-
V
STATE OF MICHIGAN
CIRCUIT COURT FOR THE 30TH JUDICIAL CIRCUIT
INGHAM COUNTY
PATRICKM. MCPHARLIN, DIRECTOR OF THE DEPARTMENT OF INSURANCE AND
FINANCIAL SERVICES,
Petitioner, No. 15-898-CR
HON. CLINTON CANADY III
AFFIRMATIVE INSURANCE COMPANY [IN REHABILITATION] OF
MICHIGAN,
Respondent.
Christopher L. Kerr (P57131) M. Elizabeth Lippitt (P70373)
Assistant Attorneys General Attorney for Rehabilitator Michigan
Department of Attorney General Corporate Oversight Division P.O.
Box 30755 Lansing, Michigan 48909 (517) 373-1160
__________________/
REHABILITATOR'S VERIFIED MOTION TO TERMINATE
REHABILITATION, APPROVE THE ACTIONS OF THE REHABILITATOR,
DISCHARGE THE REHABILITATOR, AND FOR RELATED RELIEF
Patrick M. McPharlin, Director of the Michigan Department of
Insurance and
Financial Services ("DIFS"), as Court-appointed and statutory
Rehabilitator of
Affirmative Insurance Company of Michigan (the "Rehabilitator"),
by and through
his attorneys, Bill Schuette, Attorney General, and Christopher
L. Kerr and M.
Elizabeth Lippitt, Assistant Attorneys General, in support of
his Verified Motion to
-
terminate this Rehabilitation, approve the actions of the
Rehabilitator, discharge
the Rehabilitator, and for related relief (the "Verified
Motion"), states as follows:
HEARING
1. This Verified Motion is scheduled for hearing on July 19,
2017, at
2:30 p.m.
BACKGROUND
2. Affirmative Insurance Company of Michigan ("AIM") is
currently in
"run-off' status, having suspended writing any new insurance
business on March 1,
2011 and having suspended writing any renewal insurance business
on June 24,
2011.
3. AIM is a wholly-owned subsidiary of its parent company,
Affirmative
Insurance Company ("AIC"). Specifically, AIM's authorized
capital stock consists
solely of 75,000 shares of common stock, par value $100.00 per
share, all of which
are issued and outstanding. AIC is the record and beneficial
owner of one hundred
percent (100%) of the issued and outstanding shares of AIM stock
(the "AIM
Shares").
4. AIC is an Illinois domestic property and casualty insurance
company,
and on September 16, 2015, the Illinois Director of Insurance
placed AIC into
rehabilitation.
5. Based on AI C's rehabilitation and declining financial
position, the
Director of DIFS petitioned this Court on October 28, 2015 for
an order placing AIM
into rehabilitation pursuant to MCL 500.8112.
2
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6. On October 29, 2015, this Court entered a Stipulated Order
Placing
Affirmative Insurance Company of Michigan into Rehabilitation,
Approving
Compensation of Special Deputy Rehabilitator, and Providing
Injunctive Relief (the
"Rehabilitation Order"). The Rehabilitation Order appointed the
DIFS Director as
the Rehabilitator of AIM as required by MCL 500.8113(1), and
further approved the
compensation of the Rehabilitator's appointed Special Deputy
Rehabilitator, James
E. Gerber, under MCL 500.8114(1). By Order dated December 22,
2015, the Court
similarly approved the compensation of Janice Sylvertooth as an
additional Special
Deputy Rehabilitator appointed by the Rehabilitator. Hereafter,
Special Deputy
Gerber and Special Deputy Sylvertooth are referred to
collectively as the "Deputy
Rehabilitators."
7. On March 24, 2016, the Illinois Director of Insurance placed
AIM's
parent, AIC, into liquidation. The Illinois Circuit Court
overseeing the AIC
receivership appointed the Illinois Director of Insurance as the
Liquidator of AIC
(the "AIC Liquidator").
8. On November 30, 2016, the Illinois Circuit Court approved the
AIC
Liquidator's sale of AIM Shares to Enstar Holdings (US), Inc.
("Enstar") for
$5,025,000 (the "Transaction"). The $5,025,000 purchase price
represents AIM's
current statutory surplus less estimated adverse loss
development on claims over
the near term and a 12% financing factor. The Illinois Circuit
Court's Order
approving the Transaction is attached as Exhibit A.
9. Enstar, the AIC Liquidator, and the Rehabilitator
subsequently
entered into a Share Purchase Agreement dated as of April 7,
2017 memorializing
3
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the terms of the Transaction. The Share Purchase Agreement is
attached as
Exhibit B.
10. Under the Share Purchase Agreement, relevant conditions that
must
be fulfilled before the Transaction can be consummated and
formally close (the
"Closing") include DIFS' approval of the Transaction and an
Order from this Court
terminating the AIM Rehabilitation. (See Exhibit B, pp 3,
25.)
11. On July 5, 2017, DIFS issued an Order Approving Acquisition
that
approved the Transaction, contingent upon:
a. Pursuant to MCL 500.410, Enstar must increase AIM's capital
and
surplus to Michigan's minimum capital and surplus requirement
of
$7.5 million by the time of the Closing of the Transaction;
b. This Court's entry of an Order terminating the AIM
Rehabilitation;
and
c. Enstar agreeing to remove any officer and/or director who is
considered
inappropriate by DIFS based on pending background check
results.
(See Exhibit C, DIFS Order Approving Acquisition.)
12. The grounds for AIM's rehabilitation under MCL 500.8112 will
no
longer exist after the Closing of the Transaction.
13. Under these circumstances, the Rehabilitator has determined
that
terminating AIM's Rehabilitation is now appropriate. Moreover,
MCL 500.8116(2)
authorizes the Rehabilitator to petition this Court at any time
"for an order
terminating rehabilitation of an insurer."
4
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14. Given the unique circumstances involved in this
Rehabilitation,
including the present request to terminate based on the
Transaction, the
Rehabilitator has relied whenever necessary on provisions of
Chapter 81 of the
Michigan Insurance Code, MCL 500.8101- 500.8159 ("Chapter 81"),
that by their
terms apply to a liquidation proceeding. The Rehabilitator
continues to do so for
purposes of this Verified Motion.
15. By this Verified Motion, the Rehabilitator seeks generally
to terminate
the Rehabilitation, approve the Rehabilitator's actions, and
discharge the
Rehabilitator. The relief that the Rehabilitator specifically
seeks from the Court,
through entry of an Order in the form attached as Exhibit D, is
described more fully
below and summarized in the closing section entitled "Relief
Requested."
REQUEST FOR COURT APPROVAL OF ALL ACTIONS
TAKEN OR NOT TAKEN BY THE DIFS DIRECTOR AS
THE REHABILITATOR OF AIM
16. From the inception of this Rehabilitation, the Rehabilitator
and
Deputy Rehabilitators have taken possession of AIM's assets,
marshaled assets,
compromised claims, mitigated liabilities, and otherwise
administered the
Rehabilitation and business of AIM in accordance with Chapter
81.1 The
Rehabilitator and Deputy Rehabilitators have taken all of these
actions under this
Court's general supervision.
17. Further, the Rehabilitator has complied with this Court's
directives in
this matter.
1 These Rehabilitation activities are detailed in the Deputy
Rehabilitator's First Report and Accounting filed with this Court
on April 25, 2017.
5
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18. In addition, throughout the course of this Rehabilitation,
the
Rehabilitator sought express Court approval of all material
transactions.
19. Consequently, the Rehabilitator seeks entry of an Order
approving all
actions taken or not taken by the Rehabilitator and his Deputy
Rehabilitators,
representatives, agents, accountants, attorneys, successors,
predecessors, officers,
directors, and assigns throughout the Rehabilitation, and
providing that such
actions taken or not taken have been properly executed and have
met the
requirements of Chapter 81 and the laws of the state of Michigan
in general, as
ascertained by and reviewed by this Court through the date of
the Order.
REQUEST FOR DISCHARGE OF REHABILITATOR AND
RELEASE OF ALL CLAIMS AGAINST THE DIFS DIRECTOR AS
THE REHABILITATOR OF AIM
20. MCL 500.8146(1) provides for discharge of the liquidator (in
this case,
the Rehabilitator) once all assets justifying the expense of
collection and
distribution have been collected and distributed under Chapter
81.
21. As explained above, the Rehabilitator has marshaled all
readily
collectible assets of AIM, which will be transferred to Enstar
via the Transaction.
22. The DIFS Director, as Rehabilitator of AIM, therefore seeks
an Order
that the Rehabilitator and his Deputy Rehabilitators,
representatives, agents,
accountants, attorneys, successors, predecessors, officers,
directors, and assigns are
fully, finally, and unconditionally discharged and released from
any duties,
obligations, claims, and liabilities relating to or arising out
of the Rehabilitation of
AIM.
6
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REQUEST FOR BAR ORDER FOR ALL CLAIMS
AGAINST THE REHABILITATOR
23. The Rehabilitator also requests an Order that all claims and
causes of
action against the Rehabilitator and his Deputy Rehabilitators,
representatives,
agents, accountants, attorneys, successors, predecessors,
officers, directors, and
assigns for any and all actions taken or not taken throughout
the Rehabilitation of
AIM are completely and forever barred, and that from and after
entry of the Order
terminating the Rehabilitation, these parties shall have no
further responsibility,
obligations, or liability under Chapter 81 or the laws of the
State of Michigan with
respect to any matter relating to or arising out of the AIM
Rehabilitation.
REQUEST FOR APPROVAL OF RECORD DESTRUCTION
24. In anticipation of the Transaction, the Rehabilitator has
coordinated
with Enstar for the transfer of AIM company and Rehabilitation
estate records. As
necessary, the Rehabilitator (or DIFS Director as former
Rehabilitator) will
continue this process following the Closing.
25. With respect to any AIM company and Rehabilitation estate
records
that the Rehabilitator retains, whether due to required
retention policies and/or
Enstar indicating that their transfer is not necessary (the
"Retained AIM Records"),
the Rehabilitator recommends and seeks authority to destroy
these Retained AIM
Records on a rolling, yearly basis, such that every year all
documents more than
seven (7) years old will be destroyed unless their retention is
otherwise required by
law, without further request to the Court by the
Rehabilitator/DIFS Director as
former Rehabilitator and without further review or order of this
Court.
7
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REQUEST FOR ORDER TERMINATING REHABILITATION,
DISCHARGING ALL REPORTING OBLIGATIONS, AND FOR
RELATED RELIEF CONCERNING CLOSING OF THE TRANSACTION
26. The Rehabilitator seeks an Order presently terminating
the
Rehabilitation of AIM.
27. The Rehabilitator also requests that no further reports
regarding the
Rehabilitation of AIM be required of the Rehabilitator to any
person or entity,
including but not limited to reports to this Court and reports
to DIFS.
28. Because the Rehabilitation of AIM will terminate prior to
the Closing
of the Transaction and the Closing is subject to certain
contingencies, the
Rehabilitator requests that the Order include other related,
necessary relief.
29. First, during any interim period between entry of the
Order
terminating AIM's Rehabilitation and the Closing of the
Transaction, AIM's assets
and business operations will be subject to the express control
of, and directly
managed by, the AIC Liquidator.
30. Second, within three (3) business days after the Closing,
Enstar will
notify the Rehabilitator (or DIFS Director as former
Rehabilitator) and his legal
counsel that all contingencies to Closing have been satisfied
and the Closing has
occurred. Upon request by the Rehabilitator/DIFS Director as
former Rehabilitator,
Enstar will also provide evidence that a sufficient capital
contribution has been
made to increase AIM's capital and surplus to a level that meets
or exceeds
Michigan's minimum statutory requirement of $7.5 million.
8
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31. Third, as soon as practicable after receiving Enstar's
confirmation of
the Closing, the Rehabilitator/DIFS Director as former
Rehabilitator will petition
the Court for entry of a Final Order closing this case.
32. Fourth, if the Closing of the Transaction does not occur
within the time
specified in the Share Purchase Agreement because of Enstar's
failure to satisfy a
stated contingency or for any other reason, Enstar or the AIC
Liquidator will
promptly notify the Rehabilitator. The Rehabilitator will then
file a notice with this
Court that the Closing did not occur (the "Notice"), and upon
the filing of such
Notice the Court will vacate the Order terminating AIM's
Rehabilitation (as
described above and attached as Exhibit D) and reinstate the
Rehabilitation of AIM.
AUTHORIZATION OF SERVICE
33. The Rehabilitator has identified Enstar and the AIC
Liquidator
(collectively, the "Transaction Parties") as the only parties
having a significant
interest in this Verified Motion and the proposed Order attached
as Exhibit D.
Prior to filing, counsel for the Rehabilitator provided a copy
of these documents to
authorized representatives of the Transaction Parties for their
review.
34. As the attached Proof of Service reflects, a copy of the
filed Verified
Motion and Exhibits (including the proposed Order attached as
Exhibit D), together
with the Notice of Hearing, were also personally served via U.S.
First Class Mail
and e-mail on the Transaction Parties as follows:
Enstar c/o Robert Redpath, Senior Vice President & Corporate
Counsel; and
The AIC Liquidator c/o J. Kevin Baldwin, General Counsel &
Director of Receivership Operations
9
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Again, the Rehabilitator has identified these Transaction
Parties as having the
greatest potential interest in this matter, justifying their
receipt of personal service.
The Rehabilitator will likewise personally serve any Order
entered as a result of
this Verified Motion on the Transaction Parties.
35. Beyond the Transaction Parties, personally serving this
Verified
Motion, the Notice of Hearing, and any resulting Order on other
individuals or
entities that may have a general interest in AIM's
Rehabilitation would be
impractical at this time because there has been no claims
submission or other
process for their identification. Moreover, attempting to
identify and personally
notify every individual or entity having such a general interest
would be time
intensive and costly to the Rehabilitation estate. For these
reasons, the
Rehabilitator requests that the Court authorize and ratify
service of this Verified
Motion, the Notice of Hearing, and any resulting Order on other
potentially
interested individuals or entities by posting electronic copies
on the DIFS website,
www.michigan.gov/difs, under the section "Who We Regulate," the
subsection
"Receiverships," and the sub-subsection "Affirmative Insurance
Company of
Michigan."
36. Service in the foregoing manner is reasonably calculated to
give the
Transaction Parties and any other potentially interested
individuals or entities
actual notice of these proceedings and is otherwise reasonable
under the
circumstances.
10
www.michigan.gov/difs
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VERIFICATION
37. This Motion is verified below by James E. Gerber, the
Special Deputy
Rehabilitator of AIM.
RELIEF REQUESTED
WHEREFORE, the Director of DIFS, acting in his capacity as the
Court
appointed and statutory Rehabilitator of AIM, respectfully
requests entry of an
Order in the form attached as Exhibit D:
(a) Granting the Rehabilitator's Verified Motion;
(b) Approving all actions taken or not taken by the
Rehabilitator and his past and present agents;
(c) Discharging the Rehabilitator and his past and present
agents;
(d) Unconditionally releasing the Rehabilitator and his past and
present agents;
(e) Forever barring all claims against the Rehabilitator and his
past and present agents;
(f) Authorizing destruction of Retained Records;
(g) Terminating the Rehabilitation and discharging the
Rehabilitator's reporting obligations;
(h) Subjecting AIM's assets and business operations to the
direct control and management of the AIC Liquidator during any
interim period between entry of the Order terminating AIM's
Rehabilitation and the Closing of the Transaction;
(i) Requiring Enstar to notify the Rehabilitator and his legal
counsel that all contingencies to Closing have been satisfied and
the Closing has occurred, and upon request, providing evidence that
AIM's capital and surplus meets or exceeds Michigan's minimum
statutory requirement;
(g) If the Closing of the Transaction does not occur within the
time . specified in the Share Purchase Agreement, requiring Enstar
or
the AIC Liquidator to promptly notify the Rehabilitator,
after
11
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which the Rehabilitator will file a Notice regarding same with
this Court and the Court will vacate the Order terminating AIM's
Rehabilitation and reinstate the Rehabilitation of AIM;
(h) Authorizing and ratifying the Rehabilitator's service of
this Verified Motion, the Notice of Hearing, and any resulting
Order via U.S. First Class Mail and e-mail on the Transaction
Parties only, and on any other potentially interested individuals
or entities by posting electronic copies on the DIFS website;
and
(i) Granting such other and further relief as the law or equity
reqmre.
Respectfully submitted,
Bill Schuette Attorney General
LJ(fd}~-tcChristophe;. ~131) M. Elizabeth Lippitt (P70373)
Assistant Attorneys General Attorneys for Petitioner Corporate
Oversight Division P.O. Box 30755 Lansing, Michigan 48909 (517)
373-1160
Dated: July 12, 2017
12
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VERIFICATION
STATE OF MICHIGAN )
)ss.
COUNTY OF INGHAM )
James E. Gerber, who was appointed as Special Deputy
Rehabilitator by the
Court-appointed and statutory Rehabilitator of AIM and whose
compensation was
approved by the Court, being first duly sworn, deposes and says
that he makes this
Verification on the Rehabilitator's behalf; that he has read the
foregoing Verified
Motion to Terminate Rehabilitation, Approve the Actions of the
Rehabilitator,
Discharge the Rehabilitator, and for Related Relief; that he
executes this Verified
Motion for and on behalf of the Rehabilitator and that he is
duly authorized to do
so; and that the matters conta ined in the Verified Motion are
true to his personal
knowledge and/or are true to the best of his information and
belief.
~~~ ~ Special Deputy Rehabilitator
Subscribed and sworn to before me, a Notary Public in and for
said county, thisl~day of July, 2017
rwi~~.~ l.ir:da S. Miers
Notary Public, Jackson County, acting in Ingham County, Michigan
My commission expires: 12-28-2023
13
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V
STATE OF MICHIGAN
CIRCUIT COURT FOR THE 30TH JUDICIAL CIRCUIT
INGHAM COUNTY
PATRICK M. MCPHARLIN, DIRECTOR OF THE DEPARTMENT OF INSURANCE
AND FINANCIAL SERVICES,
Petitioner, No. 15-898-CR
HON. CLINTON CANADY III
AFFIRMATIVE INSURANCE COMPANY OF [IN REHABILITATION]
MICHIGAN,
Respondent.
Christopher L. Kerr (P57131) M. Elizabeth Lippitt (P70373)
Assistant Attorneys General Attorney for Rehabilitator Michigan
Department of Attorney General Corporate Oversight Division P.O.
Box 30755 Lansing, Michigan 48909 (517) 373-1160
_______________!
PROOF OF SERVICE
The undersigned certifies that a copy of the Rehabilitator's
Verified Motion to Terminate Rehabilitation, Approve the Actions of
the Rehabilitator, Discharge the Rehabilitator, and for Related
Relief, along with Exhibits A-D and the Notice of Hearing, together
with this Proof of Service, was served upon the parties listed
below by mailing and e-mailing the same to them at their respective
addresses with first class postage fully prepaid thereon, on the
12th day of July, 2017:
-
LIQUIDATOR OF AFFIRMATIVE INSURANCE COMPANY:
J. Kevin Baldwin
General Counsel & Director of Receivership Operations
Illinois Office of the Special Deputy Receiver
222 Merchandise Mart Plaza, Suite 960
Chicago, IL 60654
[email protected]
ENSTAR HOLDINGS (US), INC.:
Robert Redpath
Senior Vice President & Corporate Counsel
411 Fifth Avenue
New York, NY 10016
[email protected]
In addition, electronic copies of the foregoing documents will
be provided to the Department of Insurance and Financial Services,
which will provide courtesy notice to other potentially interested
individuals/entities by posting the documents on its website,
www.michigan.gov/difs, under the section "Who We Regulate," the
subsection "Receiverships," and the sub-subsection "Affirmative
Insurance Company of Michigan."
~~e_cfJ~ inda S. Miers, Legal Secretary
2
www.michigan.gov/difsmailto:[email protected]:[email protected]
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~-- -...... ~ ", '
,. !
EXHIBIT A
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IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DMSION
IN THE MATTER OF THE LIQUIDATION OF ) AFFIRi'1ATIVE INSURANCE
COMPAA"Y ) NO. 15 CH 13718
ORDER
THIS CAUSE HAVINO COME BEFORE THE COURT upon the Motion of
Anne
Melissa Dowling, Acting Director of Insurance of the State of
Illinois, in her capacity as the
statutory and court-affirmed Liquidator (the "Liquidator") of
Affinnative Insurance Company
("Affinnative") for the entry of an order approving the sale of
an estate asset, Affirmative
Insurance Company of Michigan ("AIM"); due notice having been
given; the Court having
jurisdiction over the parties hereto and the subject matter
hereof; the Court having reviewed the
pleading filed herein and having heard from counsel for the
Liquidator thereon; and the Court
having been otherwise advised in the premises;
THE COURT HEREBY ORDERS THAT:
A. The Liquidator's recommendation for approval ofthe sale ofAIM
to Enstar
Holdings (US), Inc., ("Enstar") in consideration of Enstar's
payment to
Affirmative of five million and twenty-five thousand dollars in
United States
currency ($5,025,000) (the "Sale") is approved; and
ENTEREif:dgeAnnaHelenDemacupoul,
NOV 3o2016 CireuitCourt - 2002
Judge Presiding
-
J. Kevin Baldwin Daniel A. Guberman [email protected]~ Kevin
W. Horan Rory E. Hoskins [email protected] Counsel to the
Receiver 222 Merchandise Mart Plaza Suite 960 Chicago, Illinois
60654 (312) 836-9500 Attorney Code# 16819
2
mailto:[email protected]:[email protected]
-
I l . . . . . . . ........... . . .
EXHIBITB
-
Execution Version
SHARE PURCHASE AGREEMENT
dated as of
April 7, 2017
among
ENST AR HOLDINGS (US), INC.,
Jennifer Hammer,
Director of Insurance for the State of II] inois,
solely in her capacity as the statutory and court-affirmed
Liquidator of Affirmative Insurance Company
and
PATRICKMCPHARLIN
Director of the Michigan Department of Insurance and Financial
Services,
solely in his capacity as Rehabilitator for
Affirmative Insurance Company of Michigan
relating to the purchase and sale
of I 00% of the shares
of
AFFIRMATIVE INSURANCE COMPANY OF MICHIGAN
86625280.11
http:86625280.11
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TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS
...............................................................................................
2
Section 1.0 I
Definitions............................................................................................
2
Section 1.02 Other Definitional and Interpretative Provisions
................................. 6
ARTICLE 2. PURCHASE AND SALE
..............................................................................
7
Section 2.0 I Purchase and Sale
................................................................................
7
Section 2.02 Purchase of Shares
...............................................................................
7
Section 2.03 Waiver of Pre-Emption
........................................................................
7
Section 2.04 Closing
.................................................................................................
7
Section 2.05 Withholding Tax
..................................................................................
8
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER
WITH RESPECT TO THE COMP ANY
..................................................... 8
Section 3.01 Corporate Existence and Power
........................................................... 8
Section 3.02 Non-contravention
...............................................................................
8
Section 3.03 Capitalization
.......................................................................................
8
Section 3.04 Financial Statements
............................................................................
9
Section 3.05 Absence of Certain Changes
..............................................................
10
Section 3.06 No Undisclosed Material Liabilities
.................................................. 10
Section 3.07 Material
Contracts..............................................................................
1 0
Section 3.08 Litigation
............................................................................................
11
Section 3.09 Comp1iance with Laws and Court Orders; Permits
........................... 11
Section 3.10 Properties
...........................................................................................
12
Section 3.1 1 Intellectual Property
...........................................................................
12
Section 3.12 Finders' Fees
......................................................................................
13
Section 3.13 Employees; Benefit Plans
..................................................................
13
Section 3 .14 Environmental Matters
.......................................................................
13
Section 3.15 Tax
.....................................................................................................
14
Section 3.16 Insurance Matters
...............................................................................
15
Section 3. 17 Insurance
............................................................................................
18
Section 3.18 Certain Relationships
.........................................................................
18
Section 3 .19 Books and Records
............................................................................
18
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER
................... 19
Section 4.01 Corporate Existence and Power
......................................................... 19
Section 4.02 Corporate Authorization
....................................................................
19
Section 4.03 Governmental Authorization
.............................................................
19
Section 4.04 Non-contravention
.............................................................................
19
Section 4.05 Ownership of Shares
..........................................................................
19
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER
.................... 20
Section 5.01 Corporate Existence and Power
......................................................... 20
Section 5.02 Corporate Authorization
....................................................................
20
Section 5.03 Governmental Authorization
.............................................................
20
Section 5.04 Non-contravention
.............................................................................
20
Section 5.05
Financing............................................................................................
20
Section 5.06 Purchase for Investment
.....................................................................
20
-1
-
TABLE OF CONTENTS ( continued)
Page
Section 5 .07 Litigation
............................................................................................
21
Section 5.08 Finders' Fees
......................................................................................
21
ARTICLE 6. COVENANTS OF SELLER
.......................................................................
21
Section 6.0 I Conduct of the Company
...................................................................
21
Section 6.02 Access to Information
........................................................................
23
Section 6.03 Intercompany Accounts; Affiliate Agreements
................................. 23
ARTICLE 7. COVENANTS OF BUYER
.........................................................................
23
Section 7.01 Confidentiality
...................................................................................
23
Section 7.02 Access
................................................................................................
24
ARTICLE 8. COVENANTS
..............................................................................................
24
Section 8.01 Reasonable Best Efforts; Further Assurances
.................................... 24
Section 8.02 Certain Filings
....................................................................................
24
Section 8.03 Tax Matters
........................................................................................
25
Section 8.04 Public Announcements
......................................................................
25
ARTICLE 9. CONDITIONS TO CLOSING
....................................................................
25
Section 9.01 Conditions to Obligations of Buyer and Seller
.................................. 25
Section 9.02 Conditions to Obligation of
Buyer..................................................... 26
Section 9.03 Conditions to Obligation of the Seller
............................................... 26
ARTICLE 10. SUR VIV AL; INDEMNIFICATION
.......................................................... 26
Section I 0.0 l Survival
..............................................................................................
26
Section I 0.02 Indemnification
..................................................................................
27
Section l 0.03 Third Party Claim Procedures
............................................................ 27
Section 10.04 Direct Claim Procedures
....................................................................
28
Section I 0.05 Calculation of Damages
.....................................................................
29
Section l 0.06 Exclusivity
.........................................................................................
29
ARTICLE 11. TERMINATION
..........................................................................................
30
Section 11.01 Grounds for Termination
...................................................................
30
Section 11.02 Effect of
Termination.........................................................................
30
ARTICLE 12. MISCELLANEOUS
....................................................................................
31
Section 12.0 I Notices
...............................................................................................
31
Section 12.02 Amendments and Waivers
.................................................................
32
Section 12.03 Transfer Taxes
...................................................................................
32
Section 12.04 Expenses
............................................................................................
32
Section 12.05 Successors and Assigns
......................................................................
32
Section 12.06 Governing Law
..................................................................................
33
Section 12.07 Jurisdiction
.........................................................................................
33
Section 12.08 Acknowledgment
..............................................................................
33
Section 12.09 WAIVER OF JURY TRIAL
..............................................................
33
Section 12. l 0 Counterparts; Effectiveness; Third Party
Beneficiaries ..................... 33
Section 12.11 Entire Agreement
...............................................................................
33
Section 12.12 Severability
........................................................................................
34
Section 12.13 Disclosure Schedules
.........................................................................
34
Section 12.14 Specific Performance
.........................................................................
34
-II
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SHARE PURCHASE AGREEMENT
THIS AGREEMENT (this ""Agreement") is dated as of April 7, 2017,
between Enstar Holdings (US), Inc., a Delaware company ("Buyer"),
Jennifer Hammer, Director of Insurance of the State of Illinois, in
her capacity as the statutory and court-affirmed liquidator of
Affirmative Insurance Company, an Illinois insurance corporation
(the "Seller"), and Patrick McPharlin, Director of the Michigan
Department of Insurance and Financial Services ("MDIFS"), solely in
his capacity as rehabilitator for the Company (acting in such
capacity, "Rehabilitator").
WHEREAS, Seller is the record and beneficial owner of alJ of the
issued and outstanding shares (the '"Shares") of Affirmative
Insurance Company of Michigan, a Michigan insurance corporation
(the "Company");
WHEREAS, the Director of the Illinois Department of Insurance
('"ILDOI"), as statutory and court affirmed liquidator of
Affirmative Insurance Company pursuant to an order of liquidation
entered by the Circuit Court of Cook County (the "Supervisory
Court"), dated March 24, 2016 has appointed J. Kevin Baldwin as her
lawful agent and attorney-in-fact to act in her name or the name of
Affirmative Insurance Company and on her behalf as SelJer;
WHEREAS, the Company has been placed into rehabilitation
pursuant to that certain Stipulated Order of the State of Michigan
Circuit Court for the 30th Judicial Circuit, Ingham County (the
"Michigan Court"), dated October 29, 2015 (the "Rehabilitation
Order"), pursuant to which Rehabilitator has been appointed as
rehabilitator of the Company; and
WHEREAS, Seller desires to sell the Shares to Buyer, and Buyer
desires to purchase the Shares from Seller, on the terms and
subject to the conditions set forth in this agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. (I) As used herein, the following
terms have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common
control with such Person. For purposes of this definition,
'control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and
'"controlled" have correlative meanings.
"Applicable Law" means, with respect to any Person, any
domestic, foreign, transnational or federal, state or local law
(statutory, common or otherwise), constitution, treaty, convention,
ordinance, code, rule, regulation, order, injunction, judgment,
decree, ruling or other similar requirement enacted, adopted,
promulgated or applied by a Governmental Authority that
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is binding upon or applicable to such Person, as amended unless
expressly specified otherwise.
"Balance Sheet" means the audited balance sheet of the Company
as of the Balance Sheet Date.
"Balance Sheet Date" means December 31, 2015.
"Business Day" means a day, other than Saturday, Sunday or other
day on which commercial banks in New York, New York or Hamilton,
Bermuda are authorized or required by Applicable Law to close.
"Closing Date" means the date of the Closing.
"Code" means the United States Internal Revenue Code of
1986.
''Company Intellectual Property Rights" means all Intellectual
Property Rights owned or used by the Company.
"Environmental Laws" means any Applicable Law that has as its
principal purpose the protection of the environment.
'ERISA" means the United States Employee Retirement Security Act
of 1974, as amended to date.
'ERISA Affiliate" means each entity that ts treated as a single
employer with the Company for purposes of Section 414 of the
Code.
"Governmental Authority" means any transnational, domestic or
foreign federal, state or local governmental, regulatory or
administrative authority, department, court, agency or official,
including any political subdivision thereof, including the
MDIFS.
''GAAP" means genera]]y accepted accounting principles in the
United States.
"Intellectual Property Right" means any trademark, service mark,
trade name, brand name, logo, mask work, patent, trade secret,
copyright, know-how, domain name, computer program (including any
registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual
property right.
"Knowledge of the Seller", "Seller's Knowledge" or any other
similar knowledge qualification in this Agreement means, with
respect to matters qualified by the knowledge of the Seller, the
actual knowledge, after due inquiry, of James Gerber, Janice
Sylvertooth, Dawn Hutchieson, Kimberley Hutchieson, Douglas Harre]]
and the Rehabilitator.
"Lien" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, equitable
interest, option, right of first refusal or encumbrance in respect
of such property or asset.
"Material Adverse Effect" means a material adverse effect on (i)
the financial condition,
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business, assets or results of operations of the Company or (ii)
the ability of the Seller to consummate the transactions
contemplated hereby on a timely basis, exc1uding any effect
resulting from (A) changes in GAAP or changes in the regulatory
accounting requirements applicable to any industry in which the
Company operates, (B) changes in the genera] economic or political
conditions, including any change in commodity prices or increase in
interest rates, (C) changes (including changes of Applicable Law)
or conditions genera11y affecting any industry in which the Company
operates, (D) acts of war, sabotage or terrorism, the outbreak or
escalation of hostilities, change in geopolitical conditions or
natural disasters, (E) the announcement or consummation of the
transactions contemplated by this Agreement (including the identity
of Buyer), (F) any action taken (or omitted to be taken) at the
request of Buyer, (G) any action taken by the Company that is
required by this Agreement, (H) the negotiation and execution of
this Agreement, the announcement by Buyer of its intention to
acquire the Company or the consummation of the transactions
contemplated hereby, or (I) the Rehabilitation Order; provided,
however, that any change, event or effect referred to in the
foregoing clauses (A) through (D) shall be taken into account in
determining whether a Material Adverse Effect has occurred or could
reasonably be expected to occur to the extent that such change,
event or effect has a disproportionate effect on the Company
compared to other participants in the industries in which the
Company operates; provided further, that if any change, event or
effect has a material adverse effect on the Company of more than $
I 00,000 individually, or $500,000 in the aggregate, the exc1usions
in the foregoing clauses (A) through (G) sha11 be disregarded and
such change, event or effect sha11 be deemed "material" and a
"Material Adverse Effect" for purposes of this Agreement.
"Permitted Liens" means: (a) Liens disc1osed on Schedule 1.0 I;
(b) Liens disc1osed on the Balance Sheet or notes thereto that
secure liabilities reflected on the Balance Sheet; (c) Liens for
taxes, assessments and similar charges that are not yet due or are
being contested in good faith and for which adequate reserves, in
accordance with GAAP, have been established; (d) mechanic's,
materialman's, carrier's, repairer's and other similar Liens
arising or incurred in the ordinary course of business or that are
not yet due and payable or are being contested in good faith; or
(e) in the case of leased property, Liens to which the interest or
title of the applicable lessor or sublessor may be subject.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or
organization, including a Governmental Authority.
"Pre-Closing Tax Period" means (i) any tax period ending on or
before the Closing Date and (ii) with respect to a tax period that
begins before but ends after the Closing Date, the portion of such
period up to and inc1uding the Closing Date.
"Regulatory Approvals" means (i) the formal written consent or
non-objection of the MDIFS to the acquisition of the Company by the
Buyer and other transaction contemplated by this Agreement, (ii)
the approval of the Michigan Court (or any successor thereto) and
Rehabilitator to dismiss the rehabilitation proceedings relating to
the Rehabilitation Order, (iii) the approval of the Supervisory
Court to the sale of the Company to the Buyer upon the terms and
conditions set forth in this Agreement, (iv) the approval of the
ILDOI, and (v) any other approval of any Governmental Authority
required in connection with this Agreement or the transactions
contemplated hereby, which approvals shall not be subject to any
Burdensome
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Conditions as defined in Section 8.02(b ).
'"Reinsurance Contract" means any reinsurance or retrocession
contract under which the Company may be either obligated to make
payments or be eligible to continue to receive benefits, to which
the Company is a party (whether as a ceding or assuming company) or
by or to which the Company is bound or subject, as each such
contract may have been amended, modified or supplemented from time
to time, and at any time.
"'SAP" means the statutory accounting principles and practices
prescribed or permitted by applicable insurance or similar Law.
'"Tax" means (i) any federal, state, local or foreign tax,
governmental fee or other like assessment or charge of any kind
whatsoever (including those on or measured by or referred to as
income, gross receipts, sales, use, production, ad valorem,
transfer, franchise, registration, profits, license, lease,
service, service use, withholding, payroll, employment,
unemployment, estimated, excise, severance, environmental, stamp,
occupation, premium, value added, property (real or personal), real
property gains, escheat obligations, customs' duties, windfall
profits taxes, or similar taxes, fees, assessments or charges of
any kind whatsoever (whether payable directly or by withholding and
whether or not requiring the filing of a Tax Return)), together
with any interest, penalty, addition to tax or additional amount
imposed by any Governmental Authority responsible for the
imposition of any such tax and (ii) any liability for the payment
of any amount of the typ~ described in the immediately preceding
clause (i) as a result of the Company being a member of an
affiliated, consolidated or combined group with any other
corporation at any time on or prior to the Closing Date.
"Tax Authority" means any Governmental Authority responsible for
the administration or the imposition of Taxes.
"Tax Returns" means any and all returns, declarations, reports,
statements, certificates, schedules, claims for refund or other
documents of or with respect to any Tax which is supplied to any
Tax Authority, including any and all attachments, amendments and
supplements thereto.
"Transaction Expenses" means fees, costs and expenses (including
legal and accounting fees, costs and expenses) of the Company
incurred through the Closing in connection with or arising out of
the planning, structuring, negotiation or consummation of the
transactions contemplated by this Agreement.
Each of the following terms is defined in the Section set forth
opposite such term:
Term Section Affiliate Agreements 3.18 Agreement Preamble
Burdensome Condition 8.02(b) Buyer Preamble Cap 10.02(a) Closing
2.04(a) Company Preamble Company Employees 3.13(a)
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Term Section Cut-Off Date 10.01 Damages I 0.02(a) Financial
Statements 3.04(a) Fundamental Representations 10.01 ILDOI Recitals
Indemnified Party I0.03(a) Indemnifying Party I 0.03(a) Insurance
Licenses 3.16(c) Insurance Policies 3.17 Leased Real Property
3.IO(b) Material Contract 3.07 MDIFS Preamble Michigan Court
Recitals Permits 3.09(b) Purchase Price 2.01 Regulatory Filings 3.
l 6(k) Rehabilitation Order Recitals Rehabilitator Preamble
Schedules Article 3 Scheduled Investments 3.16(1) Seller Preamble
Shares Preamble Statutory Financial Statements 3.04(b) Supervisory
Court Preamble Third Party Claim I 0.03(a)
Section 1.02 Other Definitional and Interpretative Provisions.
The words "hereof', "herein" and "hereunder" and words of like
import used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The
captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
References to Articles, Sections, Exhibits and Schedules are to
Articles, Sections, Exhibits and Schedules of this Agreement unless
otherwise specified. All Exhibits and Schedules annexed hereto or
referred to herein are hereby incorporated in and made a part of
this Agreement as if set forth in full herein. Any capitalized
terms used in any Exhibit or Schedule but not otherwise defined
therein, shall have the meaning as defined in this Agreement. Any
singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words
"include", "includes" or ""including" are used in this Agreement,
they shall be deemed to be followed by the words '"without
limitation", whether or not they are in fact followed by those
words or words of like import. "Writing", "written" and comparable
terms refer to printing, typing and other means of reproducing
words (including electronic media) in a visible form. References to
any statute shall be deemed to refer to such statute as amended
from time to time and to any rules or regulations promulgated
thereunder. References to any agreement or contract are to that
agreement or contract as amended, modified or supplemented from
time to time in accordance with the terms hereof and thereof;
provided that with respect to any agreement or contract listed on
any schedules hereto, all such amendments,
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modifications or supplements must also be listed in the
appropriate schedule. References to any Person include the
successors and permitted assigns of that Person. References from or
through any date mean, unless otherwise specified, from and
including or through and including, respectively. References to
"law", "laws" or to a particular statute or law shall be deemed
also to include any and all Applicable Law.
ARTICLE 2. PURCHASE AND SALE
Section 2.0 I Purchase and Sale. Upon the terms and subject to
the conditions of this Agreement, at the Closing, Seller agrees to
sell to Buyer, and Buyer agrees to purchase from Seller, the
Shares, free and clear of all Liens. The aggregate purchase price
for the Shares is five million and twenty-five thousand dollars in
United States Currency ($5,025,000 U.S,) (the "Purchase
Price").
Section 2.02 Purchase of Shares. Neither Buyer nor Seller shall
be obliged to complete the sale and purchase of any of the Shares
unless the sale and purchase of all the Shares is completed
simultaneously.
Section 2.03 Waiver of Pre-Emption. Seller waives and shall
procure that there will be waived before Closing all rights of
pre-emption and other restrictions on transfer over the Shares
conferred on it or any other person under the articles of
incorporation or bylaws of the Company or otherwise and further
waives any right to terminate any agreement or arrangement between
Seller and the Company which may arise as a result of the transfer
of Shares.
Section 2.04 Closing.
(a) The closing (the "Closing") of the purchase and sale of the
Shares hereunder shall take place remotely by electronic exchange
of executed documents or at the offices of Drinker Biddle &
Reath LLP, One Logan Square, Suite 2000, Philadelphia, PA I 9103,
as soon as possible, but in no event later than five (5) Business
Days, after satisfaction or, to the extent permissible, waiver by
the party or parties entitled to the benefit of the conditions set
forth in Article 9 ( other than conditions that by their nature are
to be satisfied at the Closing, but subject to the satisfaction or,
to the extent pennissible, waiver of those conditions at the
Closing), or at such other time or place as Buyer and the Seller
may agree.
(b) At the Closing, the Seller shall deliver to the Buyer those
items set out in Section 9.02 and a properly executed certificate
pursuant to Treasury Regulation Section l .14452(b) that Seller is
not a foreign person within the meaning of Section 1445 of the
Code.
(c) At the Closing, the Buyer shall:
(i) deliver to Seller the Purchase Price, less the amount of the
Transaction Expenses set forth on Schedule 2.04(c){ii}, by wire
transfer to an account designated by Seller;
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(ii) pay all unpaid Transaction Expenses set forth on Schedule
2.04(c)(ii) to the parties set forth on such schedule, which shall
be delivered to Buyer at least one Business Day prior to the
Closing Date; and
(iii) deliver to the Seller those items set out in Section
9.03.
Section 2.05 Withholding Tax. Buyer and the Company shall be
entitled to deduct and withhold from any amounts payable under this
Agreement all Taxes, if any, that Buyer and the Company may be
required to deduct and withhold under any provision of Tax law. All
such amounts shall be treated as delivered to Seller hereunder.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE SELLER WITH RESPECT TO THE
COMPANY
Except as set forth in the disclosure schedules delivered by
Seller to Buyer on the date hereof (the "Schedules"), the Seller
represents and warrants to Buyer that:
Section 3.01 Corporate Existence and Power. The Company is a
Michigan insurance corporation duly incorporated and validly
existing under the laws of its jurisdiction of incorporation and
has all corporate power and authority and all governmental
licenses, authorizations, permits, consents and approvals required
to own its assets and carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and
approvals the absence of which would not reasonably be expected to
have a Material Adverse Effect.
Section 3.02 Non-contravention. The execution, delivery and
performance by the Se1ler of this Agreement and the consummation of
the transactions contemplated hereby do not and will not (i)
violate the organizational documents of the Company, (ii) assuming
compliance with the matters referred to in Section 4.03, violate
any Applicable Law, require any consent or other action by any
Person under, constitute a default under, or give rise to any right
of termination, cancellation or acceleration of any right or
obligation of the Company or to a loss of any benefit to which the
Company is entitled under any provision of any agreement or other
instrument binding upon the Company or (iii) result in the creation
or imposition of any Lien on any asset of the Company, except for
any Permitted Liens with such exceptions, in the case of each of
clauses (i) and (ii), as would not reasonably be expected to have a
Material Adverse Effect.
Section 3.03 Capitalization. The authorized capital stock of the
Company consists solely of 75,000 shares of common stock, par value
$100.00 per share, all of which are issued and outstanding. The
Shares have been duly authorized and validly issued and are fully
paid and non-assessable. The Shares represent the only issued and
outstanding equity securities of the Company. All of the Shares
were issued in compliance with Applicable Law. None of the Shares
were issued in violation of any agreement, arrangement or
commitment to which Seller or the Company is a party or is subject,
nor are any Shares subject to, or issued in violation of, any
preemptive or similar rights of any Person. There are no shares of
the Company's capital stock held in the Company's treasury. Except
as set forth in this Section, there are no outstanding (i)
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secunt1es of the Company convertible into or exchangeable for
Shares of the Company, (ii) options or other rights to acquire from
the Company, or other obligation of the Company to issue, any
Shares or securities convertible into or exchangeable for Shares of
the Company, (iii) stock appreciation rights, phantom stock, profit
participation rights or similar rights or (iv) voting trusts or
other agreements or understandings the Company is a party or by
which the Company is bound with respect to the voting, transfer or
other disposition of its equity securities. The Company does not
have any subsidiaries and, except for portfolio investments made in
the ordinary course of business, the Company does not (x) own, of
record or beneficially, directly or indirectly, any membership
interest, common stock, any other voting stock or similar equity
securities (including options, warrants, rights, commitments or
agreements to acquire such equity securities) of any Person or any
right ( contingent or otherwise) to acquire the same; or (y)
otherwise possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of any
Person.
Section 3.04 Financial Statements.
(a) Seller has furnished to the Buyer (i) the Balance Sheet and
the related audited statements of income and cash flows for the
fiscal year ended December 31, 2015 and (ii) the unaudited balance
sheet dated June 30, 2016 and the related unaudited statement of
income for the six-month period then ended ((i) and (ii)
collectively, the "'Financial Statements"). The Financial
Statements fairly present in all material respects, in conformity
with GAAP applied on a consistent basis (except as may be indicated
in the notes to the audited financial statements), the financial
position of the Company as of the dates thereof and the results
ofoperations and cash flows for the periods then ended.
(b) The Company has timely filed all annual and quarterly
statutory financial statements required of the Company with the
applicable Governmental Authorities for the periods ended on or
after December 31, 2014. Seller has made available to Purchaser
prior to date hereof copies of (i) the annual statutory financial
statements or similar filings of the Company as of and for the
years ended December 31, 2015 and December 31, 2014 and the
exhibits, schedules, interrogatories, notes, electronic pages,
actuarial opinions and other material related thereto or required
in connection therewith, and (ii) the unaudited quarterly statutory
financial statements or similar filings of the Company as of and
for the quarterly periods ended March 31, 2016, June 30, 2016 and
September 30, 2016 and the exhibits, schedules, interrogatories,
notes, electronic pages, actuarial opinions and other material
related thereto or required in connection therewith (collectively,
the "Statutory Financial Statements"). Subject to the notes
thereto, the Statutory Financial Statements (A) were derived from
the books and records of the Company, (B) were prepared, in all
material respects, in accordance with aH applicable Laws and SAP
consistently applied during the periods involved and (C) present
fairly, in all material respects, the statutory financial position
and the statutory results of operations, capital and surplus of the
Company as of the respective dates and for the respective periods
referred to in the Statutory Financial Statements, subject to, in
the case of the Statutory Financial Statements described in clause
(ii) of this Section 3.04(b), normal year-end adjustments. No
material deficiency in respect of the Statutory Financial
Statements has been asserted by a Governmental Authority that has
not been cured or otherwise resolved to the satisfaction of such
Governmental Authority without imposition of any material penalty,
condition or obligation on the Company.
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(c) The Statutory Financial Statements required to be filed with
or submitted to any Governmental Authority have been so filed or
submitted on forms prescribed or permitted by such authority.
Except as indicated therein, all assets and investments reflected
on the Statutory Financial Statements comply in all material
respects with all applicable insurance Laws, SAP and investment
guidelines regulating the assets and investments of the Company
(including restrictions on assets and investments) and are in an
amount at least equal to the minimum amount required by Applicable
Law, SAP and investment guidelines. The financial statements
included in the Statutory Financial Statements accurately reflect
in all material respects the extent to which, pursuant to
applicable Laws and applicable SAP, the Company is entitled to take
credit for reinsurance.
Section 3.05 Absence of Certain Changes. Since the Balance Sheet
Date, the business of the Company has been conducted in the
ordinary course consistent with past practices and there has not
been any event, occurrence or development that has had or would
reasonably be expected to have a Material Adverse Effect. Except as
expressly contemplated by this Agreement, since the Balance Sheet
Date there has not occurred any of the actions or events listed in
Section 6.01. Since June 30, 20 I 6, there has not been any
material adverse change to the assets (including investments),
liabilities, and capital and surplus reflected in the quarterly
statutory statement of the Company for the period ended September
30, 2106.
Section 3.06 No Undisclosed Material Liabilities. There are no
liabilities, commitments or obligations of the Company of any kind,
other than: (a) liabilities provided for in the Balance Sheet or
disclosed in the notes thereto; (b) liabilities not required under
GAAP to be shown on the Balance Sheet; (c) liabilities disclosed on
Schedule 3.06; (d) liabilities incurred in the ordinary course of
business since the Balance Sheet Date.
Section 3.07 Material Contracts.
(a) Schedule 3.07 sets forth all of the following contracts and
agreements to which the Company is a party:
(i) any agreement involving payments to or from the Company in
excess of $50,000 during the last 12 months;
(ii) any lease (whether of real or personal property) providing
for annual rentals of $50,000 or more that cannot be terminated on
not more than 90 days' notice without payment by the Company of any
material penalty;
(iii) any partnership, joint venture or other similar agreement
or arrangement;
(iv) any agreement relating to the acquisition or disposition of
any business (whether by merger, sale of stock, sale of assets or
otherwise) pursuant to which the Company has ongoing
obligations;
(v) any agreement relating to indebtedness for borrowed money
(whether incurred, assumed, guaranteed or secured by any
asset);
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(vi) any agreement that limits the freedom of the Company to
compete in any line of business or with any Person or in any area
or to do business with or employ any Person;
(vii) any agreements with any Governmental Authority;
(viii) any agreements that provide for the indemnification of
any Person or the assumption of any liability of any Person,
including off balance sheet arrangements;
(ix) any employment agreements, severance agreements, or change
of control contracts and all contracts with independent contractors
or consultants;
(x) all reinsurance or coinsurance agreements; and
(xi) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the
Company.
Each agreement, contract, lease, arrangement or commitment
required to be disclosed pursuant to this Section (each, a
"Material Contract") is a valid and binding agreement of the
Company, and is in full force and effect, and neither the Company,
nor to the Knowledge of Seller, any other party thereto is in
default or breach in any respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment, except
for any such defaults or breaches which would not reasonably be
expected to have a Material Adverse Effect. The Company has not
provided or received any notice of intent to terminate any Material
Contract and there exists no breach or event of default (or
allegation of a breach or event of default) on the part of the
Company with respect to any Material Contract, or to the Knowledge
of Seller, by any other party thereto, and no condition exists or
event has occurred that with the giving of notice or passage of
time or both would constitute a violation or default thereunder by
the Company or, to the Knowledge of Seller, any other party
thereto, result in a termination thereof or permit the acceleration
or other change of any material right or obligation or loss of a
material right thereunder, or which has had or would reasonably be
expected to have a Material Adverse Effect. No consent by, notice
to or approval from any third party is required under any of the
Material Contracts as a result of or in connection with the
execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated herein.
Section 3.08 Litigation. Except for the Rehabilitation Order and
the related rehabilitation proceeding in Michigan Court, there is
no action, suit, investigation or proceeding pending against, or to
the Knowledge of Seller, threatened against or affecting, the
Company or any of its properties before any arbitrator or any
Governmental Authority which, individually or in the aggregate, is
material to the Company or which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement. Except for the Rehabilitation
Order, neither the Company, nor any of its assets, businesses or
properties, is subject to any unsatisfied or outstanding order,
judgment or decree of any Governmental Authority that (i) would be
material to the Company or (ii) challenges the validity or legality
of, or has the effect of prohibiting, preventing, material
restraining or delaying,
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making illegal or otherwise materially interfering with the
consummation of the transactions contemplated by this
Agreement.
Section 3.09 Compliance with Laws and Court Orders; Permits.
(a) The Company is not, and since January 1, 2015 has not been,
in material violation of any Applicable Law, including the
Rehabilitation Order. Copies of the relevant correspondence between
the Company/its advisers and the MDIFS and/or the Rehabilitator in
relation to Rehabilitation Order and the related rehabilitation
proceeding in Michigan Court are contained in Schedule 3.09.
(b) The Company has in full force and effect all material
federal, state, local and foreign governmental approvals,
authorizations, consents, licenses and permits (excluding Insurance
Licenses, collectively, "Permits") necessary for it to own, lease
or operate its properties and assets and to carry on its business
as now conducted in all material respects; (ii) the Company is, and
since January 1, 2015 has been, in compliance with all Permits in
all material respects; and (iii) neither Seller nor the Company has
received any written notice or other communication from any
Governmental Entity or any other Person regarding (x) any actual,
alleged, possible, or potential violation of, or failure to comply
with, any Applicable Law in any material respect, or (y) any
actual, proposed, possible, or potential revocation, withdrawal,
suspension, cancelJation, termination of, or material modification
to any Permit which has not been resolved.
Section 3 .10 Properties.
(a) The Company has good title to, or in the case of leased
property and assets have valid leasehold interests in, all property
and assets (whether real, personal, tangible or intangible)
reflected on the Balance Sheet or acquired after the Balance Sheet
Date, except for properties and assets sold since the Balance Sheet
Date in the ordinary course of business consistent with past
practices or where the failure to have such good title or valid
leasehold interests would not reasonably be expected to have a
Material Adverse Effect. None of such property or assets is subject
to any Lien, except Permitted Liens.
(b) The real property demised by the leases described on
Schedule 3. IO(b) (the "Leased Real Property") constitutes all of
the real property leased by the Company. The Leased Real Property
leases are in full force and effect, and the Company holds a valid
and existing leasehold interest under each such lease, subject to
proper authorization and execution of such lease by the other party
and the application of any bankruptcy or creditor's rights laws.
Seller has delivered or made available to Buyer copies of each of
the leases described on Schedule 3.1 O(b), and none of such leases
has been modified in any material respect, except to the extent
that such modifications are disclosed by the copies delivered or
made available to Buyer. Neither the Company, nor to Seller's
knowledge any other Person, is in default in any material respect
under any of such leases.
Section 3.11 Intellectual Property.
(a) Except as has not had and would not reasonably be expected
to have a Material Adverse Effect, the Company exclusively owns or
possesses all right, title and interest
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in, or has valid, enforceable rights or licenses to use, the
Intellectual Property Rights that are used to carry on or are
necessary for its business as now conducted, free and clear of all
Liens. The Company has taken reasonable steps to maintain and
protect its Intellectual Property Rights, except where the failure
to do so would not reasonably be expected to have a Material
Adverse Effect. There are no material actions pending, or to the
Knowledge of the Seller, threatened: (1) alleging any infringement,
misappropriation or violation of the rights of any third party with
respect to any Intellectual Property Rights of such Person or (2)
challenging the validity, enforceability or ownership of any
Intellectual Property owned or leased by the Company.
(b) (I) The conduct of the business of the Company has not
infringed, misappropriated or violated any Intellectual Property
Rights of any third party, except to the extent that such
infringement, misappropriation or violation, if determined to be
unlawful, would not reasonably be expected to have a Material
Adverse Effect, (2) to the Knowledge of the Seller, no third party
is infringing, misappropriating or violating any Intellectual
Property of the Company, and (3) none of the Intellectual Property
Rights owned by the Company requires any payment for the use of
such Intellectual Property Rights to any third party ( except for
the payment of licensing or maintenance fees that do not exceed
$50,000 annually in the aggregate to Persons who are not Affiliates
of the Company).
Section 3.12 Finders' Fees. There is no investment banker,
broker, finder or other intermediary that has been retained by or
is authorized to act on behalf of Seller or the Company who might
be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
Section 3.13 Employees; Benefit Plans.
(a) Schedule 3.l 3(a) sets forth a true and complete list of the
names, titles, annual salaries or base wage rates of each (i)
employee of the Company (the "Company Employees") and (ii)
individual independent contractor of the Company.
(b) The Company is in compliance with all Applicable Laws
relating to employment, employment practices and terms and
conditions of employment, except in each case as would not
reasonably be expected to have a Material Adverse Effect.
(c) The Company is not a party to or bound by any labor or
collective bargaining agreement and, to the Knowledge of Seller,
there are no organizational campaigns, petitions or other
unionization activities seeking recognition of a collective
bargaining unit with respect to, or otherwise attempting to
represent, any of the employees of the Company. There is not
presently existing any, and to the Knowledge of Seller, there is no
threatened, strike, slowdown, picketing, or work stoppage involving
the Company or its employees that would reasonably be expected to
have a Material Adverse Effect.
(d) Except as set forth in Schedule 3.13{d), neither the Company
nor any ERISA Affiliate maintains any "employee benefit plan," as
that term is defined in Section 3(3) of ERISA, or any other
incentive, bonus, deferred compensation, performance, equity,
phantom equity, change in control, severance, retention, vacation,
fringe benefit or other similar plans, agreements, arrangements or
policies for the benefit of the Company's current or former
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employees, officers, directors or independent contractors, or
with respect to which the Company may have any liability.
(e) Neither the Company nor any ERISA Affiliate maintains,
sponsors, contributes to, has any obligation to contribute to, or
has any liability or potential liability under or with respect to:
(i) any "defined benefit plan" as defined in Section 3(35) of ERISA
or any other plan subject to the funding requirements of Section
412 of the Code or Section 302 of Title IV of ERISA; (ii) any
"multiemployer plan" as defined in Section 3(37) or 400l(a)(3) of
ERISA, Code); (iii) "multiple employer welfare arrangement" (as
such term is defined in Section 3(40) of ERISA); (iv) any "multiple
employer plan: within the meaning of 210 of ERISA or Section 413(c)
of the Code; or (v) any employee benefit plan, program or
arrangement that provides for post-retirement medical, life
insurance or other welfare-type benefits ( other than health
continuation coverage required by COBRA). The Company does not have
any liability with respect to any 'employee benefit plan" (as
defined in Section 3(3) of ERISA) solely by reason of being treated
as a single employer under Section 414 of the Code with any trade,
business or entity other than the Company.
Section 3.14 Environmental Matters. Except as to matters that
would not reasonably be expected to have a Material Adverse Effect:
(a) (i) no written notice, order, request for information,
complaint or penalty has been received by the Company, and (ii)
there are no judicial, administrative or other actions, suits or
proceedings pending or to the Seller's Knowledge, threatened, which
allege a violation of any Environmental Law and relate to the
Company; (b) there have been no written environmental audit reports
completed within the past three years by the Company of any
property currently leased by the Company which have not been
delivered to Buyer prior to the date hereof. Notwithstanding
anything to the contrary herein, except as set forth in this
Section 3.14, no representations or warranties are being made in
this Agreement with respect to any environmental matters or matters
arising under or relating to any Environmental Law.
Section 3.15 Tax.
(a) All Tax Returns required to be filed by or with respect to
the Company have been timely filed (taking into account any
extensions of time within which to file), all such Tax Returns were
true, correct and complete, the books and records of the Company
are sufficient to document the accuracy of such Tax Returns and the
tax basis of the assets of the Company, and all Taxes due and owing
by, or with respect to, the Company (whether or not shown on any
Tax Return) have been timely paid.
(b) The Company has complied with all applicable Tax Laws with
respect to the withholding of Taxes, information reporting and
transfer pricing.
(c) No Liens for Taxes have been filed against the Company,
except for Permitted Liens.
(d) No claim has been made by any Tax Authority in any
jurisdiction where the Company does not file Tax Returns that the
Company is, or may be, subject to Tax by that jurisdiction.
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(e) The Company is not a party to any action, audit,
examination, claim or order by any Tax Authority. There are no
pending or threatened actions, audits, examinations, claims or
orders applicable to the Company by any Tax Authority.
(t) Except as set forth in Schedule 3. l 5(f), the Company is
not a party to, or bound by, any Tax indemnity, Tax sharing or Tax
allocation agreement.
(g) No private letter rulings, technical advice memoranda or
similar agreement or rulings have been requested, entered into or
issued by any Tax Authority with respect to the Company.
(h) The Company is not a party to any agreement or plan that has
resulted or could result, separately or in the aggregate, in the
payment of (i) any "excess parachute payment" within the meaning of
Section 2800 of the Code ( or any corresponding provision of state,
local or foreign Tax Law) or (ii) any amount that will not be fully
deductible as a result of Section 162(m) of the Code (or any
corresponding provision of state, local or foreign Tax Law). Each
"nonqualified deferred compensation plan" (as defined under Section
409A of the Code) of the Company has been operated and administered
in compliance with Section 409A of the Code and, if any amendments
were reasonably necessary, has been timely amended to comply with
Section 409A of the Code.
(i) The Company has not been a member of an affiliated,
combined, consolidated or unitary Tax group for Tax purposes (other
than a group in which the Seller is the parent company or a
member). The Company has no liability for Taxes of any Person
(other than the Seller) under Treasury Regulations 1.1502-6 ( or
any corresponding provision of state, local or foreign law), as
transferee or successor, by contract or otherwise.
G) The Company will not be required to include any item of
income in, or exclude any item or deduction from, taxable income
for any taxable period or portion thereof ending after the Closing
Date as a result of:
(i) any change in a method of accounting under Section 481 of
the Code (or any comparable provision of state, local or foreign
Tax laws), or use of an improper method of accounting, for a
taxable period ending on or prior to the Closing Date;
(ii) an installment sale or open transaction occurring on or
prior to the Closing Date;
(iii) a prepaid amount received on or before the Closing
Date;
(iv) any closing agreement under Section 7121 of the Code, or
similar provision of state, local or foreign law; or
(v) any election under Section I08(i) of the Code.
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(k) The Company is not, and has not been, a party to, or a
promoter of, a "reportable transaction" within the meaning of
Section 6707A(c)(l) of the Code and Treasury Regulations 1.60 l l
-4(b ).
Section 3.16 Insurance Matters.
(a) Schedule 3. l 6(a) lists the jurisdictions in which the
Company is licensed to write insurance policies and the types of
insurance and other products that the Company is licensed to write
in each such jurisdiction. Other than the Rehabilitation Order, the
Company is not the subject of any regulatory, supervision,
conservation, rehabilitation, liquidation, receivership, insolvency
or other similar proceeding and, to the Knowledge of Seller, no
such proceeding is threatened. To Seller's Knowledge, no material
changes to the Rehabilitation Order are pending or
contemplated.
(b) Seller has made available to Buyer or provided Buyer with
true, complete and correct copies of: (i) any reports of
examination (including, without limitation, financial, market
conduct and similar examinations) of the Company issued by any
insurance regulatory authority since January I, 2015 and has
notified Buyer of any pending examinations; and (ii) all other
material filings or submissions under insurance holding company
statutes and regulations made by the Company with any insurance
regulatory authority since January I, 2015. The Company has filed
all material reports, registrations, filings and submissions
required to be filed with any insurance regulatory authority
(including without limitation, under any applicable insurance
holding company statute) since January I, 20 I 5. No material
deficiencies have been asserted by any Governmental Authority with
respect to such reports, registrations, filings or submissions that
have not been cured or remedied to the satisfaction of the
applicable insurance regulatory authority without imposition of any
material penalty, condition or obligation on the Company.
(c) Without limiting the generality of the foregoing, (i) the
Company has conducted and is conducting its business in compliance
in all material respects with all Applicable Laws regulating the
business and products of insurance and reinsurance or otherwise
administered or enforced by insurance regulators; (ii) the Company
holds all qualifications, registrations, filings, licenses,
pem1its, certificates, consents, approvals or authorizations issued
or granted by Governmental Authorities, where applicable, necessary
to write the types of insurance, reinsurance and other products
written by it and otherwise as necessary for the conduct of its
insurance and reinsurance businesses in each of the jurisdictions
where the Company conducts or operates its business as of the date
of this Agreement (the "Insurance Licenses"); (iii) all of the
Insurance Licenses are valid and in full force and effect; and (iv)
the Company is not the subject of any pending or, to the Knowledge
of Seller, threatened in writing any action for or contemplating
the suspension, termination, modification, limitation,
cancellation, revocation, nonrenewal or impairment of its Insurance
Licenses, and to the Knowledge of Seller there is no existing fact
or circumstance that, individually or in the aggregate would be
reasonably likely to result in the suspension, termination,
modification, limitation, cancellation, revocation, nonrenewal or
impairment of such Insurance Licenses, except as would not
materially affect the conduct of the Company's business as of the
date of this Agreement. Schedule 3. l 6(c) sets forth a true,
correct and complete list of the Insurance
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Licenses. SeIIer has made available to Buyer, prior to the date
hereof, true, correct, and complete copies of the Insurance
Licenses.
(d) To the Knowledge of Seller, since January I, 2015 all
Persons through whom the Company has placed, sold or administered
insurance and reinsurance were duly licensed (to the extent such
licensing is required) to sell, place or administer insurance and
reinsurance in the jurisdictions where, and at the time when, they
did so on behalf of the Company. Except as set forth on Schedule
3.16(d), no agent, broker, intermediary, producer, managing general
underwriter, administrator or other Person has any underwriting or
binding authority on behalf of the Company and the Company is not a
party to any managing general agency contract or other similar
arrangement.
(e) All insurance policies issued by the Company, or which are
being issued by the Company as of the date hereof, are in
compliance, and at their respective dates of issuance were in
compliance, in all material respects with all Applicable Laws. All
forms of insurance policies currently in force together with all
amendments thereto, are on the forms that have been previously
provided to Buyer.
(f) There are no in force insurance policies of the Company
under which the holders or owners of such insurance contracts have
any rights with respect to dividends, surplus, profits,
participation or voting rights of the Company.
(g) All insurance claims paid by the Company have in all
material respects been paid in accordance with the terms of the
insurance contract under which they arose, except for such claims
for which the Company has reasonable belief there was a reasonable
basis to contest payment, as required by Applicable Law.
(h) Seller has delivered to Buyer true, correct and complete
copies of all actuarial reports and studies prepared by actuaries,
independent or otherwise, relating to the business and operations
of the Company, including reports and studies addressing loss
reserves, reserves for claims, losses (including incurred but not
reported losses), loss adjustment expenses (whether allocated or
unallocated), unearned premiums and uncollectible reinsurance of
the Company as of any date on or after January 1, 2015. The
information and data furnished by Seller and the Company to their
actuaries in connection with the preparation of such actuarial
reports were accurate in all material respects for the periods
covered by such reports. AII reserve liabilities, including
reserves for claims, losses (including incurred but not reported
losses), loss adjustment expenses (whether allocated or
unallocated), unearned premiums and uncollectible reinsurance, as
established or reflected on the Financial Statements, were
determined in all material respects in accordance with generally
accepted actuarial standards consistently applied, were based on
actuarial assumptions that were in accordance with those called for
in relevant policy and contract provisions, are fairly stated in
accordance with sound actuarial principles, determined in
accordance with the provisions of insurance policies and contracts
of the Company, and are in compliance with the requirements of GAAP
and Applicable Laws.
(i) With respect to each Reinsurance Contract: (i) there has
been no separate Contract between the Company and any other party
to such Reinsurance Contract that would under any circumstances
reduce, limit, mitigate or otherwise affect any actual or potential
loss to
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the parties under any such Reinsurance Contract; and (ii) for
each such Reinsurance Contract for which risk transfer is not
reasonably considered to be self-evident to the extent required by
any Applicable Law, documentation concerning the economic intent of
the transaction and the risk transfer analysis evidencing the
proper accounting treatment is available for review by the relevant
Governmental Authorities for the Company.
G) (i) There is no contract binding on the Company, or order,
judgment or decree by or from, any Governmental Authority issued to
or binding on the Company and (ii) the Company has not adopted any
board resolution at the request of any Governmental Authority, in
the case of each of clauses (i) and (ii), that (A) limits in any
material respect the ability of the Company to issue or write
insurance, (B) requires the divestiture of any material investment
of the Company, (C) limits in any material respect the ability of
the Company to pay dividends or distributions ofany kind or
character, (D) requires any material investment of the Company to
be treated as a non-admitted asset (or the local equivalent), or
(E) could otherwise have a material adverse effect on the business
or operations of the Company. Neither Seller nor the Company has
been advised by any Governmental Authority that such regulator is
contemplating any undertakings related to any of the foregoing
matters.
(k) The Company has filed all material reports, statements,
documents, certifications, registrations (including registrations
with applicable state insurance regulatory authorities as a member
of an insurance holding company system), filings or submissions and
any supplements or amendments thereto (collectively, the
"Regulatory Filings") required by Applicable Law to be filed by it
with any Governmental Entity since January I, 2012. The Regulatory
Filings were in compliance with Applicable Law in all material
respects when filed and, to the Knowledge of Seller, no material
deficiencies or violations have been asserted by any Governmental
Authority with respect to any Regulatory Filing. The Seller has
delivered to Buyer true and complete copies of all Regulatory
Filings submitted since January I, 2012, in the form (including
exhibits, annexes and any amendments thereto) filed with the
applicable Governmental Authority.
(I) Schedule 3. I 6(1) sets forth a true and correct current
list of all bonds, stocks, mortgages and other investment
securities of any type owned by the Company (collectively, the
"Scheduled Investments"). The Company has good and marketable title
to each of the Scheduled Investments, free and clear of all Liens
other than Permitted Liens. None of the Scheduled Investments is
currently in default in the payment of principal or interest, and,
to the knowledge of Seller, neither Seller nor the Company has
taken, or omitted to take, any action which would result in the
Company being unable to enforce the terms of any Scheduled
Investment or which would cause any Scheduled Investment to be
subject to any valid offset, defense or counterclaim against the
right of the Company to enforce the terms of such Scheduled
Investment. None of the Scheduled Investments are derivatives,
subject to securities lending or similar agreements, or subject to
repurchase/reverse purchase or similar agreements. A copy of the
policies of the Company with respect to the investment of the
Scheduled Investments has been furnished to the Buyer, and the
composition of the Scheduled Investments complies in a11 material
respects with, and the Company has complied in all material
respects with, such investment policies.
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Section 3.17 Insurance. Schedule 3.17 contains a true and
complete list of all liability, property, workers compensation,
directors and officers liability, and other insurance Contracts
that insure the business, operations, assets, employees, officers
or directors of the Company, other than the Insurance Contracts
(the "Insurance Policies") and true and complete copies of the
Insurance Policies have been made available to Buyer. The Insurance
Policies are in full force and effect and shall remain in full
force and effect following the consummation