to renew
or termination of any Contract, Insurance Policy or Reinsurance
Agreement which, individually or in the aggregate with such other
amendments, modifications, alterations, failure to renew or
terminations, has had or could reasonably be expected to have a
Material Adverse Effect;
(x) any waiver of any rights of material value or any
cancellation or forgiveness of any claims, debts or accounts receivable
owing to the Company other than in the ordinary course of business and
consistent with past practice;
(xi) any making of any loan, advance or capital contribution
to or investment by the Company in any Person, except for purchases of
investments for its investment portfolio consistent in all material
respects with its investment guidelines and past practices and except
for other transactions in the ordinary course of business and
consistent with past practice;
(xii) any transaction or commitment made, or any contract or
agreement entered into, between the Company, on the one hand, and
Seller or its Affiliates, on the other hand, except those which are to
be satisfied prior to the Closing pursuant to Section 6.11 hereof;
(xiii) any adoption of a plan of complete or partial
liquidation, dissolution, rehabilitation, restructuring,
recapitalization, re-domestication or other reorganization
18
with respect to the Company;
(xiv) any entry into any joint venture, partnership, managing
general agency or similar arrangement with any Person;
(xv) any incurrence by the Company of any material liability
for rate roll-backs or premium refunds, or failure by the Company to
pay in full all guaranty fund assessments of which written notice has
been received from any Governmental Authority; or
(xvi) any authorization, approval, agreement or commitment to
do any of the foregoing.
SECTION 4.10. INSURANCE RESERVES. The Reserves as of the
Reference Date and any subsequent date on which such Reserves may have been
redetermined (i) were determined in accordance with SAP; (ii) were computed in
accordance with generally accepted loss reserving standards and principles;
(iii) met the requirements of the Florida Insurance Department; and (iv) made
reasonable provision, in the aggregate, for all unpaid loss and loss expense
obligations, including obligations for incurred but not reported loss and loss
adjustment expenses, and unearned premiums as of the Reference Date. Except as
set forth in Section 4.10 of the Disclosure Schedule, none of the Reserves
reflected on the Quarterly Statutory Statement dated as of the Reference Date
have been discounted in any manner. The Company owns assets that qualify as
"admitted assets" under the Florida Insurance Code in an amount at least equal
to the Reserves plus its minimum statutory capital and surplus as required under
the Florida Insurance Code. Seller has delivered or made available to Purchaser
true and complete copies of all actuarial reports, actuarial certificates and
loss and loss adjustment expense reserve reports prepared internally or by any
third party actuarial consultant on behalf of or made available to Seller or any
of its Affiliates, including the Company, in each case relating to the adequacy
of the Reserves for any period ended on or after December 31, 1996. The
foregoing notwithstanding, Seller makes no representation and gives no warranty
with respect to the adequacy of the Reserves to cover the actual amount of
losses and loss adjustment expenses paid after the date hereof.
SECTION 4.11. JUDGMENTS, DECREES AND ORDERS. Except as set
forth in Section 4.11 of the Disclosure Schedule, neither the Company nor any of
its directors, officers or employees (in their capacity as such) is a party to
or subject to any judgment, decree, order, writ, award, or injunction of any
Governmental Authority or arbitrator. The Company is in compliance in all
material respects with respect to all judgments, orders, writs, arbitration
awards, injunctions, decrees or awards of any Governmental Author
