Exhibit 10.1

 

EXECUTION COPY

 

 

STOCK PURCHASE AGREEMENT

 

 

between

 

WHITE MOUNTAINS HOLDINGS (LUXEMBOURG) S.À R.L.

 

 

and

 

 

THE ALLSTATE CORPORATION

 

 

Dated as of May 17, 2011

 

 

--------------------------------------------------------------------------------

 

Table of Contents

 

 

Page

 

 

Article I Sale and Purchase of Shares

2

 

 

 

Section 1.1

Sale and Purchase of Shares

2

Section 1.2

Closing

2

Section 1.3

Other Closing Deliveries

3

Section 1.4

Purchase Price Adjustment

4

Section 1.5

Purchase Price Allocation

8

Section 1.6

Withholding

8

 

 

 

Article II Representations and Warranties of Seller

8

 

 

 

Section 2.1

Corporate Status

9

Section 2.2

Corporate and Governmental Authorization

9

Section 2.3

Non-Contravention

10

Section 2.4

Capitalization; Title to Shares

10

Section 2.5

Transferred Subsidiaries; Ownership Interests

11

Section 2.6

Financial Statements; Accounting Controls

13

Section 2.7

Undisclosed Liabilities

15

Section 2.8

Absence of Certain Changes

16

Section 2.9

Listed Contracts

16

Section 2.10

Properties

19

Section 2.11

Intellectual Property; Information Technology

20

Section 2.12

Litigation

24

Section 2.13

Compliance with Laws

25

Section 2.14

Permits and Licenses

25

Section 2.15

Environmental Matters

27

Section 2.16

Employees, Labor Matters, Etc.

28

Section 2.17

Employee Benefit Plans and Related Matters; ERISA

29

Section 2.18

Tax Matters

31

Section 2.19

Insurance

36

Section 2.20

Regulatory Matters

36

Section 2.21

Reinsurance Agreements

37

Section 2.22

Reserves

38

Section 2.23

Actuarial Reports

38

Section 2.24

Rates, Forms and Marketing Materials

38

Section 2.25

Agents; Binding Authority

39

Section 2.26

Agreements with Governmental Authorities

39

Section 2.27

Investment Assets

39

Section 2.28

Claims Handling

40

Section 2.29

Market Conduct

40

Section 2.30

Intercompany Accounts; Transactions with Affiliates

41

Section 2.31

Investment Company

41

Section 2.32

Ratings

41

 

i

--------------------------------------------------------------------------------

 

Table of Contents

(continued)

 

 

Page

 

 

Section 2.33

Books and Records

42

Section 2.34

Finders’ Fees

42

Section 2.35

NO ADDITIONAL REPRESENTATIONS AND WARRANTIES

42

 

 

 

Article III Representations and Warranties of Buyer

42

 

 

 

Section 3.1

Corporate Status

42

Section 3.2

Corporate and Governmental Authorization

42

Section 3.3

Non-Contravention

43

Section 3.4

Availability of Funds

43

Section 3.5

Purchase for Investment

44

Section 3.6

Litigation

44

Section 3.7

Finders’ Fees

44

Section 3.8

NO ADDITIONAL REPRESENTATIONS AND WARRANTIES

44

 

 

 

Article IV Certain Covenants

44

 

 

 

Section 4.1

Conduct of the Business

44

Section 4.2

Notice of Certain Events

49

Section 4.3

No Solicitation

50

Section 4.4

Access to Information; Confidentiality

50

Section 4.5

Subsequent Financial Statements and Reports, Etc.

53

Section 4.6

Public Announcements

54

Section 4.7

Consents, Approvals and Filings

54

Section 4.8

Insurance

58

Section 4.9

Resignations

58

Section 4.10

Further Assurances

58

Section 4.11

Non-Compete

59

Section 4.12

Non-Solicitation

61

Section 4.13

Relief

61

Section 4.14

Restructuring

62

Section 4.15

Books and Records

62

Section 4.16

Commutation of Certain Reinsurance

62

Section 4.17

Transfer and License of Certain Information Technology Assets; Tradenames

63

Section 4.18

Remediation of Security Breaches

65

Section 4.19

Employment

65

Section 4.20

Policyholder Surplus

71

Section 4.21

Investment Assets

71

Section 4.22

Separation

72

Section 4.23

Intercompany Obligations and Agreements

72

Section 4.24

Relationship with AFI Partners, Etc.

73

Section 4.25

Status Changes

73

Section 4.26

Reserves Adjustment

75

Section 4.27

Electronic Data Site

79

 

ii

--------------------------------------------------------------------------------

 

Table of Contents

(continued)

 

 

Page

 

 

Section 4.28

Seller Guaranties

80

Section 4.29

Reinsurance Trust

80

 

 

 

Article V Tax Matters

81

 

 

 

Section 5.1

Tax Indemnities

81

Section 5.2

Proration of Taxes

84

Section 5.3

Tax Returns

85

Section 5.4

Tax Contests

86

Section 5.5

Books and Records; Cooperation

87

Section 5.6

Transfer Taxes

88

Section 5.7

Additional Covenants

88

 

 

 

Article VI Conditions Precedent

91

 

 

 

Section 6.1

Conditions to the Obligations of Buyer and Seller

91

Section 6.2

Conditions to Obligations of Buyer

91

Section 6.3

Conditions to Obligations of Seller

93

Section 6.4

Frustration of Closing Conditions

93

 

 

 

Article VII Termination

94

 

 

 

Section 7.1

Termination

94

Section 7.2

Effect of Termination

95

 

 

 

Article VIII Indemnification

95

 

 

 

Section 8.1

Survival

95

Section 8.2

Indemnification by Seller

96

Section 8.3

Indemnification by Buyer

97

Section 8.4

Certain Limitations

97

Section 8.5

Adjustments; Payments, Etc.

101

Section 8.6

Third Party Claim Procedures

102

Section 8.7

Direct Claims

105

 

 

 

Article IX Definitions

105

 

 

 

Section 9.1

Certain Terms

105

Section 9.2

Construction

126

 

 

 

Article X Miscellaneous

127

 

 

 

Section 10.1

Notices

127

Section 10.2

Amendment; Waivers, Etc.

129

Section 10.3

Expenses

129

Section 10.4

Governing Law, Etc.

130

 

iii

--------------------------------------------------------------------------------

 

Table of Contents

(continued)

 

 

Page

 

 

Section 10.5

Successors and Assigns

131

Section 10.6

Entire Agreement

131

Section 10.7

Severability

131

Section 10.8

Counterparts; Effectiveness; Third Party Beneficiaries

132

Section 10.9

Specific Performance

132

 

Schedules

 

Schedule A-1

 

WMI Transferred Subsidiaries

Schedule A-2

 

AFI Transferred Subsidiaries

Schedule 1.4

 

Applicable Accounting Principles

Schedule 4.1(y)

 

Exceptions to Investment Guidelines

Schedule 4.1(z)

 

Advertising Plan

Schedule 4.23

 

Affiliate Obligations

Schedule 4.28

 

Certain Seller Guaranties

Schedule 6.1(c)

 

Governmental Approvals

Schedule 8.2(c)

 

Certain Indemnified Matters

Schedule 8.4(h)

 

Knowledge of Buyer

Schedule 9.1(a)

 

Knowledge of Seller

 

 

 

Exhibits

 

 

 

 

 

Exhibit A

 

Sample Balance Sheet

Exhibit B

 

Form of Hold Harmless Agreement

Exhibit C

 

Form of Reinsurance Trust Agreement

 

iv

--------------------------------------------------------------------------------

 

This STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of May 17, 2011, is
made and entered into by and between The Allstate Corporation, a Delaware
corporation (“Buyer”), and White Mountains Holdings (Luxembourg) S.à r.l., a
Luxembourg société à responsabilité limitée (“Seller”).

 

RECITALS

 

A.            White Mountains Insurance Group, Ltd., an exempted Bermuda limited
company (“Parent”), owns indirectly all of the issued and outstanding shares of
capital stock of Seller, and Seller owns directly (i) all of the issued and
outstanding shares of common stock, par value $1.00 per share, of White
Mountains, Inc., a Delaware corporation (“WMI,” and such shares, the “WMI
Shares”), and (ii) all of the issued and outstanding shares of common stock, par
value $0.01 per share, of Answer Financial Inc., a Delaware corporation (“AFI,”
and such shares, the “AFI Shares”).  WMI and AFI are sometimes collectively
referred to as the “Companies.”  The WMI Shares and the AFI Shares are sometimes
collectively referred to as the “Shares.”

 

B.            WMI owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the entities listed on Schedule
A-1 (collectively, the “WMI Transferred Subsidiaries”) and AFI owns, directly or
indirectly, all of the issued and outstanding shares of capital stock of the
entities listed on Schedule A-2 (collectively, the “AFI Transferred
Subsidiaries” and, collectively with the WMI Transferred Subsidiaries, the
“Transferred Subsidiaries.”)  The Companies and the Transferred Subsidiaries are
sometimes collectively referred to as the “Transferred Companies.”

 

C.            Esurance Holdings, Inc., a Delaware corporation and a wholly owned
subsidiary of WMI (“EHI”), owns directly all of the issued and outstanding
shares of capital stock of each of Esurance Insurance Services, Inc., a Delaware
corporation (“EISI”), and Esurance Insurance Company, a Wisconsin domiciled
insurance company (“EIC”).

 

D.            EIC owns directly all of the issued and outstanding shares of
capital stock of each of Esurance Property and Casualty Insurance Company, a
California domiciled insurance company (“EPCIC”), and Esurance Insurance Company
of New Jersey, a Wisconsin domiciled insurance company (“EICNJ” and,
collectively with EPCIC and EIC, the “Insurance Subsidiaries”).

 

E.             AFI owns directly all of the issued and outstanding equity
interests of Insurance Answer Center, LLC, a Delaware limited liability company
(“IAC”).

 

F.             Buyer wishes to purchase from Seller, and Seller wishes to sell
to Buyer, all of the Shares, on the terms and subject to the conditions set
forth in this Agreement.

 

--------------------------------------------------------------------------------

 

G.            Concurrently with the execution and delivery of this Agreement,
Parent has executed and delivered to Buyer a guaranty in favor of Buyer (the
“Parent Guaranty”).

 

Accordingly, the parties agree as follows:

 

ARTICLE I
SALE AND PURCHASE OF SHARES

 

Section 1.1             Sale and Purchase of Shares.  Upon the terms and subject
to the conditions set forth herein, Seller shall sell the Shares to Buyer and
Buyer shall purchase the Shares from Seller, for an amount equal to the sum,
subject to adjustment as provided herein and on the other terms hereof, of
(a) $700,000,000 and (b) the Closing Date Tangible Book Value (the “Purchase
Price”).

 

Section 1.2             Closing.  Unless this Agreement shall have been
terminated pursuant to Section 7.1, and subject to the satisfaction or waiver of
each of the conditions set forth in Article VI, the closing of the purchase and
sale of the Shares (the “Closing”) shall take place at 10:00 a.m., New York City
time, on the date (the “Closing Date”) that is the later of (a) the fifth
Business Day after all of the conditions set forth in Article VI are satisfied
or waived (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or waiver of those conditions at
the Closing) or (b) the first Business Day following the expiration of the
consecutive 14 day period immediately following the delivery of the Subsequent
Audited GAAP Financial Statements pursuant to Section 4.5, at the offices of
Dewey & LeBoeuf LLP, 1301 Avenue of the Americas, New York, New York, unless
another date, time or place is agreed to in writing by the parties.  At the
Closing:

 

(a)           Seller shall deliver to Buyer certificates representing all of the
Shares, duly endorsed in blank or accompanied by stock powers or other
instruments of transfer duly executed in blank, and bearing or accompanied by
all requisite stock transfer stamps; and

 

(b)           Buyer shall pay to Seller, by wire transfer of immediately
available funds to an account designated by Seller at least two Business Days
prior to the Closing Date, an amount equal to the sum of (i) $700,000,000 and
(ii) the Estimated Closing Date Tangible Book Value.

 

2

--------------------------------------------------------------------------------

 

Section 1.3             Other Closing Deliveries.  At the Closing, in addition
to Seller’s delivery of certificates representing all of the Shares as specified
in Section 1.2(a) and Buyer’s payment of the amount specified in Section 1.2(b),
and as otherwise set forth herein:

 

(a)           Seller shall deliver, or cause to be delivered, to Buyer:

 

(i)            the letters of resignation described in Section 4.9;

 

(ii)           counterparts of each of the Ancillary Agreements to be entered
into at the Closing, duly executed by each applicable Seller Party;

 

(iii)          a receipt for payment of the amount specified in Section 1.2(b);

 

(iv)          the certificates contemplated by Section 6.2(a),
Section 6.2(e) and Section 6.2(f);

 

(v)           a copy, certified as of the Closing Date, by an officer of Parent,
Seller and each other Seller Party, of the resolutions of such Person’s board of
directors (or similar governing body) authorizing the execution and delivery of
this Agreement and the other Transaction Agreements (as applicable), and the
consummation of the transactions contemplated hereby and thereby (to the extent
applicable);

 

(vi)          a good standing or compliance certificate from the Insurance
Regulator for (A) the State of Wisconsin, with respect to EIC and EICNJ, and
(B) the State of California, with respect to EPCIC, in each case dated as of a
date within five days prior to the Closing Date; and

 

(vii)         the Books and Records described in Section 4.15.

 

(b)           Buyer shall deliver, or cause to be delivered, to Seller:

 

(i)            a receipt for the certificates representing all of the Shares;

 

3

--------------------------------------------------------------------------------

 

(ii)           counterparts of each of the Ancillary Agreements to be entered
into at the Closing, duly executed by each applicable Buyer Party;

 

(iii)          the certificate contemplated by Section 6.3(a); and

 

(iv)          a copy, certified as of the Closing Date, by an officer of each
Buyer Party, of the resolutions of such Buyer Party’s board of directors (or
similar governing body) authorizing the execution and delivery of each
Transaction Agreement to which such Buyer Party is a party, and the consummation
of the transactions contemplated thereby;

 

(c)           each party shall deliver to the other copies (or other evidence)
of all valid Governmental Approvals obtained by such party or its respective
Affiliates in satisfaction of Section 6.1(a) and Section 6.1(c); and

 

(d)           each party shall deliver to the other such other documents and
instruments as may be reasonably necessary to consummate the transactions
contemplated by this Agreement.

 

Each of the documents and instruments delivered by any party to the other party
hereto pursuant to this Section 1.3 shall be in form and substance reasonably
acceptable to such other party.

 

Section 1.4       Purchase Price Adjustment.

 

(a)           Closing of the Books on the Closing Date.  In preparation for the
Closing, Seller shall use its reasonable best efforts to cause a full balance
sheet closing of the Transferred Companies to take place as of 12:01 a.m., San
Francisco time, on the Closing Date (the “Closing Balance Sheet Date”) as if it
were the last day of a fiscal period for the Transferred Companies.

 

(b)           Pre-Closing Estimate.  At least five Business Days prior to the
Closing Date, Seller shall prepare and deliver to Buyer a statement (the
“Proposed Estimated Closing Statement”), consisting of (i) an estimated
consolidated and combined balance sheet of the Transferred Companies as of the
Closing Balance Sheet Date (giving effect to the Restructuring and the other
transactions contemplated hereby to occur at or before the Closing (other than
the sale and purchase of the Shares)), prepared on the basis of the most
recently available month-end balance sheets for the Transferred Companies (with
the information in such balance sheets revised to reflect changes since the date
of such balance sheets), (ii) an estimated calculation in reasonable detail of
the Closing Date

 

4

--------------------------------------------------------------------------------

 

Tangible Book Value derived from such balance sheet and (iii) a calculation of
the amount payable pursuant to Section 1.2(b).  Such balance sheet shall be in
substantially the format of, and include the line items set forth in, the sample
balance sheet attached hereto as Exhibit A (the “Sample Balance Sheet”).  Seller
shall give Buyer a reasonable opportunity to review and comment on the Proposed
Estimated Closing Statement and shall provide Buyer with access to such
information and personnel as Buyer may reasonably request in connection with
such review and comment.  Buyer shall provide any comments on the Proposed
Estimated Closing Statement to Seller at least two Business Days prior to the
Closing Date and the parties shall negotiate in good faith a resolution of any
differences in the amounts stated in the Proposed Estimated Closing Statement. 
The Proposed Estimated Closing Statement prepared by Seller, as revised to
reflect any revisions thereto agreed to by the parties, shall be the “Estimated
Closing Statement,” and the calculation of the Closing Date Tangible Book Value
set forth therein shall be the “Estimated Closing Date Tangible Book Value,” it
being understood that if any differences between Seller and Buyer as to the
Proposed Estimated Closing Statement are not resolved by the Closing Date, the
Proposed Estimated Closing Statement prepared by Seller in good faith and
revised by Seller to reflect any revisions thereto agreed to by the parties, but
not any of Buyer’s comments not agreed to by Seller, shall be the Estimated
Closing Statement.  The Estimated Closing Statement shall be prepared in
accordance with the accounting principles, practices and methodologies set forth
in Schedule 1.4 (the “Applicable Accounting Principles”).

 

(c)           Closing Statement.  Buyer shall engage the independent auditors
that audited the most recent GAAP Financial Statements of EHI and its
Subsidiaries (or, if such auditors notify Buyer in writing that they are
unwilling to be so engaged, a nationally recognized independent registered
public accounting firm in the United States (other than the Independent
Accountant) selected by Buyer) (the “Closing Balance Sheet Auditors”) and direct
the Closing Balance Sheet Auditors to review and audit within 90 days following
the Closing Date a statement prepared by Buyer within such period (the “Closing
Statement”), consisting of (i) a consolidated and combined balance sheet of the
Transferred Companies as of the Closing Balance Sheet Date in the format of, and
including only the line items set forth in, the Sample Balance Sheet, prepared
in accordance with the accounting principles, practices and methodologies set
forth in the Applicable Accounting Principles, accompanied by an unqualified
audit opinion or an agreed upon procedures report (as applicable, based on the
Applicable Accounting Principles) of the Closing Balance Sheet Auditors giving
effect to the Restructuring and the other transactions contemplated hereby to
occur at or before the Closing (other than the sale and purchase of the Shares)
(the “Closing Balance Sheet”), (ii) a calculation in reasonable detail of the
Closing Date Tangible Book Value and (iii) a calculation of the amount, if any,
payable pursuant to clause (h) of this Section 1.4.  Seller and Buyer shall each
be responsible for one-half of the fees and expenses of the Closing Balance
Sheet

 

5

--------------------------------------------------------------------------------

 

Auditors in connection with such engagement.  The Closing Statement shall be
prepared in accordance with the Applicable Accounting Principles.

 

(d)           Dispute Notice.  The Closing Statement shall become final, binding
and conclusive upon Seller and Buyer on the 45th day following Seller’s receipt
of the Closing Statement, unless prior to such 45th day Seller delivers to Buyer
a written notice (a “Dispute Notice”) stating that Seller believes the Closing
Statement contains mathematical errors or was not prepared in accordance with
the Applicable Accounting Principles or otherwise in accordance with this
Section 1.4 and specifying in reasonable detail each item that Seller disputes
(a “Disputed Item”), the amount in dispute for each such Disputed Item and the
reasons supporting Seller’s positions.  Seller shall not challenge the Closing
Statement on any other basis.

 

(e)           Resolution Period.  If Seller delivers a Dispute Notice, then
Buyer and Seller shall seek in good faith to resolve the Disputed Items during
the 15-day period beginning on the date Buyer receives the Dispute Notice (the
“Resolution Period”).  If Buyer and Seller reach agreement with respect to any
Disputed Items, Buyer shall revise the Closing Statement to reflect such
agreement.

 

(f)            Independent Accountant.  If Buyer and Seller are unable to
resolve all of the Disputed Items during the Resolution Period, then Buyer and
Seller shall jointly engage and submit the unresolved Disputed Items (the
“Unresolved Items”) to a nationally recognized independent registered public
accounting firm appointed by mutual agreement of Buyer and Seller (which firm
shall be KPMG LLP, unless such firm is not willing or able to serve in such
capacity) (the “Independent Accountant”); provided that if KPMG LLP is not
willing or able to serve in such capacity and Buyer and Seller are not able to
agree on a different accounting firm to serve as the Independent Accountant
within ten days after the end of the Resolution Period, they shall request the
American Arbitration Association to appoint as the Independent Accountant a
nationally recognized independent registered public accounting firm that has not
had a material relationship with the Transferred Companies, Buyer or any of
their respective Affiliates within the preceding two years, and such appointment
shall be final, binding and conclusive on Buyer and Seller.  Buyer and Seller
shall use their reasonable best efforts to cause the Independent Accountant to
issue its written determination regarding the Unresolved Items within 30 days
after the Unresolved Items are submitted for review.  The Independent Accountant
shall make a determination with respect to the Unresolved Items only, and in a
manner consistent with this Section 1.4 and the Applicable Accounting
Principles, and in no event shall the Independent Accountant’s determination of
the Unresolved Items be for an amount that is outside the range of Buyer’s and
Seller’s disagreement on the Unresolved Items.  Each party shall use its
reasonable best efforts to furnish to the Independent Accountant such work
papers, books, records, documents and

 

6

--------------------------------------------------------------------------------

 

other information pertaining to the Unresolved Items as the Independent
Accountant may request.  The determination of the Independent Accountant shall
be final, binding and conclusive on Buyer and Seller absent manifest error, and
Buyer shall revise the Closing Statement to reflect such determination upon
receipt thereof.  Judgment may be entered upon the determination of the
Independent Accountant in any court having jurisdiction over the party against
which such determination is to be enforced.  The fees, expenses and costs of the
Independent Accountant incurred in rendering any determination pursuant to this
Section 1.4 shall be borne by Seller, on the one hand, and Buyer, on the other
hand, in inverse proportion as they may prevail, in the aggregate, on all
Unresolved Items resolved by the Independent Accountant, which proportionate
allocations shall also be determined by the Independent Accountant at the time
the determination of the Independent Accountant is rendered on the Unresolved
Items.

 

(g)           Access to Information.  Each party shall use its reasonable best
efforts to provide promptly to the other party and such other party’s employees,
agents and representatives all books, records, documents and other information
and reasonable access to employees as such other party shall reasonably request
in connection with the review of the Proposed Estimated Closing Statement, the
Closing Statement or the Dispute Notice, as the case may be, including all work
papers of the accountants who audited, compiled or reviewed such statements or
notices, and shall otherwise cooperate in good faith with such other party to
arrive at a final determination of the Closing Statement.

 

(h)           Final Adjustment.  Within two Business Days after the Closing
Statement is finalized pursuant to clause (d), (e) or (f) of this Section 1.4:

 

(i)            if the Closing Date Tangible Book Value exceeds the Estimated
Closing Date Tangible Book Value, Buyer shall pay to Seller an amount equal to
such excess; or

 

(ii)           if the Estimated Closing Date Tangible Book Value exceeds the
Closing Date Tangible Book Value, Seller shall pay to Buyer an amount equal to
such excess.

 

(i)            Method of Payment, Interest, Etc.  Any amount paid in respect of
a purchase price adjustment made pursuant to this Section 1.4 shall be
(i) increased by the interest on such amount, compounded daily, at the Interest
Rate from the Closing Date to and including the date of payment, based on a 365
day year, (ii) made by wire transfer of immediately available funds to an
account designated by the receiving party at least two

 

7

--------------------------------------------------------------------------------

 

Business Days prior to the date when due and (iii) treated as an adjustment to
the Purchase Price for Tax reporting purposes, except to the extent the Laws of
a particular jurisdiction provide otherwise.

 

(j)            Indemnification Not Affected.  Subject to Section 8.4(f), Buyer’s
and Seller’s rights, as applicable, to indemnification pursuant to Article VIII
shall not be deemed to limit, supersede or otherwise affect, or be limited,
superseded or otherwise affected by, Buyer’s and Seller’s rights, as applicable,
under this Section 1.4.

 

Section 1.5             Purchase Price Allocation.  Seller and Buyer shall
allocate the Purchase Price as follows:  $135,700,000 plus the AFI Closing Date
Tangible Book Value solely to the AFI Shares and the remainder solely to the WMI
Shares.   Except as provided in Section 5.7(c), the parties agree that such
allocation shall be used for all Tax purposes and no position to the contrary
shall be taken by the parties (unless otherwise required by a final
determination).

 

Section 1.6             Withholding.  After consultation with Seller, Buyer
shall be entitled to deduct and withhold from any consideration payable pursuant
to or as contemplated by this Agreement such amounts as Buyer determines in good
faith are required to be deducted or withheld therefrom or in connection
therewith under the Code or Treasury Regulations or any provision of applicable
Law.  To the extent such amounts are so deducted or withheld, such amounts shall
be treated for all purposes under this Agreement as having been paid to the
Person to whom such amounts would otherwise have been paid.  Seller shall
cooperate with Buyer in the preparation and filing of any forms or other
documentation claiming exemption or relief from any requirement to withhold.

 

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller represents and warrants to Buyer, as of the date hereof and as of the
Closing Date, as follows in this Article II.  Each such representation and
warranty is qualified by and includes the disclosure set forth in the numbered
or lettered sections or subsections of the Seller Disclosure Letter that
correspond to such representation and warranty and shall be deemed to be
qualified by and include any disclosure in any other section or subsection of
the Seller Disclosure Letter to which the relevance of such disclosure to such
representation and warranty is readily apparent.

 

8

--------------------------------------------------------------------------------

 

Section 2.1             Corporate Status.

 

(a)           Seller is a société à responsabilité limitée duly incorporated or
organized and validly existing under the Laws of the Grand Duchy of Luxembourg
and has all requisite corporate or organizational power and authority to carry
on its business as now conducted.  Each other Seller Party is a corporation or
other organization duly incorporated or organized, validly existing and in good
standing (or the equivalent, if any, in the applicable jurisdiction) under the
Laws of its jurisdiction of incorporation or organization and has all requisite
corporate or organizational power and authority to carry on its business as now
conducted.

 

(b)           Each of the Companies is a corporation or other organization duly
incorporated or organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation or organization and has all requisite
corporate or organizational power and authority to carry on its business as now
conducted.  Each of the Companies is duly qualified and in good standing (or the
equivalent, if any, in the applicable jurisdiction) to do business as a foreign
corporation in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure to be so qualified or in
good standing, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect.  Seller has made
available to Buyer true, complete and correct copies of the Organizational
Documents of the Companies.

 

Section 2.2             Corporate and Governmental Authorization.

 

(a)           Each Seller Party has all requisite corporate or organizational
power and authority to execute and deliver the Transaction Agreements to which
it is or will be a party, to perform its obligations thereunder and to
consummate the transactions contemplated thereby.  The execution and delivery by
each Seller Party of each of the Transaction Agreements to which it is or will
be a party and the consummation by each Seller Party of the transactions
contemplated by such Transaction Agreements have been duly authorized by all
requisite corporate or other similar organizational action on the part of each
such Seller Party.  Each of the Transaction Agreements to which a Seller Party
is or will be a party has been, or upon execution and delivery thereof, will be,
duly executed and delivered by such Seller Party.  Assuming due authorization,
execution and delivery by the other parties thereto, each of the Transaction
Agreements to which each Seller Party is or will be a party constitutes, or upon
execution and delivery thereof, will constitute, the legal, valid and binding
obligation of each such Seller Party, enforceable against it in accordance with
its terms, subject in each case to the Enforceability Exception.

 

9

--------------------------------------------------------------------------------

 

(b)           Except in connection or in compliance with (i) the notification
and waiting period requirements of the HSR Act, (ii) applicable insurance
holding company Laws of California, Wisconsin and New York, (iii) compliance
with and filings under Section 13(a) of the 1934 Act and (iv) the approvals,
filings and notifications imposed by applicable Laws that are set forth in
Schedule 6.1(c), the execution and delivery by the Seller Parties of the
Transaction Agreements to which any of them is or will be a party do not, and
the performance by each Seller Party of, and the consummation by each Seller
Party of the transactions contemplated by, such Transaction Agreements will not
require any consent, approval, license, permit, order, qualification or
authorization of, or registration or other action by, or any filing with or
notification to, any Governmental Authority (each, a “Governmental Approval”).

 

Section 2.3             Non-Contravention.  The execution, delivery and
performance of the Transaction Agreements by each Seller Party that is or will
be a party thereto and the consummation of the transactions contemplated thereby
by such Persons do not and will not (a) conflict with or result in any violation
or breach of any provision of the Organizational Documents of any of the Seller
Parties or the Transferred Companies, (b) assuming compliance with the matters
referred to in Section 2.2(b), conflict with or result in a violation or breach
of any provision of any material applicable Law or (c) assuming compliance with
the matters referred to in Section 2.2(b), require any consent of any Person
under, result in any breach of, or constitute a default (or event which, with
the giving of notice or lapse of time, or both, would constitute a default)
under, or give to any Person any rights of termination, acceleration or
cancellation of, or result in the creation of any Lien (other than Permitted
Liens) on any of the assets or properties of any of the Transferred Companies
pursuant to, any Contract to which any of the Transferred Companies is a party
or by which any of them or any of their respective properties or assets is bound
or subject, except, in the case of clause (c), for any such breaches, defaults,
rights or Liens that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

Section 2.4             Capitalization; Title to Shares.

 

(a)           The authorized capital stock of WMI consists of 10,000 shares of
common stock, par value $1.00 per share, of which 1,178 shares are issued and
outstanding.  The authorized capital stock of AFI consists of (i) 100,000,000
shares of Ordinary common stock, (ii) 100,000,000 shares of Class A common stock
and (iii) 150,000,000 shares of Class B common stock, in each case, par value
$0.01 per share, of which 69,722,074 shares of Class A common stock and
100,669,863 shares of Class B common stock are issued and outstanding.  The
Shares have been duly authorized and validly issued and are fully paid and
nonassessable, and are not subject to and were not issued in violation of any
preemptive or similar rights.  Seller directly owns

 

10

--------------------------------------------------------------------------------

 

beneficially and of record all of the Shares, free and clear of all Liens. 
Assuming Buyer has the requisite power and authority to be the lawful owner of
the Shares upon delivery to Buyer at the Closing of certificates representing
the Shares, duly endorsed by Seller for transfer to Buyer, and upon Seller’s
receipt of the consideration therefor pursuant to this Agreement, good and valid
title to the Shares will pass to Buyer, free and clear of any Liens, other than
those arising from acts of Buyer or its Affiliates.

 

(b)           There are no outstanding (i) shares of capital stock of or other
voting or equity interests in either of the Companies, (ii) securities of the
Companies convertible into or exercisable or exchangeable for shares of capital
stock of or other voting or equity interests in either of the Companies,
(iii) options or other rights or Contracts or commitments of any kind to acquire
from the Companies, or other obligation of any Seller Party or the Companies to
issue, transfer or sell, any capital stock of or other voting or equity
interests in either of the Companies or securities convertible into or
exercisable or exchangeable for capital stock of or other voting or equity
interests in either of the Companies, (iv) voting trusts, proxies or other
similar Contracts or commitments to which either of the Companies is bound with
respect to the voting of any shares of capital stock of or other voting or
equity interests in either of the Companies or the Transferred Subsidiaries or
(v) contractual obligations restricting the transfer of, or requiring the
registration for sale of, any shares of capital stock of or other voting or
equity interests in either of the Companies (the items in clauses (i), (ii) and
(iii) being referred to collectively as the “Company Securities”).  There are no
outstanding obligations of any of the Transferred Companies to repurchase,
redeem or otherwise acquire any Company Securities.  Except for the Insurance
Subsidiaries, none of the Transferred Companies is regulated as an insurance
company by a Governmental Authority.

 

Section 2.5             Transferred Subsidiaries; Ownership Interests.

 

(a)           Each Transferred Subsidiary is a corporation or other organization
duly incorporated or organized, validly existing and in good standing (or the
equivalent, if any, in the applicable jurisdiction) under the Laws of its
jurisdiction of incorporation or organization and has all requisite corporate
and organizational power and authority to carry on its business as now
conducted.  Each of the Transferred Subsidiaries is duly qualified and in good
standing (or the equivalent, if any, in the applicable jurisdiction) to do
business as a foreign corporation in each jurisdiction in which the nature of
its business or the ownership, leasing or holding of its properties makes such
qualification necessary, except such jurisdictions where the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect.  Seller has
made available to Buyer true,

 

11

--------------------------------------------------------------------------------

 

complete and correct copies of the Organizational Documents of each Transferred
Subsidiary.

 

(b)           The authorized, issued and outstanding shares of capital stock of
and other voting or equity interests in each of the Transferred Subsidiaries,
and the Companies’ direct or indirect ownership interest in the Transferred
Subsidiaries, are set forth in Section 2.5(b) of the Seller Disclosure Letter. 
All of the outstanding shares of capital stock of and other voting or equity
interests in each Transferred Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to and were not issued
in violation of any preemptive or similar rights, and are owned beneficially and
of record by the Companies or one of their wholly owned Transferred Subsidiaries
as set forth in Section 2.5(b) of the Seller Disclosure Letter, free and clear
of any Liens.  There are no outstanding (i) shares of capital stock of or other
voting or equity interests in any Transferred Subsidiary, (ii) securities of the
Companies or any of the Transferred Subsidiaries convertible into or exercisable
or exchangeable for shares of capital stock of or other voting or equity
interests in any Transferred Subsidiary or (iii) options or other rights or
Contracts or commitments of any kind to acquire from the Companies or any of the
Transferred Subsidiaries, or other obligation of any of the Seller Parties or
the Transferred Companies to issue, transfer or sell, any capital stock of or
voting or equity interests in any Transferred Subsidiary or securities
convertible into or exercisable or exchangeable for capital stock of or other
voting or equity interests in any Transferred Subsidiary (the items in clauses
(i), (ii) and (iii) being referred to collectively as the “Transferred
Subsidiary Securities”).  There are no outstanding obligations of either of the
Companies or any of the Transferred Subsidiaries to repurchase, redeem or
otherwise acquire any Transferred Subsidiary Securities.

 

(c)           Except as set forth in the first sentence of Section 2.5(d) and
for Investment Assets acquired in conformity with the Investment Guidelines,
none of the Transferred Companies owns any shares of capital stock of or other
voting or equity interests in (including any securities exercisable or
exchangeable for or convertible into capital stock of or other voting or equity
interests in) any other Person that is not a Transferred Company.

 

(d)           As of the date hereof, WMI owns all of the outstanding shares of
capital stock of Guilford Holdings, Inc. (“GHI”).  As of the date hereof, no
other Person owns any shares of capital stock of or other voting or equity
interests in (including any securities exercisable or exchangeable for or
convertible into capital stock or other voting or equity interests in) GHI.

 

12

--------------------------------------------------------------------------------

 

 

(e)           As of the date hereof, WMI has no business, operations, assets,
liabilities or activities other than as incident to the ownership of EHI and GHI
(and their respective Subsidiaries) and the ownership of cash and Investment
Assets.  Immediately prior to Closing, WMI will have no business, operations,
assets, liabilities or activities other than as incident to the ownership of EHI
and its Subsidiaries and the ownership of cash and Investment Assets.

 

Section 2.6             Financial Statements; Accounting Controls.

 

(a)           Seller has delivered to Buyer true, complete and correct copies of
(i) the audited consolidated financial statements of EHI and its Subsidiaries
and (ii) the unaudited consolidated financial statements of AFI and its
Subsidiaries, in each case at and for the 12-month periods ended December 31,
2010 and 2009 (the most recent such date, the “Balance Sheet Date”), together,
in the case of EHI and its Subsidiaries, with the report of the independent
auditor of EHI thereon, and including, in each case, a balance sheet and
statements of income, comprehensive income (loss), cash flows and retained
earnings or stockholders’ equity and related footnotes (the “GAAP Financial
Statements”).  The GAAP Financial Statements (A) were prepared from, and are
consistent with, the books and records that are part of the financial reporting
system of the Transferred Companies, (B) have been prepared in accordance with
United States generally accepted accounting principles (“GAAP”) applied on a
consistent basis (except as may be indicated in the notes thereto) and
(C) present fairly, in all material respects, the financial position, results of
operations, cash flows and changes in stockholders’ equity of EHI and the other
WMI Transferred Subsidiaries on a consolidated basis and AFI and the AFI
Transferred Subsidiaries on a consolidated basis, respectively, at and for the
respective periods indicated.  The Subsequent GAAP Financial Statements required
to be delivered after the date hereof pursuant to Section 4.5(b) will (1) be
prepared from, and be consistent with, the books and records that are part of
the financial reporting system of the Transferred Companies, (2) be prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto) and (3) present fairly, in all material respects, the
financial position, results of operations, cash flows and changes in
stockholders’ equity of EHI and the other WMI Transferred Subsidiaries on a
consolidated basis and AFI and the AFI Transferred Subsidiaries on a
consolidated basis, respectively, at and for the respective periods indicated
(subject, in the case of interim financial statements, to normal year-end
adjustments, and to the absence of footnotes).

 

(b)           Seller has delivered to Buyer true, complete and correct copies of
the following statutory financial statements, in each case together with the
exhibits, schedules and notes thereto (the “Statutory Statements”): (i) the
annual statement of each of the Insurance Subsidiaries, as filed with the
domiciliary Insurance Regulator of such Insurance Subsidiary, in each case, as
of and for the years ended December 31, 2010 and

 

13

--------------------------------------------------------------------------------

 

2009; (ii) the audited statutory financial statements of each of the Insurance
Subsidiaries, as filed with the domiciliary Insurance Regulator of such
Insurance Subsidiary, in each case, for the years ended December 31, 2010 and
2009; and (iii) the quarterly financial statements of each of the Insurance
Subsidiaries, as filed with the domiciliary Insurance Regulator of such
Insurance Subsidiary, in each case, for the three-month periods ended March 31,
2011 and March 31, June 30 and September 30, 2010.  Such Statutory Statements
(A) were prepared from, and are consistent with, the books and records that are
part of the financial reporting system of the Transferred Companies, (B) were
prepared in accordance with SAP applied on a consistent basis during the period
presented and (C) present fairly, in all material respects, the respective
statutory financial position of the Insurance Subsidiaries at the respective
dates thereof, and the statutory results of their operations and cash flows for
the periods then ended (subject, in the case of any interim financial statements
included in the Statutory Statements, to normal year-end adjustments, and to the
absence of footnotes).  No material weakness or significant deficiency has been
asserted by any Governmental Authority with respect to any of the Statutory
Statements and there are no permitted practices utilized in the preparation of
the Statutory Statements.  No Governmental Authority has requested the refiling
or amending of any Statutory Statement.  The Statutory Statements required to be
delivered after the date hereof pursuant to Section 4.5(b) will (1) be prepared
from, and be consistent with, the books and records that are part of the
financial reporting system of the Transferred Companies, (2) be prepared in
accordance with SAP applied on a consistent basis during the period presented
and (3) present fairly, in all material respects, the respective statutory
financial position of the Insurance Subsidiaries at the respective dates
thereof, and the statutory results of their operations and cash flows for the
periods then ended (subject, in the case of any interim financial statements
included in the Statutory Statements, to normal year-end adjustments and to the
absence of footnotes).

 

(c)           Each of the Transferred Companies has established and maintains a
system of “internal controls over financial reporting” (as defined in
Rules 13a-15(f) and 15d-15(f) under the 1934 Act) that is sufficient to provide
reasonable assurance: (i) regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
GAAP or SAP, as the case may be; (ii) that transactions are recorded as
necessary to permit the preparation of financial statements in accordance with
GAAP or SAP, as the case may be; (iii) that receipts and expenditures of each of
the Transferred Companies are being made only in accordance with the
authorization of its management and its board of directors (or similar governing
body); and (iv) regarding prevention or timely detection of the unauthorized
acquisition, use or disposition of assets of the Transferred Companies that
could have a material effect on the financial statements of the Transferred
Companies; provided that for purposes of this Section 2.6(c), such system of
“internal controls over financial reporting” shall have been developed by Parent
and shall utilize a level of materiality applicable to Parent and its

 

14

--------------------------------------------------------------------------------

 

Subsidiaries (including the Transferred Companies) taken as a whole (rather than
a level of materiality applicable to the Transferred Companies only).

 

(d)           None of the Transferred Companies is a party to, or has any
commitment to become a party to, any off balance sheet partnership, joint
venture or any similar Contract (including any Contract relating to any
transaction or relationship between any of the Transferred Companies, on the one
hand, and any unconsolidated Affiliate, including any structured finance,
special purpose or limited purpose entity or Person, on the other hand, or any
“off balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K
under the 1934 Act)), where the result, purpose or intended effect of such
Contract is to avoid disclosure of any material transaction involving, or
material liabilities of, any of the Transferred Companies on such Transferred
Company’s financial statements.

 

(e)           Since January 1, 2007 and through the date hereof, none of the
Transferred Companies nor, to Seller’s Knowledge, any current or former
director, officer or employee of the Transferred Companies, nor, to Seller’s
Knowledge, any auditor, accountant or representative of the Transferred
Companies, has received or been under a duty to report (including any
self-reporting obligation) any non-frivolous complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting, reserving or auditing
practices, procedures, methodologies or methods of the Transferred Companies or
their respective internal accounting controls, including any complaint,
allegation, assertion or claim that the Transferred Companies have engaged in
questionable accounting, reserving or auditing practices.

 

(f)            Seller has made available to Buyer complete and correct copies of
all management representation letters to the Transferred Companies’ independent
auditors, in each case to the extent relating to any Transferred Company and for
fiscal periods beginning on or after January 1, 2007.

 

Section 2.7             Undisclosed Liabilities.  None of the Transferred
Companies has any Liabilities that would be required to be reserved against or
otherwise disclosed or reflected on a balance sheet or the notes thereto
prepared in accordance with GAAP, except (a) as set forth in Section 2.7 of the
Seller Disclosure Letter, (b) for Liabilities specifically reflected, disclosed
or reserved against in any Year End Balance Sheet or specifically disclosed in
the notes thereto, (c) for Liabilities for losses, loss adjustment expenses and
unearned premiums arising under contracts of insurance or reinsurance written or
assumed by the Insurance Subsidiaries and (d) for Liabilities that (i) were
incurred after the Balance Sheet Date in the ordinary course of business
consistent with past practice and (ii) individually or in the aggregate have not
had and

 

15

--------------------------------------------------------------------------------

 

would not reasonably be expected to result in a material adverse effect on the
business, operations, condition (financial or otherwise) or results of
operations of Transferred Companies, taken as a whole.  This Section 2.7 does
not relate to Tax matters (which are the subject of Section 2.18).

 

Section 2.8     Absence of Certain Changes.  During the period from the Balance
Sheet Date to the date hereof, the Business has been conducted in the ordinary
course of business consistent with past practice, and during such period none of
the Transferred Companies has taken any action or omitted to take any action
which action or omission, if occurring during the period from the date hereof
until the Closing or the termination of this Agreement in accordance with
Section 7.1, would require Buyer’s consent under clauses (a) through (aa) of
Section 4.1.

 

Section 2.9     Listed Contracts.

 

(a)           Section 2.9(a) of the Seller Disclosure Letter lists each Contract
falling into any of the following categories of Contracts to which any of the
Transferred Companies, as of the date hereof, is a party or by which it is
bound:

 

(i)            any Contract relating to outstanding Indebtedness for borrowed
money from third party lending sources pursuant to which any Transferred Company
has borrowed an amount in excess of $1,000,000;

 

(ii)           any joint venture, partnership or other similar Contract
(including any Contract providing for joint research or development) with any
Person other than an Affiliate;

 

(iii)          any Contract relating to the acquisition or disposition of any
business, stock or assets of any other Person or any division or line of
business thereof or any real property (whether by merger, sale of stock, sale of
assets or otherwise), in any such case having a value in excess of $500,000
which Contract contemplates future performance or has continuing obligations
after the date hereof (but in all cases excluding Contracts relating to the
acquisition or disposition of Investment Assets in conformity with the
Investment Guidelines);

 

(iv)          any Contract that (A) limits the freedom of any of the Transferred
Companies to compete in any line of business or with any Person or in any area
or that would so limit the freedom of Buyer or its Affiliates or any of

 

16

--------------------------------------------------------------------------------

 

the Transferred Companies after the Closing, (B) contains exclusivity
obligations or restrictions with respect to distribution and marketing binding
on any of the Transferred Companies that would be binding on Buyer or any of its
Affiliates after the Closing or (C) provides for a “most favored nation” pricing
status for any party thereto;

 

(v)           any Contract for the purchase or lease of services or materials,
supplies, goods, equipment or other assets providing for aggregate annual
payments by the Transferred Companies of $500,000 or more or under which the
Transferred Companies have made payments of $500,000 or more during the 12-month
period ending on the Balance Sheet Date;

 

(vi)          any sales, distribution, agency, services or other similar
Contract providing for the sale by any of the Transferred Companies of
materials, supplies, goods, services, equipment or other assets that provides
for aggregate annual payments to the Transferred Companies of $500,000 or more
or under which payments of $500,000 or more were made to the Transferred
Companies during the 12-month period ending on the Balance Sheet Date;

 

(vii)         any Contract pursuant to which AFI or IAC (A) markets, sells or
distributes Insurance Contracts issued by insurance companies other than the
Insurance Subsidiaries (“Carrier Contracts”) or by the Insurance Subsidiaries
(and Section 2.9(a)(vii)(A) of the Seller Disclosure Letter lists the
counterparties to the Carrier Contracts), or (B) acquires, purchases or
otherwise receives marketing or remarketing leads, which Contract, in the case
of this subclause (B), provides for aggregate annual payments of $100,000 or
more;

 

(viii)        any Contract relating to any interest rate, derivatives or hedging
transaction;

 

(ix)           any material Contract that relates to the insurance policy
administration, claims, underwriting or investment management functions of the
Business;

 

(x)            any Contract evidencing outstanding loans to third party
insurance agents, brokers or producers in excess of $1,000,000 to any individual
Person;

 

17

--------------------------------------------------------------------------------

 

(xi)           any managing general agent Contract, including those to which any
Transferred Company is a party, that are either in force or with respect to
which a Transferred Company has any continuing obligations;

 

(xii)          any Contract evidencing a participation by any of the Transferred
Companies in any pools, syndicates or associations other than statutorily
mandated pools, syndicates or associations;

 

(xiii)         any indemnity Contract (other than an Insurance Contract)
pursuant to which a Transferred Company receives or is reasonably expected to
receive payments, or makes or is reasonably expected to make payments, of
$1,500,000 or more;

 

(xiv)        any guarantees, keepwells, letters of credit, indemnity or
contribution agreements, support agreements, insurance surety bonds or other
similar agreements (excluding Insurance Agreements) made in respect of the
obligations of, or for the benefit of any obligee of, any of the Transferred
Companies by Seller, Parent or any of their Affiliates (other than the
Transferred Companies) (“Seller Guaranties”), and any other Contract (including
any “take-or-pay” or keepwell agreements) under which (A) any Person (other than
a Transferred Company) has directly or indirectly guaranteed any liabilities or
obligations of any of the Transferred Companies or (B) any of the Transferred
Companies has directly or indirectly guaranteed any liabilities or obligations
of any other Person other than a Transferred Company (in each case other than
endorsements for the purpose of collection in the ordinary course of business);

 

(xv)         any Contract under which a Transferred Company has committed to
make any investment (in the form of a loan, capital contribution or otherwise)
in any other Person (other than a Transferred Company), other than (A) any
Investment Asset or (B) any investment in an amount less than $500,000; or

 

(xvi)        any other Contract that is material to the Transferred Companies,
taken as a whole.

 

(b)           Each Contract disclosed in the Seller Disclosure Letter or
required to be disclosed therein pursuant to this Section 2.9,
Section 2.11(b) (clause (b) of Intellectual Property; Information Technology) or
Section 2.21 (Reinsurance Agreements) is a valid and binding agreement of the
Transferred Company party thereto

 

18

--------------------------------------------------------------------------------

 

and, to the Knowledge of Seller, any other party thereto and is in full force
and effect, and none of the Transferred Companies party thereto nor, to the
Knowledge of Seller, any other party thereto is in default or breach in any
material respect under (or is alleged to be in default or breach in any material
respect under) the terms of, or has provided or received any written notice as
of the date hereof of any intention to terminate, any such Contract, and, to the
Knowledge of Seller, no event or circumstance has occurred that, with notice or
lapse of time or both, would constitute an event of default thereunder or result
in the termination thereof or would cause or permit the acceleration or other
changes of any material right or material obligation or the loss of any material
benefit thereunder.  True, complete (subject to the redaction of confidential
provisions) and correct copies of each such Contract (including all written
modifications and amendments thereto and written waivers thereunder) in effect
as of the date hereof have been made available to Buyer.  Notwithstanding the
foregoing, this Section 2.9(b) shall not be deemed to be breached or inaccurate
by virtue of the expiration or termination of any such Contract on its
termination date in accordance with its terms or by any amendment, waiver,
termination or other action (or inaction) with respect to any such Contract not
in violation of Section 4.1 during the period from the date hereof to the
Closing Date.

 

Section 2.10     Properties.

 

(a)           Title to Assets, Etc.  The Transferred Companies have good and
valid title to, or otherwise have the right to use pursuant to a valid and
enforceable (subject to the Enforceability Exception) lease, license or similar
contractual arrangement, all material assets (real and personal, tangible and
intangible) that are used or held for use in connection with the Business
(collectively, the “Assets”) except, in the case of this clause (a), for Owned
Intellectual Property and Trade Secrets (which are the subject of
Section 2.11(j)(i)), in each case free and clear of any Lien other than
Permitted Liens.

 

(b)           Sufficiency of Assets, Etc.  Immediately following the Closing and
after giving effect to the transactions contemplated by the Transaction
Agreements, Buyer will, either directly or indirectly through the Transferred
Companies, own, possess, have a valid license to, have a valid leasehold
interest in or, through an enforceable (subject to the Enforceability Exception)
written contractual obligation, have access to and the legal right to use or
receive the benefit of, all properties and assets necessary for the conduct of
the business and operations of the Transferred Companies as they were conducted
immediately prior to the Closing.  There are no properties or assets (tangible
or intangible) of GHI or its Subsidiaries that are used in the conduct of the
business and operations of the Transferred Companies as they are currently
conducted.  For the avoidance of doubt, no transition services agreement or
similar Contract for the provision of services from and after the Closing to any
of the Transferred Companies by or on

 

19

--------------------------------------------------------------------------------

 

behalf of Seller or any of its Affiliates (other than the Transferred Companies)
is necessary to enable the Transferred Companies to conduct their respective
businesses and operations immediately following the Closing as such businesses
and operations were conducted immediately prior to the Closing.

 

(c)           Owned Real Property.  As of the date hereof, no Transferred
Company owns any fee interest in real property.

 

(d)           Leased Real Property.  Section 2.10(d) of the Seller Disclosure
Letter lists all of the real property leased by any of the Transferred Companies
with respect to which the Transferred Companies are committed to make lease
payments in excess of $50,000 in fiscal 2011 (the “Leased Real Property”). 
Seller has made available to Buyer true, complete and correct copies of the
leases pursuant to which such Leased Real Property is leased, together with all
written amendments and modifications thereto and all guarantees thereof
(collectively, the “Leases”).  The Transferred Companies hold good and valid
leasehold title to the Leased Real Properties.  All of such Leases are valid and
in full force and effect in all material respects (except to the extent any such
Lease expires or terminates on its termination date in accordance with its
terms) and all rents and additional rents due to date on each such Lease have
been paid.  The Transferred Companies enjoy peaceful and undisturbed possession
in all material respects under all Leases.  None of the Transferred Companies is
in default in any material respect under any of such Leases and, to the
Knowledge of Seller, no lessor is in default under any of such Leases.  No event
has occurred which, with the passage of time or the giving of notice or both,
would constitute a default under any Lease by any of the Transferred Companies. 
To the Knowledge of Seller, no event has occurred which, with the passage of
time or the giving of notice or both, would constitute a default under any Lease
by any lessor.  As of the date hereof, the Leased Real Property constitutes all
interests in real property currently used or currently held for use in
connection with the business of the Transferred Companies.  None of the
Transferred Companies is a sublessor or grantor under any sublease of any Leased
Real Property.

 

Section 2.11     Intellectual Property; Information Technology.

 

(a)           Owned Intellectual Property.  Section 2.11(a) of the Seller
Disclosure Letter lists, as of the date hereof, all Intellectual Property that
the Transferred Companies purport to own (the “Owned Intellectual Property”)
(i) that is registered or subject to an application for registration with a
Governmental Authority (or, in the case of domain names, a domain name
registrar) (including, in each case, the jurisdiction in which such Intellectual
Property has been registered or an application for registration is pending) (the
“Registered Owned Intellectual Property”) or (ii) that is unregistered

 

20

--------------------------------------------------------------------------------

 

Copyrights and Trademarks material to the Business.  All registrations of the
Registered Owned Intellectual Property are valid, subsisting and in full force
and effect as of the date hereof.  All application, maintenance and renewal fees
due and owing in relation to such Registered Owned Intellectual Property have
been paid in full.  None of the Transferred Companies is using any such
Registered Owned Intellectual Property that is the subject of a registration or
application in a manner that would reasonably be expected to result in the
cancellation or unenforceability of any registration of such Registered Owned
Intellectual Property.

 

(b)           Licenses and Other Agreements.  Section 2.11(b) of the Seller
Disclosure Letter lists all Contracts existing as of the date hereof to which
any of the Transferred Companies is a party, or by which any of them is
otherwise bound, that relate to (i) licenses, covenants not to sue, assignments
or transfers of Intellectual Property to any of the Transferred Companies by any
other Person, (ii) licenses, covenants not to sue, assignments or transfers of
Intellectual Property to any other Person by any of the Transferred Companies,
(iii) Contracts otherwise granting or restricting the right to use Intellectual
Property and (iv) Contracts that indemnify Third Parties with respect to
Intellectual Property used or held for use in the Business, in each case to the
extent material to the Business (collectively, the “IP Licenses”), provided that
licenses of commercially available, off-the-shelf computer Software that is
licensed pursuant to terms and conditions that are not customarily negotiated,
including shrink-wrap licenses, and for which in each case the relevant
Transferred Company pays less than $50,000 per year, in the aggregate, in
license, maintenance or support fees for the relevant piece of Software, do not
need to be listed on Section 2.11(b) of the Seller Disclosure Letter.  Each IP
License to which any of the Transferred Companies is a party (A) is a legal and
binding obligation of such Transferred Company and, to the Knowledge of Seller,
the other relevant parties thereto and (B) is in full force and effect and
enforceable (subject in each case to the Enforceability Exception) in accordance
with the terms thereof.  Each of the Transferred Companies is in material
compliance with the terms of any IP License.

 

(c)           No Infringement.  As of the date hereof, (i) to the Knowledge of
Seller, no Person is materially infringing upon, diluting, misappropriating or
otherwise in conflict with any of the Owned Intellectual Property and (ii) none
of the Transferred Companies has, since January 1, 2007, brought or threatened a
claim against any Person asserting that such Person is infringing, diluting,
misappropriating or otherwise in conflict with the Owned Intellectual Property.

 

(d)           Employee Restrictive Agreements; Disclosures of Confidential
Information.  Each of the Transferred Companies has used its commercially
reasonable efforts to maintain the secrecy of all material Trade Secrets used in
the Business.  To the Knowledge of Seller, since January 1, 2007, all
individuals employed by the Transferred

 

21

--------------------------------------------------------------------------------

 

Companies have agreed not to disclose confidential or proprietary information
(including Trade Secrets) relating to the Business (collectively, the “Employee
Restrictive Agreements”).  To the Knowledge of Seller, since January 1, 2007,
(i) no such current or former employee has materially breached or violated any
of the Employee Restrictive Agreements and (ii) there has been no material
breach of confidentiality of any Trade Secrets or other confidential
Intellectual Property used in the Business by any other Person.

 

(e)           Data and Computer Systems.  The Transferred Companies have
established and are in compliance with commercially reasonable security programs
that are designed to protect (i) the security, confidentiality and integrity of
transactions executed through their computer systems, including encryption or
other security protocols and techniques when appropriate, and (ii) the security,
confidentiality and integrity of all of the data, files, datafiles, electronic
reports and electronic records used in and necessary to conduct the Business as
currently conducted (collectively, the “Data”) that is confidential or
proprietary.  Since January 1, 2007, none of the Transferred Companies has
suffered and, to the Knowledge of Seller, no service provider to the Transferred
Companies has suffered any material information security breach with respect to
the Data of the Transferred Companies or computer systems used in the Business,
nor has any Transferred Company been notified or been required by Law to notify
any consumers, employees or Governmental Authority of any information security
breach with respect to the Data.

 

(f)            Consumer Privacy Information.  The Transferred Companies have
established and are in compliance with written privacy policies applicable to
the collection, use, disclosure, maintenance and transmission of personal,
private, health or financial information about individual policyholders,
customers, consumers or benefits recipients (“Consumer Privacy Information”). 
The Transferred Companies are not prohibited by any applicable privacy Laws or
their own written privacy policies from providing Buyer with the Consumer
Privacy Information that has been, or will be, provided to Buyer, on or after
the Closing Date, in connection with the transactions contemplated hereby.

 

(g)           Integrity of Hardware.  All material information technology
hardware currently used by the Transferred Companies is, in all material
respects, in useable operating condition as is necessary to conduct the Business
as currently conducted.

 

(h)           Integrity of Software.  To the Knowledge of Seller, no Owned
Intellectual Property that is Software contains any viruses, malware,
time-bombs, key-

 

22

--------------------------------------------------------------------------------

 

locks or any other devices designed to, without the Knowledge of Seller and
authorization of a Transferred Company, disrupt, disable, harm or interfere with
the operation of such Owned Intellectual Property or the integrity of the Data
or information produced by such Owned Intellectual Property.  To the Knowledge
of Seller, no Software that is licensed to the Transferred Companies contains
any viruses, malware, time-bombs, key-locks or any other devices designed to,
without the Knowledge of Seller and authorization of a Transferred Company,
disrupt, disable, harm or interfere with the operation of such Software or the
integrity of the Data or information produced by such Software.  Each of the
Transferred Companies uses anti-virus Software in accordance with commercially
reasonable standards.

 

(i)            Open Source Code.  No open source code, freeware, libraries, or
any software source code subject to the GNU General Public License or any
similar “open source” license has been used or incorporated into any Software
owned, developed (or currently being developed), used, marketed, distributed,
licensed or sold by any Transferred Company that (i) requires or would
reasonably be expected to require, or conditions or would reasonably be expected
to condition the use or distribution of such Software on, the disclosure,
licensing, or distribution of any source code for any portion of such Software,
or (ii) otherwise imposes or would reasonably be expected to impose any
limitation, restriction or condition on the right or ability of the Transferred
Companies to use or distribute any such Software.

 

(j)            Other Intellectual Property Matters.

 

(i)            The Transferred Companies are the exclusive owners of the Owned
Intellectual Property set forth in Section 2.11(a) of the Seller Disclosure
Letter and, to the Knowledge of Seller, of the Trade Secrets owned by the
Transferred Companies, free and clear of any Liens other than Permitted Liens.

 

(ii)           The conduct of the Business does not infringe, dilute,
misappropriate or otherwise conflict with the rights of any Person in respect of
any Intellectual Property, including with respect to any Patents, Copyrights,
Trademarks or Trade Secrets of any third party.

 

(iii)          No claim or demand is pending or, to the Knowledge of Seller,
threatened (A) challenging the validity of any Owned Intellectual Property or,
to the Knowledge of Seller, Intellectual Property exclusively licensed to the
Transferred Companies or any of the Transferred Companies’ title or rights
thereto, or (B) alleging that any of the Transferred Companies or the conduct of

 

23

--------------------------------------------------------------------------------

 

the Business is infringing, diluting, misappropriating or otherwise in conflict
with any Intellectual Property rights of any other Person.

 

(iv)          The Transferred Companies own or have the right to use all of the
Data, free and clear of any Liens other than Permitted Liens.

 

(v)           Provided that all Third Party Consents are obtained, neither the
execution, delivery or performance of this Agreement or any of the Ancillary
Agreements nor the consummation of any of the transactions contemplated by this
Agreement or any of the Ancillary Agreements will, with or without the giving of
notice or lapse of time, or both, result in, or give any other Person the right
or option to cause or declare, (A) a loss of, or encumbrance on, any Owned
Intellectual Property used in the conduct of the Business as currently
conducted, (B) a material breach of any material IP License to which any
Transferred Company is a party, (C) the release, disclosure or delivery of any
Owned Intellectual Property to any escrow agent or other Person or (D) the
grant, assignment or transfer to any other Person of any license or other right
or interest under, to or in any of the Owned Intellectual Property.

 

(k)           Section 2.11(k) of the Seller Disclosure Letter lists all of the
Software owned by Seller or any member of the Parent Group that is used by any
Transferred Company.

 

Section 2.12           Litigation.

 

(a)           There is no material Litigation pending or, to the Knowledge of
Seller, threatened against any of the Transferred Companies (other than claims
under the terms of Insurance Contracts that are within applicable policy limits
and were incurred in the ordinary course of business consistent with past
practice) and (b) there are no settlement agreements or similar written
agreements with any Governmental Authority and no outstanding orders, judgments,
stipulations, decrees, injunctions, determinations or awards issued by any
Governmental Authority against or materially adversely affecting the Business or
any of the Transferred Companies.  Clause (a) of this Section 2.12 does not
apply with respect to Intellectual Property matters, which are covered by
Section 2.11, or Labor-Related Claims, which are covered by Section 2.16(f), and
this Section 2.12 does not apply with respect to Tax matters, which are covered
by Section 2.18.

 

24

--------------------------------------------------------------------------------

 

Section 2.13           Compliance with Laws.

 

(a)           The Transferred Companies are, and since January 1, 2007 have
been, in compliance in all material respects with all orders, laws, statutes,
regulations, rules, ordinances, writs, injunctions, directives, judgments,
decrees, principles of common law, constitution or treaty enacted, promulgated,
issued, enforced or entered by any Governmental Authority (“Laws”) and Permits. 
Since January 1, 2007, none of Seller or any of the Transferred Companies has
received any written notice from a Governmental Authority that alleges any
material noncompliance (or that Seller or a Transferred Company is under any
investigation by such Governmental Authority for any such alleged noncompliance,
in the case of Seller, which relates to the Transferred Companies or the
Business) with any order issued by a Governmental Authority, Law or Permit
applicable to Seller, the Transferred Companies or the Business, in the case of
Seller, which relates to the Transferred Companies or the Business.  This
Section 2.13 does not apply with respect to Tax matters, which are covered by
Section 2.18.

 

(b)           Without limiting the foregoing: (i) since January 1, 2007, none of
the Transferred Companies has used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity, to government officials or others
or established or maintained any unlawful or unrecorded funds in violation of
the Foreign Corrupt Practices Act of 1977, as amended; (ii) the Transferred
Companies are, and since January 1, 2007 have been, in compliance with all
applicable international trade and investment sanctions and restrictions under
any applicable Law administered by the United States Office of Foreign Assets
Control; (iii) the Transferred Companies are, and since January 1, 2007 have
been, in compliance with all applicable Laws relating to money laundering,
currency transfers or other regulations concerning the transfer of monetary
instruments; and (iv) the Transferred Companies maintain policies and procedures
designed to ensure, and which are reasonably expected to continue to ensure,
compliance with the foregoing Laws.

 

Section 2.14           Permits and Licenses.

 

(a)           The Transferred Companies own, hold or possess all material
licenses (including insurance licenses), franchises, permits, privileges,
immunities, certificates, variances, orders, consents, approvals and other
authorizations (including authorizations to write excess and surplus lines
insurance as a non-admitted or unlicensed insurance carrier) from a Governmental
Authority that are necessary to entitle them to own or lease, operate and use
their properties or assets and to carry on and conduct their business as
conducted on the date hereof (the “Permits”), and all such Permits are valid and
in full force and effect.  Section 2.14(a) of the Seller Disclosure Letter lists
all jurisdictions in which the Insurance Subsidiaries are domiciled, licensed or
authorized to write insurance business, and all jurisdictions in which the
Insurance Subsidiaries are

 

25

--------------------------------------------------------------------------------

 

eligible to write insurance business on an excess or surplus lines basis, and
Seller has made available to Buyer true, complete and correct copies of each
such license and authorization.  Since January 1, 2007, none of the Transferred
Companies has received written notice of any violation, suspension, cancellation
or non-renewal of any Permit or any Litigation relating to the revocation or
modification of any Permit, the loss of which has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect. 
Assuming compliance with the matters referred to in Section 2.2(b), none of the
Permits will be subject to revocation, suspension, withdrawal or termination as
a result of the consummation of the transactions contemplated hereby (other than
any Permit that is not material and that is not an insurance license or
certificate).

 

(b)           EISI is duly licensed as an insurance agency and, where required,
as a claims adjuster in each jurisdiction in which it is soliciting insurance
and adjusting claims, as applicable, or as otherwise required to carry on its
business as now conducted.  Section 2.14(b) of the Seller Disclosure Letter sets
forth a true, complete and correct list of each such license by jurisdiction. 
There is no proceeding or investigation pending or threatened which would
reasonably be expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such license, except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.  EISI has been appointed as an agent, where required, of the
Insurance Subsidiaries in each jurisdiction in which it produces business for
the Insurance Subsidiaries.  EISI has designed, established and is in compliance
in all material respects with programs that are reasonably designed to ensure
that each employee of EISI holds individual insurance agent and individual
claims adjuster licenses in each jurisdiction where he or she is required to be
so licensed under applicable Laws to perform his or her job responsibilities.

 

(c)           IAC is duly licensed as an insurance agency in each jurisdiction
in which it is soliciting insurance or as otherwise required to carry on its
business as now conducted.  Section 2.14(c) of the Seller Disclosure Letter sets
forth a true, complete and correct list of each such license by jurisdiction. 
There is no proceeding or investigation pending or threatened which would
reasonably be expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such license, except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.  IAC has been appointed as an agent, where required, of all
insurance companies which it represents in each jurisdiction in which it
produces business for such companies.  IAC has designed, established and is in
compliance in all material respects with programs that are reasonably designed
to ensure that each employee of IAC holds individual insurance agent licenses in
each jurisdiction where he or she is required to be so licensed under applicable
Laws to perform his or her job responsibilities.

 

26

--------------------------------------------------------------------------------

 

Section 2.15           Environmental Matters.

 

(a)           Since January 1, 2007, each of the Transferred Companies has
complied in all material respects with all applicable Environmental Laws and has
obtained and is in compliance in all material respects with all applicable
Environmental Permits.  No notice of violation, notification of liability or
potential liability or request for information has been received by the
Transferred Companies relating to or arising out of any Environmental Law.  No
order has been issued and is currently in effect, and since January 1, 2007 no
penalty or fine has been assessed, against any of the Transferred Companies
relating to or arising out of any Environmental Law.

 

(b)           No Release of Hazardous Substances has occurred at, on, above,
under or from any real properties currently or formerly owned, leased, operated
or used by any of the Transferred Companies or any predecessors in interest that
has resulted or would reasonably be expected to result in any material Liability
to the Transferred Companies under Environmental Law.

 

(c)           None of the Transferred Companies nor, to the Knowledge of Seller,
any other Person has caused or taken any action that would reasonably be
expected to result in any material Liability to the Transferred Companies under
Environmental Law relating to (i) the environmental conditions at, on, above,
under, or about any real properties currently or formerly owned, leased,
operated or used by any of the Transferred Companies or any predecessors in
interest, or (ii) the past or present use, management, handling, transport,
treatment, generation, storage, disposal, Release or threatened Release of
Hazardous Substances.

 

(d)           Seller has provided to Buyer all environmental site assessments,
audits, investigations and studies in the possession, custody or control of
Seller and the Transferred Companies relating to real properties currently or
formerly owned, leased, operated or used by the Transferred Companies.

 

(e)           Notwithstanding any other provision of this Article II, the
representations and warranties in this Section 2.15 are the exclusive
representations and warranties of the Seller with respect to Hazardous Materials
or Environmental Laws.

 

27

--------------------------------------------------------------------------------

 

Section 2.16           Employees, Labor Matters, Etc.

 

(a)           Employees.  Seller or one of its Affiliates has delivered or made
available to Buyer, prior to the date hereof, a true, complete and correct list
of each Employee (and each other person who, as of the date hereof, is employed
by Seller or an Affiliate (other than a Transferred Company) and whose duties
relate exclusively or primarily to the Business) as of the date hereof, who
received annual base salary in excess of $100,000 in fiscal year 2010, and each
such Employee’s or person’s:  (i) employer; (ii) date of hire; (iii) job title;
(iv) rate of pay or annual salary; (v) 2011 annual bonus target;
(vi) outstanding long-term incentive compensation awards; and (vii) balance
under any deferred compensation account as of the date hereof.  Each person who,
as of the Closing Date, is an employee of Seller or any of its Affiliates, and
whose duties relate exclusively or primarily to the Business, will be employed
by a Transferred Company as of the Closing Date.  Without limiting the
generality of the definitions set forth in Section 9.1, as of the date hereof,
the Key Employees are those individuals identified in Section 2.16(a)(i) of the
Seller Disclosure Letter, and the LTIP Employees are those individuals
identified in Section 2.16(a)(ii) of the Seller Disclosure Letter.

 

(b)           Restrictions.  To the Knowledge of Seller, (i) as of the date
hereof, no current Key Employee has given notice of his or her intention to
terminate employment with a Transferred Company, and (ii) no Key Employee is a
party to or is bound by any confidentiality agreement, noncompetition agreement
or other Contract (with any Person) that materially restricts such Key
Employee’s ability to perform his or her material duties or responsibilities as
an Employee of a Transferred Company.

 

(c)           Collective Bargaining Agreements; Labor Union Activity.  None of
the Transferred Companies is party to, or is otherwise bound by, any collective
bargaining agreement or other Contract with a labor organization, and, to the
Knowledge of Seller, there are not any labor unions or other organizations or
groups representing, purporting to represent or attempting to represent any
current Employees.

 

(d)           Compliance.  Each of the Transferred Companies: (i) since
January 1, 2007 has been in compliance in all material respects with all
applicable requirements of Law with respect to employment, employee
classification, wages, hours and other labor-related matters; (ii) since
January 1, 2007 has withheld and reported all amounts required by any applicable
requirements of Law or Contract to be withheld and reported with respect to
wages, salaries and other payments to any Employee, except to the extent any
such failure to withhold or report would not, individually or in the aggregate,
result in material Liability; (iii) has no material Liability for any payment to
any trust or other fund governed by or maintained by or on behalf of any
Governmental

 

28

--------------------------------------------------------------------------------

 

Authority with respect to unemployment compensation benefits, social security or
other benefits or obligations for any Employee (other than routine payments to
be made in the normal course of business and consistent with past practice); and
(iv) has no material Liability for any arrears of wages.

 

(e)           Independent Contractors.  Section 2.16(e) of the Seller Disclosure
Letter sets forth the name of each individual who is, as of the date hereof, an
independent contractor of any of the Transferred Companies who is entitled to
receive in excess of $100,000 per year in the aggregate from any of the
Transferred Companies and the Transferred Company with which such independent
contractor is under contract.

 

(f)            Labor-Related Claims.  There is no material Litigation, labor
dispute, audit, proceeding or grievance pending or, to the Knowledge of Seller,
threatened with respect to any of the Transferred Companies relating to any
employment Contract, compensation, wages and hours, leave of absence, plant
closing notification, employment statute or regulation, privacy right, labor
dispute, workers’ compensation policy, long-term disability policy, safety,
retaliation, immigration or discrimination matter involving any Employee,
including charges of unfair labor practices or harassment complaints.

 

Section 2.17           Employee Benefit Plans and Related Matters; ERISA.

 

(a)           Disclosure.  Section 2.17(a) of the Seller Disclosure Letter
contains a true, complete and correct list of each material Company Benefit
Plan.  Each such material Company Benefit Plan that is sponsored or maintained
by a Transferred Company exclusively for the benefit of Employees is identified
as such in Section 2.17(a) of the Seller Disclosure Letter.  With respect to
each material Company Benefit Plan, Seller has provided or made available to
Buyer, to the extent applicable, (i) true, complete and correct copies of all
plan documents, trust agreements, insurance Contracts or other funding
arrangements, (ii) the most recent annual funding report, if any, (iii) the most
recent Form 5500, if any, (iv) the most recent IRS determination letter, if any,
(v) all current summary plan descriptions, (vi) all material communications
received from or sent to the IRS, the PBGC, the Department of Labor or any other
Governmental Authority, (vii) the most recent actuarial study of any Company
Benefit Plan providing pension or post-employment life or medical benefits to
which the Transferred Companies could have any material Liability,
(viii) statements or other communications regarding withdrawal or other
multiemployer plan Liabilities (or similar Liabilities pertaining to any
non-U.S. employee benefit plan sponsored by any of the Transferred Companies),
and (ix) all material amendments and modifications to any such Company Benefit
Plan.

 

29

--------------------------------------------------------------------------------

 

(b)           Qualification.  Each Company Benefit Plan intended to be qualified
under Section 401(a) of the Code, and the trust (if any) forming a part thereof,
are so qualified and have received a favorable determination letter from the
IRS.  Each Company Benefit Plan has been operated, in all material respects, in
accordance with its terms and applicable Laws.

 

(c)           Liability; Compliance.

 

(i)            All Company Benefit Plans that are “nonqualified deferred
compensation plans” (within the meaning of Section 409A of the Code) and any
award thereunder, in each case that is subject to Section 409A of the Code,
comply in all material respects, in form and operation, with the requirements of
Section 409A(a)(2), 409A(a)(3) and 409A(a)(4) of the Code.

 

(ii)           Since January 1, 2007, no Company Benefit Plan has been subject
to Title IV of ERISA.

 

(iii)          (A) there are no pending or, to the Knowledge of Seller, material
threatened claims by or on behalf of any participant in any of the Company
Benefit Plans, or otherwise involving any Company Benefit Plan or the assets of
any Company Benefit Plan, (B) the Company Benefit Plans are not presently under
audit or examination (nor, to the Knowledge of Seller, has notice been received
of a potential audit or examination) by the IRS, the Department of Labor, or any
other Governmental Authority, domestic or foreign, and (C) no material matters
are pending with respect to a Company Benefit Plan under the IRS’s Voluntary
Compliance Resolution program, its Closing Agreement Program, or other similar
programs.

 

(iv)          None of the Transferred Companies has any material Liability in
respect of, or obligation to provide, post-retirement health, medical, life
insurance or other welfare benefits for former or current employees of the
Transferred Companies except (A) continuation coverage required under
Section 4980B of the Code or other similar Law or (B) coverage or benefits the
entire cost of which is borne by the employee or former employee.

 

(v)           The execution, delivery and performance of the Transaction
Agreements by the Seller Parties and the Transferred Companies and the
consummation of the transactions contemplated thereby will not (alone or in
combination with any other event) result in an increase in the amount of

 

30

--------------------------------------------------------------------------------

 

compensation or benefits or the acceleration of the vesting or timing of payment
of any compensation or benefits payable to or in respect of any Employee (or
current or former independent contractor or director of any of the Transferred
Companies) or any increased or accelerated funding obligation with respect to
any Company Benefit Plan.  No Employee is entitled to any tax gross-up or other
reimbursement for taxes incurred under Sections 4999, 409A or 457A of the Code.

 

(vi)          No Foreign Employees or Plans.  None of the Employees perform
services on behalf of the Transferred Companies primarily outside of the United
States, and none of the Company Benefit Plans covers Employees whose services
are performed primarily outside of the United States.

 

Section 2.18           Tax Matters.

 

(a)           All material Tax Returns required to have been filed by or with
respect to any of the Transferred Companies have been duly and timely filed
(taking into account any extensions) in accordance with applicable Law.  All
such Tax Returns are true, correct and complete in all material respects.  All
material Taxes required to be paid by or with respect to any of the Transferred
Companies, whether or not shown on such Tax Returns, (i) have been timely paid
or (ii) are being contested in good faith by appropriate proceedings and are
reserved for to the extent required under ASC 740 on the most recent financial
statements of the relevant Person.  The liability of the Transferred Companies
for Taxes set forth in the Year End Balance Sheets was materially correct as of
the Balance Sheet Date.

 

(b)           (i) Section 2.18(b)(i) of the Seller Disclosure Letter lists all
of the states, territories and jurisdictions in which the Transferred Companies
have been required to file Tax Returns (including the type of Tax Returns filed)
since January 1, 2005 (except for certain state Tax Returns with respect to AFI
and the AFI Transferred Subsidiaries), and true, complete and correct copies of
all such Tax Returns have been made available to Buyer, and (ii) no claim has
been made in writing by any Tax Authority in any jurisdiction where any
Transferred Company does not file Tax Returns that such Transferred Company is
or may be subject to Tax in that jurisdiction or is required to file a Tax
Return in such jurisdiction.  No Transferred Company has had any permanent
establishment or other taxable presence in any foreign country, as determined
pursuant to applicable foreign Law or any applicable Tax treaty or convention
between the United States and such foreign country.

 

31

--------------------------------------------------------------------------------

 

(c)           The Transferred Companies have complied in all material respects
with all applicable Law relating to the collection and withholding of Taxes
(including all information reporting and record keeping requirements) and all
such Taxes, including all such Taxes with respect to amounts paid or owing to
any employee, independent contractor, creditor, stockholder, foreign Person, or
other Third Party, have been duly paid within the time and in the manner
prescribed by applicable Law by or on behalf of the Transferred Companies.

 

(d)           Since the Balance Sheet Date, none of the Transferred Companies
has engaged in any transaction, or taken any other action, other than in the
ordinary course of business, that would reasonably be expected to result in a
materially increased Tax liability or materially reduced Tax asset from that
reflected on the most recent GAAP Financial Statement.

 

(e)           All federal Tax Returns filed with respect to Tax years of (i) the
AFI Consolidated Group through the Tax year ended December 31, 2006 and (ii) the
WMI Consolidated Group through the Tax year ended December 31, 2005 have been
examined and closed or are Tax Returns with respect to which the applicable
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired.

 

(f)            There are no current extensions of any period of limitations with
respect to Taxes or Tax Returns of or with respect to the Transferred Companies,
and, to the Knowledge of Seller, there are no requests or demands to extend or
waive any such period of limitations.

 

(g)           There are no current federal, state, local, or foreign
reassessments, assessments, audits, inquiries, claims, suits, proceedings or
investigations (each, an “Audit”) with respect to Taxes, or Tax Returns, of or
with respect to any of the Transferred Companies.  To the Knowledge of Seller,
no Audit with respect to Taxes, or Tax Returns, of or with respect to any of the
Transferred Companies is pending, proposed or threatened.

 

(h)           [Reserved.]

 

(i)            None of the Transferred Companies has any liability for Taxes of
any other Person (i) under Treasury Regulations Section 1.1502-6 (or any
corresponding or similar provision of applicable Law) (other than (A) solely as
relates to WMI or its Subsidiaries, solely as a result of being a member of the
WMI Consolidated Group or

 

32

--------------------------------------------------------------------------------

 

(B) solely as relates to AFI or its Subsidiaries, solely as a result of being a
member of the AFI Consolidated Group), (ii) as a transferee or successor,
(iii) by Contract or (iv) otherwise.

 

(j)            Since January 1, 2001, none of the Transferred Companies has been
included in any combined, consolidated, affiliated, unified or group Tax Return
or has had its Tax liability calculated on a combined, consolidated, unified,
group or affiliated basis other than (i) solely as relates to WMI or its
Subsidiaries, as a member of the WMI Consolidated Group or (ii) solely as
relates to AFI or its Subsidiaries, as a member of the AFI Consolidated Group.

 

(k)           None of the Transferred Companies has received, applied for, or
requested (i) any Tax ruling or (ii) any advance pricing agreement, closing
agreement or other agreement or practice relating to Taxes or Tax matters with a
Tax Authority, in each case, that would be binding upon any of the Transferred
Companies after the Closing Date.

 

(l)            None of the Transferred Companies will be required to include any
material item of income or gain in, or exclude any material item of loss or
deduction from, the determination of taxable income for any Post-Closing Tax
Period as a result of any (i) change in method of accounting for a Pre-Closing
Tax Period under Section 481 of the Code (or any corresponding provision of
state, local or foreign Law); (ii) installment sale or open transaction made or
entered into on or prior to the Closing Date; (iii) prepaid amount received on
or prior to the Closing Date; or (iv) intercompany transaction that will be
required to be taken into account under Treasury Regulations Section 1.1502-13
(or any predecessor provision or any similar provision of state, local or
foreign Law) and that occurs on or prior to the Closing Date.

 

(m)          None of the Transferred Companies has an “excess loss account” (as
defined in Treasury Regulations Section 1.1502-19 or similar provisions of
state, local or foreign Tax Laws).

 

(n)           The Transferred Companies have complied with the provisions of the
Code and the Treasury Regulations promulgated thereunder as necessary to avoid
any material redistribution, reapportionment, reallocation, recharacterization,
or adjustment pursuant to (i) Section 482 of the Code, (ii) Section 845 of the
Code, or (iii) any similar provision of state, local, or foreign Law (including
all contemporaneous transfer pricing documentation requirements and any
provisions of an applicable income tax treaty).

 

33

--------------------------------------------------------------------------------

 

(o)           None of the Transferred Companies is either a party to or bound by
(nor as a result of any action on or prior to the Closing Date will any of the
Transferred Companies become a party to or bound by) any Tax sharing agreement,
Tax allocation agreement, Tax indemnity agreement or similar agreement or
practice with respect to Taxes (including, without limitation, any advance
pricing agreement, closing agreement or other agreement or practice relating to
Taxes with any Tax Authority) (each, a “Tax Sharing Agreement”) that will remain
in effect or with respect to which there will be any liability after the Closing
Date.

 

(p)           None of the Transferred Companies has ever been a life insurance
company as defined in Section 816 of the Code.  None of the Transferred
Companies (i) has ever sold, issued, reinsured, or provided administrative
services with respect to any policies, contracts or other products that were
marketed as qualifying or intended by any Transferred Company to qualify as
annuities, life insurance contracts, non-cancellable accident and health
insurance contracts, long-term care insurance contracts, pension plan contracts
or similar contracts under Section 72, 101, 401, 403, 408, 412, 457, 807, 816,
817, 817A, 818, 7702, 7702A, 7702B or any similar provision of the Code or
(ii) maintains a “special loss discount account” or makes “special estimated tax
payments” within the meaning of Section 847 of the Code.  For all Taxable
Periods open to assessment, each Insurance Subsidiary has been an insurance
company (other than a life insurance company) subject to Tax under Section 831
of the Code.

 

(q)           No power of attorney with respect to Taxes has been executed or
filed with any Tax Authority by or on behalf of any of the Transferred Companies
that will remain in effect after the Closing Date.

 

(r)            None of the Transferred Companies is a party to any joint
venture, partnership, or other arrangement that could be treated as a
partnership for United States federal income tax purposes.

 

(s)           None of the Transferred Companies has constituted either a
“distributing corporation” or a “controlled corporation” (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify
for tax-free treatment under section 355 or 361 of the Code (i) in the two years
prior to the date of this Agreement or (ii) in a distribution that could
otherwise constitute part of a “plan” or “series of related transactions”
(within the meaning of Section 355(e) of the Code) in conjunction with the
transactions contemplated by this Agreement.

 

34

--------------------------------------------------------------------------------

 

(t)            None of the Transferred Companies is or has been, at any time
during the applicable time period set forth in Section 897(c)(1) of the Code
with respect to such Transferred Company, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.

 

(u)           None of the Transferred Companies is, or owns an interest in,
(i) a controlled foreign corporation as defined in Section 957 of the Code or
(ii) a passive foreign investment company as defined in Section 1297 of the
Code.

 

(v)           None of the Transferred Companies has made an election under
Section 108(i) of the Code to defer the recognition of any cancellation of
indebtedness income.

 

(w)          None of the Transferred Companies has participated or engaged in
any “reportable transaction” within the meaning of Treasury Regulations
Section 1.6011-4 (or any corresponding or similar provision of applicable Law).

 

(x)            Except for IAC, each of the Transferred Companies is a “domestic
corporation” within the meaning of Section 7701(a)(30) of the Code and is a
member of either the WMI Consolidated Group or the AFI Consolidated Group.  IAC
is treated as a disregarded entity for federal Tax purposes.

 

(y)           Except as set forth in Section 2.18(y) of the Seller Disclosure
Letter, for all Taxable Periods commencing on or after January 1, 2009, (i) none
of the Transferred Companies has:  (A) settled or compromised any material Tax
Audit relating to a Transferred Company or forgone the right to any refund of
Taxes; (B) made a material change to any of the Transferred Companies’ methods,
policies or practices of Tax accounting or methods of reporting income or
deductions for Tax purposes from those employed in the preparation of its most
recently filed Tax Return; (C) amended any material Tax Return of or with
respect to any of the Transferred Companies; (D) entered into any material
agreement with a Tax Authority with respect to any Transferred Company, or
terminated any agreement entered into with a Tax Authority with respect to any
Transferred Company that is in effect as of the date hereof; (E) altered or made
any material Tax election; (F) requested a ruling relating to a material amount
of Taxes; (G) granted any power of attorney relating to Tax matters; or
(H) prepared any material Tax Return in a manner that is not consistent with
past practices; and (ii) neither Seller nor any of its Affiliates has taken any
action described in clause (i) above with respect to any of the Transferred
Companies.

 

35

--------------------------------------------------------------------------------

 

Section 2.19           Insurance.  Section 2.19 of the Seller Disclosure Letter
sets forth a true, complete and correct list, as of the date hereof, of all
current insurance policies in respect of, or relating to, directors and officers
liability, fiduciary liability, employment practices liability, errors and
omissions liability, workers’ compensation liability, the Assets or the
Business, under which the Transferred Companies are insured.  All such policies
are in full force and effect (and all premiums due and payable thereon have been
paid in full (other than retroactive or retrospective premium adjustments that
are not yet, but may be, required to be paid with respect to any period ending
prior to the Closing Date, which amounts shall be paid prior to the Closing Date
if so required)).

 

Section 2.20           Regulatory Matters.

 

(a)           Seller has made available to Buyer true, complete and correct
copies of (i) all reports of examination (including financial, market conduct
and similar examinations) of the Insurance Subsidiaries, EISI and IAC issued by
any Governmental Authority since January 1, 2007 and all material correspondence
or consent orders related thereto, (ii) all insurance holding company filings or
submissions provided to any Governmental Authority with respect to any of the
Transferred Companies since January 1, 2007 and all material correspondence
related thereto and (iii) all other registrations, filings and submissions
provided to any Governmental Authority with respect to any of the Insurance
Subsidiaries since January 1, 2007 and all material correspondence related
thereto.

 

(b)           Since January 1, 2007, the Insurance Subsidiaries, EISI and IAC
have filed all financial statements and material reports, statements, documents,
registrations, filings or submissions required to be filed by such entity with
any Insurance Regulator and, to the Knowledge of Seller, no material
deficiencies have been asserted by any such Insurance Regulator since January 1,
2007 with respect to any such financial statements, reports, statements,
documents, registrations, filings or submissions that have not been remedied. 
Since January 1, 2000, none of the Insurance Subsidiaries is or has been a
“commercially domiciled insurer” under the laws of any jurisdiction or is or has
been otherwise treated as domiciled in a jurisdiction other than its
jurisdiction of organization.

 

(c)           There are no insurance policies issued, reinsured or assumed by
any of the Transferred Companies that are currently in force under which any
Transferred Company may be required to allocate profit or pay dividends to the
holders thereof.

 

36

--------------------------------------------------------------------------------

 

Section 2.21           Reinsurance Agreements.

 

(a)           Section 2.21(a) of the Seller Disclosure Letter sets forth a true,
complete and correct list of all of the Reinsurance Agreements and any related
letters of credit, reinsurance trusts or other collateral arrangements.  True,
complete and correct copies of all of the Reinsurance Agreements and any related
letters of credit, reinsurance trusts or other collateral arrangements have been
made available to Buyer.  No Reinsurance Agreement contains any provision
providing that the other party thereto may unilaterally terminate or otherwise
modify such Reinsurance Agreement by reason of the transactions contemplated by
this Agreement or any of the Ancillary Agreements, and no Reinsurance Agreement
contains any provision which by its own terms would result in a modification in
the operation of such Reinsurance Agreement by reason of the transactions
contemplated by this Agreement or any of the Ancillary Agreements.  To the
Knowledge of Seller, no party to any Reinsurance Agreement is impaired such that
a default thereunder would reasonably be expected.  Each Insurance Subsidiary is
entitled under applicable Law to take full credit in the Statutory Statements of
such Insurance Subsidiary for all amounts recoverable by it pursuant to any
Reinsurance Agreement to which it is a party.  All collateral provided by any
reinsurer in connection with any Reinsurance Agreement (i) is in a form
permitting the applicable Insurance Subsidiary to take credit for reinsurance
under the insurance laws and regulations of its state of domicile, (ii) if other
than a letter of credit, is subject to a perfected security interest in favor of
the applicable Insurance Subsidiary and (iii) is not subject to any Contract
allowing that such collateral be reduced or diminished in any manner.

 

(b)           With respect to all Reinsurance Agreements for which each
Insurance Subsidiary is taking credit on its most recent Statutory Statements or
has taken credit on any Statutory Statements from and after January 1, 2007,
(i) there has been no separate Contract between any of the Insurance
Subsidiaries and the assuming reinsurer that would under any circumstances
reduce, limit, mitigate or otherwise affect any actual or potential loss to the
parties under any such Reinsurance Agreement, other than inuring contracts that
are explicitly defined in any such Reinsurance Agreement, (ii) for each such
Reinsurance Agreement entered into, renewed, or amended on or after January 1,
1994, for which risk transfer is not reasonably considered to be self-evident,
documentation concerning the economic intent of the transaction and the risk
transfer analysis evidencing the proper accounting treatment, as required by
SSAP No. 62 or 62R, as applicable, is available for review by the Insurance
Regulator for each of the Insurance Subsidiaries, (iii) each of the Insurance
Subsidiaries complies and has complied from and after January 1, 2007 with all
of the requirements applicable to the Reinsurance Agreements set forth in SSAP
No. 62 or 62R, as applicable, and (iv) each of the Insurance Subsidiaries has
and has had from and after January 1, 2007 appropriate controls in place to
monitor the use of reinsurance and adhere to the risk transfer provisions of
SSAP No. 62 or 62R, as applicable.

 

37

--------------------------------------------------------------------------------

 

(c)           Through the Contracts or other arrangements listed in
Section 2.21(c) of the Seller Disclosure Letter (the “OB Contracts”), OneBeacon
Insurance Company (“OBIC”) has assumed or guaranteed and is fully and
unconditionally obligated to pay any and all Liabilities of EIC, EPCIC and
EICNJ, other than Liabilities relating to the operations of the EHI Business
(all such Liabilities, the “OB Liabilities”).

 

Section 2.22           Reserves.  The Insurance Reserves of the Insurance
Subsidiaries recorded in the respective Statutory Statements, as of their
respective dates: (a) were determined in all material respects in accordance
with generally accepted actuarial standards consistently applied (except as
otherwise noted therein); (b) were fairly stated in all material respects in
accordance with generally accepted actuarial standards consistently applied
(except as otherwise noted therein); and (c) were computed on the basis of
methodologies consistent in all material respects with those used in computing
the corresponding Insurance Reserves in the prior fiscal years, except as
otherwise noted in the financial statements and notes thereto included in such
Statutory Statements and related actuarial opinions for the applicable Insurance
Subsidiary for the 2010 fiscal year, copies of which have been made available to
Buyer.

 

Section 2.23           Actuarial Reports.  Section 2.23 of the Seller Disclosure
Letter lists (and Seller has made available to Buyer true, complete and correct
copies of) all material actuarial reports prepared by opining actuaries,
independent or otherwise, from and after January 1, 2009, with respect to the
Business or any of the Insurance Subsidiaries (including all material
attachments, addenda, supplements and modifications thereto).  To the Knowledge
of Seller, the information and data furnished by or on behalf of the Transferred
Companies to their independent actuaries in connection with the preparation of
any such actuarial reports were accurate in all material respects for the
periods covered in such reports.

 

Section 2.24           Rates, Forms and Marketing Materials.  (a) All Insurance
Contracts in effect as of the date hereof (including any applications and
ancillary documents in connection therewith) that are currently issued or sold
by the Insurance Subsidiaries and all marketing materials related thereto, are
in compliance with applicable Law and, to the extent required under applicable
Law, on forms and at rates filed with and either approved or not objected to
within applicable time limits by the applicable Insurance Regulators; (b) any
rates or rating plans of the Insurance Subsidiaries required to be filed with or
approved by any applicable Insurance Regulator have been so filed or approved
and the rates applied by each of the Insurance Subsidiaries to the contracts of
insurance conform to the relevant filed or approved rates; (c) the insurance
policies or contracts being issued by the Insurance Subsidiaries as of the date
hereof are substantially in the forms that have been previously provided to
Buyer; and (d) 

 

38

--------------------------------------------------------------------------------

 

any policies or contracts reinsured in whole or in part conform to the standards
and rates required pursuant to the terms of the related Reinsurance Agreements
except, in the cases of clauses (a) through (d), as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

Section 2.25           Agents; Binding Authority.  No agent, broker or other
Person who is not an employee of any of the Insurance Subsidiaries has or, since
January 1, 2007, has had “binding authority” or permission to bind or obligate
any of the Insurance Subsidiaries to issue any insurance or reinsurance
Contract.

 

Section 2.26           Agreements with Governmental Authorities.

 

(a)           The Insurance Subsidiaries are not parties to any written
agreement, consent, decree or memorandum of understanding with, or parties to
any commitment letter or similar undertaking to, or subject to any
cease-and-desist or other order or directive by, or recipients of any
extraordinary supervisory letter from, or have adopted any policies, procedures
or board resolutions at the request of, any Governmental Authority which
restricts materially the conduct of their business, or in any manner relates to
their capital adequacy, credit or risk management policies or management.

 

(b)           The Insurance Subsidiaries are not subject to any assessments or
similar charges arising on account of or in connection with their participation,
whether voluntary or involuntary, in any guarantee association or comparable
entity established or governed by any state or other jurisdiction, other than
any such assessments or charges for which appropriate accruals have been made or
appropriate reserves have been established on the Statutory Statements.

 

Section 2.27           Investment Assets.

 

(a)           Section 2.27(a) of the Seller Disclosure Letter sets forth a true,
complete and correct list of all Investment Assets as of the close of business
on the Business Day immediately preceding the date hereof (collectively, the
“Scheduled Investments”), with information included therein as to the cost of
each such Scheduled Investment and, if reasonably available, the market value
thereof.  To the Knowledge of Seller, as of the date hereof, none of the
Scheduled Investments was in arrears or default in the payment of principal or
interest or dividends or had been permanently impaired to any material extent.

 

39

--------------------------------------------------------------------------------

 

(b)           Except as would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect, and except for Scheduled
Investments sold after the date hereof, each Transferred Company has good and
marketable title to all of the Scheduled Investments held by it (except
Scheduled Investments sold under repurchase agreements or Scheduled Investments
held in any fiduciary or agency capacity) and will have good and marketable
title to any Investment Assets acquired by it after the date hereof and not sold
prior to the Closing, free and clear of any Lien (other than a Permitted Lien),
except to the extent such Scheduled Investments are pledged in the ordinary
course of business consistent with past practices to secure obligations of the
Transferred Companies.

 

(c)           Section 2.27(c) of the Seller Disclosure Letter sets forth a true,
complete and correct copy of the investment guidelines of the Transferred
Companies as in effect on the date hereof (the “Investment Guidelines”).

 

Section 2.28           Claims Handling.  All amounts claimed by any Person under
any contract of insurance issued by any of the Insurance Subsidiaries have in
all material respects been paid (or appropriate provision for payment thereof
has been made) in accordance with the terms of the contracts under which they
arose, except for any such claim for benefits for which the affected company, in
good faith, believes or believed that there is a basis to contest payment.

 

Section 2.29           Market Conduct.

 

(a)           (i) Each of EISI, IAC and the Insurance Subsidiaries has, since
January 1, 2007, marketed, sold and issued their Insurance Contracts in
compliance, in all material respects, with all consent orders resulting from
market conduct or other examinations or audits by Insurance Regulators in the
respective jurisdictions in which such products have been marketed, sold or
issued; (ii) all advertising, promotional and sales materials and other
marketing practices used by EISI, IAC and the Insurance Subsidiaries have, since
January 1, 2007, complied and are currently in compliance, in each case, in all
material respects, with all consent orders resulting from market conduct or
other examinations or audits by Insurance Regulators in the respective
jurisdictions in which such products have been marketed, sold or issued;
(iii) the manner in which EISI, IAC and the Insurance Subsidiaries compensate
any Person that is not an insurance agent who is involved in the sale or
servicing of Insurance Contracts does not render such Person an insurance agent
under any applicable Laws; and (iv) the manner in which the Insurance
Subsidiaries compensate each Person involved in the sale or servicing of
Insurance Contracts is in compliance in all material respects with all
applicable Laws

 

40

--------------------------------------------------------------------------------

 

(b)                                 (i) The manner in which IAC compensates any
Person that is not an insurance agent who is involved in the sale or servicing
of Insurance Contracts issued by unaffiliated insurance companies does not
render such Person an insurance agent under any applicable Laws and (ii) the
manner in which IAC is compensated by unaffiliated insurance companies relating
to the sale or servicing of their Insurance Contracts is in compliance in all
material respects with all applicable Laws.

 

Section 2.30                                Intercompany Accounts; Transactions
with Affiliates.

 

(a)                                  Section 2.30(a) of the Seller Disclosure
Letter lists all Intercompany Obligations as of the Balance Sheet Date.

 

(b)                                 Section 2.30(b) of the Seller Disclosure
Letter lists all Contracts by which any of the Transferred Companies, on the one
hand, and Seller or any of its Affiliates (other than the Transferred
Companies), on the other hand, are or have been a party or otherwise bound that
are in effect on the date hereof or that involve continuing liabilities or
obligations of the Transferred Companies (each, an “Affiliate Transaction”). 
Each Insurance Subsidiary that is a party to an Affiliate Transaction (including
any OB Contract) has complied with all requirements of Law or Governmental
Authorities applicable thereto and obtained all approvals of Governmental
Authorities necessary in connection therewith.  To the Knowledge of Seller, no
officer, director or employee of any of the Transferred Companies, or any family
member or Affiliate of any such officer, director or employee, (A) owns,
directly or indirectly, any interest in any asset or other property used in the
Business, (B) serves as an officer, director or employee of any Person that is a
supplier, customer or competitor of any of the Transferred Companies or (C) is a
debtor or creditor of any of the Transferred Companies.

 

Section 2.31                                Investment Company.  None of the
Transferred Companies is an investment company subject to registration and
regulation under the Investment Company Act of 1940, as amended.

 

Section 2.32                                Ratings.  As of the date hereof, the
financial strength or claims-paying ability of the Insurance Subsidiaries is
rated “A-” by A.M. Best Company, Inc. (“A.M. Best”).  As of the date
hereof, A.M. Best has not announced that it has under review its rating of the
financial strength or claims-paying ability of any of the Insurance
Subsidiaries.  As of the date hereof, there are no conditions (financial or
otherwise) imposed specifically on any of the Insurance Subsidiaries by A.M.
Best on retaining any currently held rating assigned to any of the Insurance
Subsidiaries.

 

41

--------------------------------------------------------------------------------

 

Section 2.33                                Books and Records.  The Books and
Records have been maintained in accordance with sound business practices in all
material respects.

 

Section 2.34                                Finders’ Fees.  There is no
investment banker, broker, finder or other intermediary retained by or
authorized to act on behalf of Seller or any of the Transferred Companies who is
entitled to any fee or commission from Buyer or any of its Affiliates
(including, after the Closing, the Transferred Companies) upon consummation of
the transactions contemplated by this Agreement.

 

Section 2.35                                NO ADDITIONAL REPRESENTATIONS AND
WARRANTIES.  EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES MADE BY
SELLER IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, CONCERNING THE SHARES, THE COMPANIES, THE TRANSFERRED SUBSIDIARIES OR
ANY OTHER MATTER.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller, as of the date hereof and as of the
Closing Date, as follows:

 

Section 3.1                                      Corporate Status.  Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted.  Each other Buyer Party is
a corporation or other organization duly incorporated or organized, validly
existing and in good standing under the Laws of its jurisdiction of
incorporation or organization and has all requisite corporate or organizational
power and authority to carry on its business as now conducted.

 

Section 3.2                                      Corporate and Governmental
Authorization.

 

(a)                                  Each Buyer Party has all requisite
corporate or organizational power and authority to execute and deliver the
Transaction Agreements to which it is or will be a party, to perform its
obligations thereunder and to consummate the transactions contemplated thereby. 
The execution and delivery by each Buyer Party of each of the Transaction
Agreements to which it is or will be a party and the consummation by each Buyer
Party of the transactions contemplated by such Transaction Agreements have been
duly authorized by all requisite corporate or other similar organizational
action on the

 

42

--------------------------------------------------------------------------------

 

part of each such Buyer Party.  Each of the Transaction Agreements to which a
Buyer Party is or will be a party has been, or upon execution and delivery
thereof, will be, duly executed and delivered by such Buyer Party.  Assuming due
authorization, execution and delivery by the other parties hereto or thereto,
each Transaction Agreement to which each Buyer Party is or will be a party
constitutes, or upon execution and delivery thereof, will constitute, the legal,
valid and binding obligation of each such Buyer Party, enforceable against it in
accordance with its terms, subject in each case to the Enforceability Exception.

 

(b)                                 Except in connection or in compliance with
(i) the notification and waiting period requirements of the HSR Act,
(ii) applicable insurance holding company Laws of California, Wisconsin and New
York, (iii) compliance with and filings under Section 13(a) of the 1934 Act, and
(iv) the approvals, filings and notifications imposed by applicable Laws that
are set forth in Schedule 6.1(c), the execution and delivery by the Buyer
Parties of the Transaction Agreements to which any of them is or will be a party
do not, and the performance by each Buyer Party of, and the consummation by each
Buyer Party of the transactions contemplated by, such Transaction Agreements
will not require any Governmental Approval.

 

Section 3.3                                      Non-Contravention.  The
execution, delivery and performance of the Transaction Agreements by each Buyer
Party that is or will be a party thereto and the consummation of the
transactions contemplated thereby do not and will not (a) conflict with or
result in any violation or breach of any provision of the Organizational
Documents of any of the Buyer Parties, (b) assuming compliance with the matters
referred to in Section 3.2(b), conflict with or result in any violation or
breach of any provision of any material applicable Law or (c) assuming
compliance with the matters referred to in Section 3.2(b), require any consent
of any Person under, result in any breach of, or constitute a default (or event
which, with the giving of notice or lapse of time, or both, would constitute a
default) under, or give to any Person any rights of termination, acceleration or
cancellation of, or result in the creation of any Lien (other than Permitted
Liens) on any of the assets or properties of any of the Buyer Parties pursuant
to, any Contract which any of the Buyer Parties is a party or by which any of
its properties or assets is bound or subject, except, in the case of clause (c),
for any such breaches, defaults, rights or Liens that would not, individually or
in the aggregate, reasonably be expected to have a Buyer Material Adverse
Effect.

 

Section 3.4                                      Availability of Funds.  At the
Closing, Buyer will have sufficient funds to pay the Purchase Price and to
effect all other transactions contemplated by this Agreement and the Ancillary
Agreements.

 

43

--------------------------------------------------------------------------------

 

Section 3.5                                      Purchase for Investment.  Buyer
is purchasing the Shares for investment for its own account and not with a view
to, or for sale in connection with, any distribution thereof, and Buyer shall
not offer to sell or otherwise dispose of the Shares so acquired by it in
violation of any of the registration requirements of the Securities Act.  Buyer
(either alone or together with its advisors) has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Shares and is capable of bearing
the economic risks of such investment.

 

Section 3.6                                      Litigation.  There is no
Litigation pending against, or, to the knowledge of Buyer, threatened against or
affecting, Buyer before any Governmental Authority which, individually or in the
aggregate, has had or would reasonably be expected to have a Buyer Material
Adverse Effect.

 

Section 3.7                                      Finders’ Fees.  Except for
Goldman, Sachs & Co., whose fees and expenses will be paid by Buyer, there is no
investment banker, broker, finder or other intermediary retained by or
authorized to act on behalf of Buyer who is entitled to any fee or commission
from Seller or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.

 

Section 3.8                                      NO ADDITIONAL REPRESENTATIONS
AND WARRANTIES.  EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES MADE BY
BUYER IN THIS AGREEMENT, BUYER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, CONCERNING BUYER OR ANY OTHER MATTER.

 

ARTICLE IV
CERTAIN COVENANTS

 

Section 4.1                                      Conduct of the Business.  From
the date hereof until the Closing or the termination of this Agreement in
accordance with Section 7.1, Seller shall cause the Transferred Companies to: 
(x) conduct the Business in all material respects in the ordinary course
consistent with past practice; and (y) use their reasonable best efforts to
preserve intact the Business and the current relationships and goodwill of the
Transferred Companies with customers, suppliers, contractors, licensors,
employees, agents, producers, distributors, insureds, Insurance Regulators and
others having business dealings with them.  Without limiting the generality of
the foregoing, from the date hereof until the Closing or the termination of this
Agreement in accordance with Section 7.1, except as otherwise expressly
permitted or required by this Agreement or as set forth

 

44

--------------------------------------------------------------------------------

 

in Section 4.1 of the Seller Disclosure Letter, without the prior written
consent of Buyer (which consent shall not be unreasonably withheld, conditioned
or delayed), Seller shall cause the Transferred Companies not to:

 

(a)                                  (i) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock or (ii) purchase, redeem or otherwise acquire any
shares of outstanding capital stock of the Transferred Companies or any rights,
warrants or options to acquire any such shares, other than, in each case, any
such transaction solely involving Transferred Companies following which each
Transferred Company remains a direct or indirect wholly owned Subsidiary of
Seller;

 

(b)                                 issue, sell, grant, pledge or otherwise
encumber any shares of capital stock of any of the Transferred Companies, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities, other than, in each case, any such transaction solely
involving Transferred Companies following which each Transferred Company remains
a direct or indirect wholly owned Subsidiary of Seller;

 

(c)                                  amend its Organizational Documents in a
manner that would be adverse to Buyer’s interests;

 

(d)                                 sell, lease, license or otherwise dispose of
(including by way of reinsurance) any of the material assets (other than
Investment Assets, which are the subject of clause (y) of this Section 4.1) of
any of the Transferred Companies, except in the ordinary course of business
consistent with past practice;

 

(e)                                  enter into any Contract with respect to any
merger, consolidation, liquidation, dissolution or business combination
(including any acquisition of assets or liabilities comprising a business or a
segment, division or line of business) involving any of the Transferred
Companies;

 

(f)                                    purchase, sell, lease, pledge, exchange,
encumber or otherwise dispose or acquire any property or assets (other than
transactions occurring in the ordinary course of business consistent with past
practice and other than Investment Assets, which are the subject of clause
(y) of this Section 4.1) for which the aggregate consideration paid or payable
in any individual transaction is in excess of $2,000,000 or in the aggregate in
excess of $7,500,000;

 

45

--------------------------------------------------------------------------------

 

(g)                                 (i) amend, extend, renew or otherwise modify
in any material respect any of the Leases, (ii) assign or sublease any material
portion of any of the Leased Real Property or (iii) enter into any new lease,
terminate any lease or buy any real property;

 

(h)                                 (i) modify or amend in any material respect
or terminate any material Contract, (ii) waive, release or assign any material
rights or claims under any material Contract or (iii) enter into any material
Contract, in each case other than in the ordinary course of business consistent
with past practice; or (x) modify, amend or terminate any OB Contract or
(y) waive, release or assign any rights or claims under any OB Contract;

 

(i)                                     incur any financial Indebtedness for
borrowed money from third party lending sources (other than current trade
accounts payable incurred in respect of property or services purchased in the
ordinary course of business consistent with past practice) or assume, grant,
guarantee or endorse, pledge or otherwise secure any assets or property or
otherwise as an accommodation become responsible for (whether primary or
secondary) the obligations of any Person (other than a Transferred Company), or
make any third party loans or advances (other than, in each case, in the
ordinary course of business consistent with past practice), for individual
amounts in excess of $1,000,000 or in the aggregate in excess of $2,000,000;

 

(j)                                     default under any Indebtedness, or fail
to pay or satisfy when due any Liability, of any of the Transferred Companies in
excess of $500,000 (other than any such Liability that is being contested in
good faith);

 

(k)                                  forgive, cancel or compromise any material
debt or claim or waive or release any right, in each case other than in the
ordinary course of business consistent with past practice or pursuant to an
Insurance Contract;

 

(l)                                     enter into any new line of business;

 

(m)                               make any capital expenditures in excess of
$2,000,000 individually or $5,000,000 in the aggregate (not including those made
in the ordinary course of business);

 

46

--------------------------------------------------------------------------------

 

(n)                                 voluntarily abandon any material Permit,
except to the extent required in order to comply with applicable Law, or
voluntarily terminate, fail to renew or permit to lapse any material Permit;

 

(o)                                 settle or compromise or agree to the
dismissal of any Litigation or threatened Litigation (in each case, except for
claims under any insurance policies within applicable policy limits that do not
allege bad faith), other than any settlement or compromise that involves solely
cash payments of less than $5,000,000 in any individual case or of less than
$10,000,000 in the aggregate (provided that Seller shall provide prior written
notice to Buyer of any such settlement or compromise that involves solely cash
payments in excess of $2,000,000 in any individual case);

 

(p)                                 other than in the ordinary course of
business consistent with past practice, dispose of, permit to lapse, abandon,
dedicate to the public domain, waive, release or assign any rights, or settle
any claims, or permit the creation of any material Lien with respect to any
Intellectual Property material to the Business;

 

(q)                                 (i) establish, adopt, amend or terminate any
Company Benefit Plan or any arrangement which upon its establishment or adoption
would constitute a material Company Benefit Plan or (ii) materially amend or
terminate any related material insurance policy or related material vendor
contract, in either case except (A) in the ordinary course of business
consistent with past practice or (B) as may be required by applicable Laws or
pursuant to the terms of any Company Benefit Plan as in effect on the date
hereof;

 

(r)                                    make or promise to make any material
bonus, profit-sharing or similar payment, or fund, increase or accelerate the
vesting, payment or amount of wages, salary, commissions, fringe benefits,
severance benefits, deferred compensation or other compensation or benefits
(including equity-based compensation, whether payable in cash or otherwise) or
remuneration payable to, or for the benefit of, any Employee, in each case
except (i) as required by applicable Law or the terms of any Company Benefit
Plan as in effect on the date hereof and (ii) with respect to Employees other
than the LTIP Employees, to the extent such action is (x) not material or
(y) made in the ordinary course of business consistent with past practice
(including in connection with promotions and employee review cycles consistent
with past practice);

 

(s)                                  (i) terminate the employment of any Key
Employee (other than for cause) or hire any new employee who would be, upon
hiring, a Key Employee or (ii) enter into a collective bargaining agreement or
similar labor agreement with respect to

 

47

--------------------------------------------------------------------------------

 

any Employees or renew, extend or renegotiate any existing collective bargaining
agreement or similar labor agreement with respect to any Employees, except, in
the case of this clause (ii), as may be required by applicable Law;

 

(t)                                    (i) settle or compromise any Tax Audit or
forgo the right to any refund of Taxes; (ii) change any of the Transferred
Companies’ methods, policies or practices of Tax accounting or methods of
reporting income or deductions for Tax purposes from those employed in the
preparation of its most recently filed Tax Return; (iii) amend any Tax Return of
or with respect to any of the Transferred Companies; (iv) enter into any
agreement with a Tax Authority with respect to any Transferred Company, or
terminate any agreement entered into with a Tax Authority with respect to any
Transferred Company that is in effect as of the date hereof; (v) alter or make
any Tax election; (vi) request a ruling relating to Taxes; (vii) grant any power
of attorney relating to Tax matters; or (viii) prepare any Tax Return in a
manner that is not consistent with past practices;

 

(u)                                 terminate, cancel or amend, or cause the
termination, cancellation or amendment of, any material insurance coverage (and
any surety bonds, letters of credit, cash collateral or other deposits related
thereto required to be maintained with respect to such coverage) maintained by
the Transferred Companies that is not replaced by comparable insurance coverage;

 

(v)                                 change in any material respect the terms
for, or policies with respect to, the payment of commissions to any of its
insurance agents, brokers or producers;

 

(w)                               enter into any reinsurance commutations (other
than as contemplated by Section 4.16 and the Commutation Agreement), or enter
into, amend, modify or otherwise revise any reinsurance agreement or treaty that
results in a material change in risk or coverage;

 

(x)                                   make any material change in its
underwriting, reinsurance, claims administration, selling, reserving, Tax or
financial accounting policies, guidelines, practices or principles (other than
any change required by a change in applicable Laws, GAAP or SAP or, in respect
of underwriting or claims administration policies, guidelines, practices or
principles, in the ordinary course of business consistent with past practice);

 

48

--------------------------------------------------------------------------------

 

(y)                                 other than as set forth in Schedule 4.1(y),
amend or otherwise change the Investment Guidelines or make any investment or
manage its Investment Assets other than in compliance with the Investment
Guidelines;

 

(z)                                   during the period from the date hereof to
the Closing Date, spend less than 90% (without the consent of Buyer) or more
than 100% (without the consent of Seller), in the aggregate, of the advertising
spending called for during such period by the advertising plan set forth on
Schedule 4.1(z) (for purposes of calculating such aggregate percentage, the
spending called for in any period by such advertising plan that is not fully
completed between the date hereof and the Closing Date shall be determined on a
pro rata basis based on the number of days of such partial period that actually
elapsed between the date hereof and the Closing Date), with the actual amount of
such spending within such limits being determined by the management of the
Transferred Companies in its sole discretion; or

 

(aa)                            agree or commit to do any of the foregoing.

 

Section 4.2                                      Notice of Certain Events.

 

(a)                                  From the date hereof until the Closing,
Seller shall promptly notify Buyer in writing of:  (i) any circumstance, event
or action relating to any of Seller and its Affiliates the existence, occurrence
or taking of which (A) has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or (B) has resulted
or would reasonably be expected to result in the failure of any of the
conditions set forth in Sections 6.1 or 6.2 to be satisfied; (ii) any notice or
other communication from any Person alleging that the consent of such Person is
required in connection with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement; and (iv) any
Litigation commenced or, to the Knowledge of Seller, threatened, against the
Transferred Companies that, if pending on the date hereof, would have been
required to have been disclosed pursuant to Section 2.12.

 

(b)                                 From the date hereof until the Closing,
Buyer shall promptly notify Seller in writing of:  (i) any circumstance, event
or action relating to Buyer or any of its Affiliates the existence, occurrence
or taking of which has resulted or would reasonably be expected to result in the
failure of any of the conditions set forth in Sections 6.1 or 6.3 to be
satisfied; (ii) any notice or other communication from any Person alleging that
any material consent of such Person is required in connection with the
transactions

 

49

--------------------------------------------------------------------------------

 

contemplated by this Agreement; (iii) any notice or other communication from any
Governmental Authority in connection with the transactions contemplated by this
Agreement; and (iv) any Litigation commenced or, to the knowledge of Buyer,
threatened, against Buyer that, individually or in the aggregate, have had or
would reasonably be expected to have a Buyer Material Adverse Effect.

 

(c)                                  Neither Seller’s nor Buyer’s receipt of
information after execution and delivery of this Agreement pursuant to this
Section 4.2 shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by Seller or Buyer, as applicable, in this
Agreement.  A breach of this Section 4.2 by either Seller or Buyer shall not be
considered for purposes of determining the satisfaction of any of the conditions
set forth in Article VI.

 

Section 4.3                                      No Solicitation.  During the
period from the date hereof until the earlier of the termination of this
Agreement in accordance with Article VII and the Closing (the “Exclusivity
Period”), Seller shall not, and shall cause the Parent Group and the Transferred
Companies and its and their respective officers, directors, employees,
investment bankers, attorneys, accountants, consultants or other agents or
advisors not to, directly or indirectly: (i) take any action to solicit,
initiate or encourage the submission of any Acquisition Proposal; (ii) engage in
any discussions or negotiations with, furnish any nonpublic information relating
to the Transferred Companies or afford access to the properties, assets, books
or records of the Transferred Companies to, otherwise cooperate in any way with,
or knowingly assist, participate in, facilitate or encourage any effort by any
Third Party that is seeking to make, or has made, an Acquisition Proposal or a
modification of a previously received Acquisition Proposal; (iii) provide
information to any Third Party relating to any Transferred Company in connection
with an Acquisition Proposal; or (iv) enter into any Contract with respect to an
Acquisition Proposal.  Seller shall cause any pending discussions or
negotiations with any Third Party with respect to any Acquisition Proposal to be
terminated forthwith.  In the event that during the Exclusivity Period Seller or
any member of the Parent Group or any Transferred Company receives an
Acquisition Proposal, or obtains or otherwise receives notice that an
Acquisition Proposal is likely to be made, Seller shall provide Buyer with
prompt written notice thereof, which written notice shall include the terms of,
and the identity of the Person or Persons making or likely to make, such
Acquisition Proposal.

 

Section 4.4                                      Access to Information;
Confidentiality.

 

(a)                                  Buyer acknowledges that the information
being provided to it in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements is subject to the terms of the
Confidentiality Agreement, the terms of which

 

50

--------------------------------------------------------------------------------

 

(including as to term and termination) are incorporated herein by reference. 
Effective upon, and only upon, the Closing, the Confidentiality Agreement shall
terminate with respect to information relating solely to the Transferred
Companies; provided, however, that Buyer acknowledges that any and all other
information provided to it by Seller concerning the Parent Group shall remain
subject to the terms and conditions of the Confidentiality Agreement during the
term thereof.

 

(b)                                 From the date hereof until the Closing,
Seller shall give, and shall cause the Transferred Companies to give, Buyer, its
financial advisors, actuaries, auditors and other authorized representatives and
agents reasonable access during normal business hours to: (i) all of the
offices, properties and Books and Records; (ii) such financial and operating
data and other information relating to the Transferred Companies as such Persons
may reasonably request; and (iii) the employees of Seller or the Transferred
Companies whose assistance and expertise are necessary to assist Buyer in
connection with Buyer’s investigation of the Transferred Companies and Buyer’s
reasonable preparation to integrate and transition the Transferred Companies and
their business and personnel into Buyer’s organization following the Closing;
provided that in no event shall Seller or the Transferred Companies be required
to provide any such access (x) to any such Books and Records, data and
information to the extent that they contain information that is subject to an
attorney-client privilege, constitute attorney work product or are subject to
any obligation of confidentiality or privacy or (y) to the extent that it would
unreasonably disrupt the normal operations of Seller or the Transferred
Companies.  No investigation by Buyer or other information received by Buyer
shall operate as a waiver or otherwise affect any representation, warranty or
agreement given or made by Seller in this Agreement.

 

(c)                                  After the Closing, Seller shall, and shall
cause the other members of the Parent Group to, hold, and shall instruct its,
and shall cause the other members of the Parent Group to instruct their
respective, officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of Law, all
documents concerning the Transferred Companies that are specifically identified
as confidential or that are known by Seller to be, confidential, except to the
extent that such information can be shown to have been (i) previously known on a
nonconfidential basis by Seller, (ii) in the public domain through no fault of
Seller or any other member of the Parent Group or (iii) lawfully acquired by
Seller from sources other than those related to its prior ownership of the
Transferred Companies.  The obligation of Seller and the other members of the
Parent Group to hold any such information in confidence shall be satisfied if
they exercise the same care with respect to such information as they would take
to preserve the confidentiality of their own similar information.  The covenant
set forth in this Section 4.4(c) shall terminate six years after the Closing
Date.

 

51

--------------------------------------------------------------------------------

 

(d)                                 From the Closing until the earlier of the
sixth anniversary of the Closing or such earlier time as the information and
access described below is no longer reasonably required by Buyer, Seller shall,
and shall cause each of its Affiliates to, (i) afford to Buyer and its financial
advisors, actuaries, auditors and other authorized representatives reasonable
access during normal business hours to its books and records, books of account,
financial and other records (including accountants’ work papers), information,
employees, financial advisors, actuaries, auditors and other representatives and
agents to the extent relating to the Transferred Companies or their respective
businesses conducted prior to the Closing Date and (ii) use its commercially
reasonable efforts to cause its representatives to cooperate with, and make
themselves and any books and records related to the Transferred Companies or
their respective businesses conducted prior to the Closing Date in their
possession, in each case, to the extent reasonably required to permit Buyer to
determine any matter relating to its rights and obligations under any
Transaction Agreement or for any other reasonable purpose (including for audit,
accounting, regulatory, investigation, dispute or litigation purposes and for
fulfilling disclosure and reporting obligations required by applicable Law);
provided that such access does not unreasonably interfere with the conduct of
the business of Seller or any of its Affiliates; and provided, further, that in
no event shall Seller or its Affiliates be required to provide access to any
such records and information to the extent that they contain information that is
subject to an attorney-client or other legal privilege, constitutes attorney
work product or is subject to any obligation of confidentiality or privacy. 
Buyer shall bear all out-of-pocket costs and expenses (including attorneys’
fees) reasonably incurred by Seller or any of its Affiliates in connection with
the obligations of Seller and its Affiliates included in this Section 4.4(d).

 

(e)                                  From the Closing until the earlier of the
sixth anniversary of the Closing or such earlier time as the information and
access described below is no longer reasonably required by Seller, Buyer shall
cause the Transferred Companies to (i) afford to Seller and its financial
advisors, actuaries, auditors and other authorized representatives and agents
reasonable access during normal business hours to their books and records, books
of account, financial and other records (including accountants’ work papers),
information, employees, financial advisors, actuaries, auditors and other
representatives and agents relating to periods prior to the Closing Date and
(ii) use its commercially reasonable efforts to cause the representatives of the
Transferred Companies to cooperate with, and make themselves and any books and
records related to the Transferred Companies for periods prior to the Closing
Date in their possession, in each case, to the extent reasonably required to
permit Seller to determine any matter relating to its rights and obligations
under any Transaction Agreement or for any other reasonable purpose (including
for audit, accounting, regulatory, investigation, dispute or litigation purposes
and for fulfilling disclosure and reporting obligations required by applicable
Law); provided that such access does not unreasonably interfere with the conduct
of the business of Buyer or the Transferred Companies or any of their
Affiliates;

 

52

--------------------------------------------------------------------------------

 

and provided, further, that in no event shall Buyer or its Affiliates be
required to provide access to any such records and information to the extent
that they contain information that is subject to an attorney-client or other
legal privilege, constitutes attorney work product or is subject to any
obligation of confidentiality or privacy.  Seller shall bear all out-of-pocket
costs and expenses (including attorneys’ fees) reasonably incurred by Buyer or
any of its Affiliates in connection with the obligations of Buyer and its
Affiliates included in this Section 4.4(e).

 

(f)                                    Buyer shall cause the Transferred
Companies to maintain their Books and Records relating to the periods prior to
the Closing Date for a period of not less than six years following the Closing
Date, after which the Transferred Companies may destroy such records in their
sole discretion.

 

Section 4.5                                      Subsequent Financial Statements
and Reports, Etc.

 

(a)                                  From the date hereof until the Closing,
Seller shall cause each of EHI and AFI to (i) provide to Buyer, as soon as
reasonably practicable after the end of each fiscal month, a monthly management
report in scope and detail consistent with those monthly management reports that
have been historically prepared by EHI and AFI and delivered to Seller, and (ii)
prepare, and deliver to Buyer, as soon as reasonably practicable after the end
of each fiscal month, a monthly balance sheet as of the last day of such month,
in scope and detail consistent with the monthly balance sheets that have been
historically prepared by each of EHI and AFI.

 

(b)                                 Seller shall prepare and deliver to Buyer as
soon as reasonably practicable audited consolidated financial statements of AFI
and its Subsidiaries at and for the 12-month periods ended December 31, 2010 and
2009, together with the report of the independent auditor of AFI thereon,
including a balance sheet and statements of income, comprehensive income (loss),
cash flows and retained earnings or stockholders’ equity and related footnotes
(the “Subsequent Audited GAAP Financial Statements”), and if the report of the
independent auditor of AFI on the Subsequent Audited GAAP Financial Statements
identifies any material weakness, Seller shall remedy or resolve such material
weakness to the reasonable satisfaction of Buyer prior to the Closing.  From the
date hereof until the Closing, Seller shall deliver to Buyer, as soon as
reasonably practicable after the end of the applicable quarter, unaudited
quarterly financial statements of the type and scope described in Section 2.6(a)
(together with the Subsequent Audited GAAP Financial Statements, the “Subsequent
GAAP Financial Statements”).

 

53

--------------------------------------------------------------------------------

 

(c)                                  From the date hereof until the Closing,
Seller shall deliver to Buyer reasonably promptly following the filing thereof,
all Statutory Statements, in each case prepared after the date hereof and prior
to the Closing Date.

 

(d)                                 At or prior to the Closing, Seller shall
deliver to Buyer a true, complete and correct list of all Investment Assets as
of the close of business on a day requested in writing (delivered not less than
three Business Days prior to the Closing Date) by Buyer, provided that such day
shall be at least two Business Days prior to the Closing Date.

 

Section 4.6                                      Public Announcements.  No party
to this Agreement or any Affiliate or representative of such party shall issue
or cause the publication of any press release or public announcement or
otherwise communicate with any news media in respect of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of
the other party (which consent shall not be unreasonably withheld, conditioned
or delayed), except as may be required by Law or applicable securities exchange
rules, in which the case the party required to publish such press release or
public announcement shall allow the other party a reasonable opportunity to
comment on such press release or public announcement in advance of such
publication; provided, however, that each of Buyer and Seller may make
announcements that are consistent and in accordance with, and not broader in
scope or substance than, the parties’ prior public disclosures regarding this
Agreement and the transactions contemplated by this Agreement.  Prior to the
Closing, neither of the parties to this Agreement, nor any of their respective
Affiliates or representatives, shall make any disclosure concerning plans or
intentions relating to the customers, agents or employees of, or other Persons
with significant business relationships with, the Transferred Companies without
first obtaining the prior written consent of the other party (which consent will
not be unreasonably withheld, conditioned or delayed).

 

Section 4.7                                      Consents, Approvals and
Filings.

 

(a)                                  Seller and Buyer shall each use its
reasonable best efforts to take, or cause to be taken, all actions, and to do or
cause to be done, and to assist and cooperate in doing, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, including using its reasonable
best efforts to (i) comply as promptly as practicable with all requirements of
Governmental Authorities applicable to the transactions contemplated by this
Agreement, (ii) to seek to obtain as promptly as practicable all Governmental
Approvals necessary or advisable in connection with the transactions
contemplated by this Agreement and (iii) fulfill or cause the fulfillment of the
conditions to Closing set forth in

 

54

--------------------------------------------------------------------------------

 

Article VI.  The parties shall cooperate with the reasonable requests of each
other in seeking to obtain as promptly as practicable all such Governmental
Approvals.  In connection therewith, Seller and Buyer shall make, and cause
their respective Affiliates to make, all filings required by applicable Laws as
promptly as practicable after the date hereof in order to facilitate prompt
consummation of the transactions contemplated by this Agreement, and shall
provide and shall cause their respective Affiliates to provide such information
and communications to Governmental Authorities as such Governmental Authorities
may request.  For purposes of this Section 4.7, “reasonable best efforts” of
Buyer and Seller shall include opposing any motion or action for a temporary,
preliminary or permanent injunction against the transactions contemplated by
this Agreement.  In connection therewith, Seller and Buyer shall make, and cause
their respective Affiliates to make, all filings required by applicable Laws as
promptly as practicable after the date hereof in order to facilitate prompt
consummation of the transactions contemplated by this Agreement, and shall
provide and shall cause their respective Affiliates to provide such information
and communications to Governmental Authorities as such Governmental Authorities
may request.

 

(b)                                 Without limiting the generality of the
foregoing, as soon as reasonably practicable after the date hereof, the parties
shall make all filings and notifications with all Governmental Authorities that
may be or may become reasonably necessary, proper or advisable under the
Transaction Agreements and applicable Laws to consummate and make effective the
transactions contemplated by the Transaction Agreements, including: (i) Buyer
causing “Form A” or similar change of control applications to be filed in each
jurisdiction where required by applicable insurance Laws with respect to the
transactions contemplated by the Transaction Agreements, such filings to be made
not later than 20 Business Days following the date hereof; (ii) Buyer causing
“Form E” or similar market share notifications to be filed in each jurisdiction
where required by applicable insurance Laws with respect to the transactions
contemplated by the Transaction Agreements, such filings to be made not later
than 20 Business Days following the date hereof; (iii) Seller and Buyer each
making an appropriate filing of a notification and report form pursuant to the
HSR Act with respect to the transactions contemplated by the Transaction
Agreements, such filings to be made not later than 20 Business Days following
the date hereof; (iv) Seller causing a “Form D” or other required application to
be filed in each jurisdiction where required by applicable insurance Laws in
connection with the commutation required to be effected pursuant to Section 4.16
and the transactions contemplated by Section 4.20, such filings to be made not
later than 20 Business Days after the date hereof; (v) Seller and Buyer each
making as promptly as practicable any other filing that may be required under
any other antitrust or competition Law or by any Governmental Authority with
jurisdiction over enforcement of any applicable antitrust or competition Laws;
and (vi) Seller and Buyer making as promptly as practicable any other filing
that may be required under any insurance, financial services or similar
applicable Law or by any Governmental Authority with

 

55

--------------------------------------------------------------------------------

 

jurisdiction over enforcement of any applicable insurance, financial services or
similar Law.  Seller and Buyer each agrees to supply as promptly as practicable
any additional information and documentary material that may be requested
pursuant to the HSR Act or any other applicable Laws.  Buyer shall have
responsibility for the filing fees associated with Buyer’s and Seller’s HSR Act
filing, “Form A” or similar change of control applications and “Form E” or
similar market share notifications, and Seller and Buyer shall have
responsibility for their other respective filing fees associated with any other
required filings.  Prior to furnishing any written materials to any Insurance
Regulator in connection with the transactions contemplated by this Agreement,
the furnishing party shall provide the other party with a copy thereof, and such
other party shall have a reasonable opportunity to provide comments thereon. 
Each party shall give to the other party prompt written notice if it receives
any notice or other communication from any Insurance Regulator in connection
with the transactions contemplated by this Agreement, and, in the case of any
such notice or communication which is in writing, shall promptly furnish such
other party with a copy thereof.  If any Insurance Regulator requires that a
hearing be held in connection with any such approval, Buyer shall use its
reasonable best efforts to arrange for such hearing to be held as promptly as
practicable after the notice that such hearing is required has been received by
Buyer and Seller shall use its reasonable best efforts, and shall cooperate with
Buyer in its efforts to arrange that such hearings are held as promptly as
practicable after Buyer receives notice that such hearing is required.  Buyer
shall give to Seller reasonable prior written notice of the time and place when
any meetings or other conferences may be held by it with any Insurance Regulator
in connection with the transactions contemplated by this Agreement, and Seller
shall have the right to have a representative or representatives attend or
otherwise participate in any such meeting or conference.  Buyer and its
Affiliates shall take or agree to take, any action and agree to any condition,
limitation, restriction or requirement reasonably necessary in connection with
obtaining all Governmental Approvals of Insurance Regulators, except for such
actions, conditions, limitations, restrictions or requirements that,
individually or in the aggregate with any other actions, conditions,
limitations, restrictions or requirements, as would or would reasonably be
likely to result in a Burdensome Condition; provided that in no event shall
Buyer or any of its Affiliates be required to commence, threaten or otherwise
seek to commence any Litigation against any Governmental Authority in connection
with the foregoing.  A “Burdensome Condition” means:  (i) a material adverse
effect on the business, operations, condition (financial or otherwise) or
results of operations of (x) Buyer and its Subsidiaries, taken as a whole
(provided that for purposes of this clause (x), a material adverse effect shall
be deemed to occur at the level of materiality at which the actions, conditions,
limitations, restrictions or requirements, if they were to result in an effect
on the Transferred Companies, taken as a whole, instead of Buyer and its
Subsidiaries, taken as a whole, would constitute a material adverse effect on
the business, operations, condition (financial or otherwise) or results of
operations of the Transferred Companies, taken as a whole) or (y) the
Transferred Companies, taken as a whole; or (ii) any requirement to sell,
divest, operate in a specified manner, hold separate or discontinue or limit,
before or

 

56

--------------------------------------------------------------------------------

 

after the Closing Date, any material assets (other than investment assets),
liabilities, businesses, operations, or interest in any material assets (other
than investment assets) or businesses of Buyer, the Transferred Companies or any
of their respective Affiliates (but excluding in all cases the effects of any
actions, conditions, limitations, restrictions or requirements imposed upon
Buyer, its Affiliates or the Insurance Subsidiaries and their Affiliates
(A) which are directly attributable to Buyer’s and its Affiliates’ pre-existing
relationships with the applicable Insurance Regulator (and are not attributable
to any matter generally applicable to the property and casualty insurance
industry in any jurisdiction with respect to which a Governmental Approval is
required) or (B) in order to secure the determination of the California
Insurance Commissioner referenced in Section 1861.16(c) of the California
Insurance Code).

 

(c)                                  From and after the date hereof, Seller and
Buyer shall use their reasonable best efforts, and shall cooperate with each
other, to obtain as soon as reasonably practicable following the date hereof all
required approvals, consents, waivers or authorizations from Third Parties,
under any Contract to which any of the Transferred Companies is a party or by
which any of them or any of their respective properties or assets is bound or
subject required in connection with the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements (each, a “Third
Party Consent”).  Seller and Buyer shall each be responsible for one-half of the
costs, fees and expenses (including any license or other fees and expenses)
associated with obtaining such consents, waivers or authorizations from such
Third Parties and all other costs, fees and expenses associated with the other
actions contemplated by this Section 4.7(c); provided that Buyer shall not be
responsible for such costs, fees and expenses in excess, in the aggregate, of
$500,000.  In the event any Third Party Consent is not obtained by the Closing
Date, (i) Seller shall continue at Buyer’s request to use reasonable best
efforts to cooperate with Buyer in attempting to obtain any such Third Party
Consent and (ii) Seller and Buyer agree to negotiate in good faith with respect
to alternative arrangements (including Seller continuing to provide the
applicable Transferred Company with the benefit of the applicable Contract or
obtaining a license or providing services pursuant to a transition services
agreement) until such time as such Third Party Consent has been obtained which
result in the Transferred Companies receiving the benefits and prospectively
bearing all the costs, liabilities and burdens with respect to any such Contract
for which an approval, consent or waiver has not been obtained.  Without
limiting the foregoing, as promptly as is practicable upon the request of Buyer,
Seller shall cooperate with Buyer and use commercially reasonable efforts to
obtain the benefits for the Transferred Companies of the Multi-User Software to
the extent used by the Transferred Companies in operating the Business
including, to the extent permissible, (A) assigning or transferring individual
seats or licenses of such Multi-User Software under Seller’s or any other member
of the Parent Group’s agreements to an existing agreement of Buyer or its
Affiliates (but not, for the avoidance of doubt, transferring or assigning the
master, enterprise-wide or other Contracts under

 

57

--------------------------------------------------------------------------------

 

which such licenses were obtained by Seller or any other member of the Parent
Group), (B) adding new seats or licenses of such Multi-User Software to an
existing agreement of Buyer or its Affiliates, (C) establishing a new agreement
for the Transferred Companies with respect to such Multi-User Software or (D)
negotiating for transitional use of such Multi-User Software by Transferred
Companies until such time as Transferred Companies obtain new agreements for
such Multi-User Software or substitutes therefor.

 

Section 4.8                                      Insurance.  Seller shall cause
to be maintained through the Closing the insurance with respect to the
Transferred Companies referred to in Section 2.19 (or other policies providing
substantially similar coverage).  If Buyer requests, Seller shall cause to be
purchased an extended reporting period covering a 12-month period with respect
to such insurance (other than any workers’ compensation liability insurance),
the cost of which extended reporting period shall be split equally by Buyer and
Seller.  Following the Closing, Seller shall, and shall cause the other members
of the Parent Group, (a) not to seek to change any rights or obligations of any
of the Transferred Companies under such insurance, (b) to cooperate with the
Transferred Companies (at the Transferred Companies’ expense) in making claims
under such insurance and (c) promptly to pay over to the Companies any amounts
that Seller or any other member of the Parent Group may receive under such
insurance solely in respect of losses experienced by any of the Transferred
Companies in the post-Closing period.

 

Section 4.9                                      Resignations.  At or prior to
the Closing, Seller shall deliver to Buyer letters of resignation, effective as
of the Closing, of all of the officers and directors of the Transferred
Companies, except for the officers and directors designated in writing by Buyer
at least two Business Days prior to the Closing.

 

Section 4.10                                Further Assurances.  Other than with
respect to any matter governed by Section 4.7, from time to time, as and when
reasonably requested by any party, each party shall use its reasonable best
efforts to execute and deliver, or cause to be executed and delivered, all such
documents and instruments and shall use its reasonable best efforts to take, or
cause to be taken, all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.  Such actions shall include executing and
delivering such assignments, deeds, bills of sale, consents and other
instruments as the requesting party or its counsel may reasonably request as
necessary or desirable for such purpose.  Notwithstanding the foregoing, no
party shall be obligated pursuant to this Section 4.10 to execute and deliver or
cause to be executed and delivered any documents or instruments or to take or
cause to be taken any actions if the effect thereof would be to increase the
liabilities and obligations of such party in any material respect, other than as
contemplated elsewhere in this Agreement.

 

58

--------------------------------------------------------------------------------

 

Section 4.11                                Non-Compete.

 

(a)                                  Except as contemplated by the Transaction
Agreements, from the Closing until the date that is the second anniversary of
the Closing Date (the “Non-Compete Period”), Seller shall not, and shall cause
each other member of the Parent Group not to, directly or indirectly, engage, as
a principal or jointly with others or otherwise, in the business of marketing,
distributing, underwriting, administering, writing, issuing or selling any
personal lines property and casualty insurance policies of the types written or
issued in connection with the Business within the United States through a
direct-to-consumers business model (including through call centers or internet
websites) or owning or operating a personal lines property and casualty
insurance agency (a “Competing Business”).

 

(b)                                 Notwithstanding anything to the contrary set
forth in Section 4.11(a), and without implication that the following activities
otherwise would be subject to the provisions of this Section 4.11, nothing in
this Agreement shall preclude, prohibit or restrict Seller from engaging, or
require Seller to cause any other member of the Parent Group not to engage, in
any manner in any of the following:

 

(i)                                     making investments, directly or
indirectly, in Persons engaging in a Competing Business, provided that such
investment is a passive investment where Seller or such other member of the
Parent Group:  (A) does not have the right to designate a majority of the
members of the board of directors or other governing body of such entity or to
otherwise direct the operation or management of such entity, (B) is not a
participant with any other Person in any “group” (as such term is used in
Regulation 13D of the 1934 Act) with such right and (C) owns less than 10% of
the outstanding voting securities (including convertible securities) of such
entity;

 

(ii)                                  selling any of its assets or businesses to
a Person engaged in lines of business that compete with the Competing Business;

 

(iii)                               managing or controlling investment funds
that make investments in Persons engaging in a Competing Business, so long as
such investments are in the ordinary course of business and not for the account
of Seller or any other member of the Parent Group (other than in connection with
co-investment obligations equal to or less than 10% of the capital commitments
of any such fund);

 

59

--------------------------------------------------------------------------------

 

(iv)                              providing investment management and similar
services to any Person;

 

(v)                                 selling and/or underwriting any insurance
products whatsoever other than any such selling or underwriting activities that
comprise a Competing Business;

 

(vi)                              providing reinsurance to any Person engaging
in a Competing Business, so long as Seller and the other members of the Parent
Group are not engaged in the marketing, production or administration of such
reinsured business;

 

(vii)                           engaging in any activity that does not
constitute the business of insurance in the United States;

 

(viii)                        engaging in any activity whatsoever outside the
United States;

 

(ix)                                engaging in any activity that Seller or any
other member of the Parent Group engage in as of the date hereof (other than the
Business);

 

(x)                                   engaging in any activity relating to
personal lines property and casualty insurance covering collector cars and
boats;

 

(xi)                                acquiring, merging or combining with any
business, Person or assets that would otherwise violate this Section 4.11 after
the Closing Date (an “After-Acquired Business”) and following such acquisition,
merger or combination, no activities of such After-Acquired Business, or of
Seller or any other member of the Parent Group relating to or in connection with
the activities of such After-Acquired Business, shall be deemed to violate this
Section 4.11; provided that either: (A) at the time of such acquisition, merger
or combination, the gross revenues derived from the Competing Business by the
After-Acquired Business (the “Competing After-Acquired Revenues”) are (1) less
than 7.5% of the gross revenues of the After-Acquired Business in the most
recently completed fiscal year immediately prior to the date of such
acquisition, merger or combination and (2) less than $100,000,000 in the most
recently completed fiscal year immediately prior to the date of such
acquisition, merger or combination; or (B) at the time of such acquisition,
merger or combination, the Competing After-

 

60

--------------------------------------------------------------------------------

 

Acquired Revenues are (1) less than 50% of the gross revenues of the
After-Acquired Business in the most recently completed fiscal year immediately
prior to the date of such acquisition, merger or combination and (2) less than
$20,000,000 in the most recently completed fiscal year immediately prior to the
date of such acquisition, merger or combination; or (C) within six months after
such acquisition, merger or combination, Seller or such other member of the
Parent Group signs a definitive agreement with a Person that is not an Affiliate
of Parent to dispose of, and, pursuant to the terms of such agreement, disposes
of, the relevant portion of the business or securities of such After-Acquired
Business.

 

Section 4.12           Non-Solicitation.  During the period of 36 months from
and after the Closing Date, Seller shall not, and shall cause the other members
of the Parent Group not to, directly or indirectly, solicit for employment or
hire any Person who is a Designated Employee; provided that nothing in this
Section 4.12 shall prohibit Seller or any other member of the Parent Group
from engaging in general advertising.

 

Section 4.13           Relief.  Seller, on behalf of itself and the other
members of the Parent Group, agrees that irreparable damage would occur if any
of Sections 4.11 or 4.12 were not performed in accordance with their specific
terms or were otherwise breached.  It is accordingly agreed that, without the
requirement of posting bond, Buyer (or its successors or assigns) shall be
entitled to injunctive or other equitable relief to prevent breaches of Sections
4.11 or 4.12 and, in addition to any other remedy to which they are entitled at
law or in equity, to prevent breaches of, or to enforce specifically the
performance of the terms and provisions of, Sections 4.11 or 4.12.  In the event
that any action is brought in equity to enforce the provisions of Sections 4.11
or 4.12, no party will allege, and each party hereby waives the defense or
counterclaim, that there is an adequate remedy at Law.  Seller, on behalf of
itself and the other members of the Parent Group, acknowledges and agrees that
the scope, duration and geographic limitations contained in Sections 4.11 or
4.12 are reasonable and appropriate and that but for these limitations, Buyer
would not have entered into this Agreement.  Seller shall not, and shall cause
the other members of the Parent Group not to, challenge or threaten to
challenge, and shall not assist any Person in challenging, the legality or
enforceability of the scope, duration or geographic limitations contained in
Sections 4.11 or 4.12.  In the event that any of the provisions in Sections 4.11
or 4.12 should ever be adjudicated to exceed the scope, duration or geographic
limitations permitted by applicable Law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum scope,
duration and geographic limitations enforceable under applicable Law, but shall
otherwise remain in full force and effect in all other jurisdictions to the
extent permitted by applicable Law.

 

61

--------------------------------------------------------------------------------

 

Section 4.14           Restructuring.  Prior to the Closing, Seller shall cause
WMI to sell, distribute, contribute or otherwise transfer all of the outstanding
shares of capital stock of GHI to one or more Persons that are not Transferred
Companies and shall take all such other actions as may be required so that upon
the consummation of the Closing, Buyer will acquire no, and none of the
Transferred Companies will have any, direct or indirect interest of any kind in
GHI or any of its Subsidiaries, and Seller shall use its reasonable best efforts
to obtain all necessary Governmental Approvals in connection therewith (the
“Restructuring”).  To the extent that cash is transferred to the Transferred
Companies prior to the Closing in exchange for any of the outstanding shares of
capital stock of GHI, Seller shall use its reasonable best efforts to cause such
cash to be distributed to Seller or an Affiliate of Seller (other than any
Transferred Company) prior to the Closing as a part of the Restructuring. 
Notwithstanding the provisions of this Section 4.14, if, after the Closing Date,
it shall be determined that any Transferred Company held any Excluded Asset as
of the Closing Date, Buyer shall promptly cause such Excluded Asset to be
assigned and transferred to Seller upon receipt from Seller of a cash payment
for such Excluded Asset in an amount equal to the value of such Excluded Asset
as reflected on the Closing Balance Sheet (if such Excluded Asset is reflected
on the Closing Balance Sheet) and only to the extent of the value so reflected.

 

Section 4.15           Books and Records.  At the Closing, Seller shall cause
all Books and Records in the possession of Seller or any other member of the
Parent Group to be delivered to Buyer (or a Person designated by Buyer) in the
manner (and in the case of physical Books and Records at the location(s))
reasonably requested by Buyer, in all cases to the extent not located at an
office of any of the Transferred Companies, subject to the exceptions provided
in Section 5.5(b) and the following exceptions:

 

(a)           Buyer recognizes that certain Books and Records may contain
incidental information that relates to the Transferred Companies or may relate
primarily to subsidiaries, divisions or businesses of Seller other than the
Transferred Companies, and that Seller may retain such Books and Records if it
provides copies of the relevant portions thereof to Buyer; and

 

(b)           Seller may retain all Books and Records prepared in connection
with the sale of the Shares, including bids received from other parties and
analyses relating to the Transferred Companies.

 

Section 4.16           Commutation of Certain Reinsurance.  Prior to the
Closing, Seller shall cause all obligations arising under the affiliate
reinsurance agreements listed in Section 4.16 of the Seller Disclosure Letter,
including Insurance Reserves, to be fully and finally commuted, on a cut-off
basis, for consideration equal to each of the

 

62

--------------------------------------------------------------------------------

 

Transferred Companies’ respective carried reserves relating thereto, pursuant to
a commutation agreement in substance and form reasonably acceptable to Buyer
(the “Commutation Agreement”).  The form of such consideration (if other than
cash) shall be reasonably satisfactory to Buyer.

 

Section 4.17    Transfer and License of Certain Information Technology Assets;
Tradenames.

 

(a)           At or prior to the Closing, Seller shall, and shall cause the
other members of the Parent Group to, transfer to the Transferred Companies
(i) all proprietary Software owned by Seller or any other member of the Parent
Group but used exclusively by any of the Transferred Companies and (ii) all
proprietary information technology hardware owned by Seller or any other member
of the Parent Group but used exclusively by the Transferred Companies (either
individually or collectively).  If after the Closing Seller or Buyer discovers
any such Software or hardware set forth in clause (i) or (ii) of this
Section 4.17 that was not so transferred pursuant to this Section 4.17, Seller
or Buyer shall promptly notify the other, as applicable, and Seller shall, at no
expense to Buyer or any of its Affiliates (including the Transferred Companies),
as promptly as practicable transfer or cause to be transferred, at Buyer’s
reasonable request, such Software (in both source code and object code form) or
hardware to the Transferred Companies.

 

(b)           Effective as of the Closing Date, Seller, on behalf of itself and
the other members of the Parent Group, hereby grants to the Transferred
Companies a royalty-free, irrevocable, perpetual, fully paid up, non-exclusive,
non-transferable (except in connection with the sale of part or all of the
Business in which the Software is used), non-sublicenseable (except to
distribute for use in the conduct of the Business), worldwide right and license
to reproduce, copy, display, integrate, access, perform, modify, create
derivative works of and otherwise use any Software that is set forth in
Section 2.11(k) of the Seller Disclosure Letter, which Software is owned by
Seller or any other member of the Parent Group and used by any Transferred
Company.

 

(c)           After the Closing Date, in no event shall Buyer or any of its
Subsidiaries (including the Transferred Companies) have any right to use as a
Trademark, nor shall Buyer or any of its Subsidiaries (including the Transferred
Companies) use as a Trademark, any corporate names, trade names, service marks,
logos, designs, acronyms or domain names containing the word “White Mountains”,
or any derivation thereof or any application or registration therefor or any
other name, mark, logo, design, acronym or domain name that is confusingly
similar thereto (the “Seller Marks”) (including in any corporate or trade names
of the Transferred Companies).  Prior to Closing and subject to applicable Law,
Seller may cause WMI to change its name to a name acceptable to

 

63

--------------------------------------------------------------------------------

 

Buyer, and file the appropriate documents with the relevant Governmental
Authority to remove any Seller Marks; provided that if Seller has not
effectuated such change of name prior to the Closing, Buyer shall, promptly and
subject to applicable Law, cause WMI to change its name, and file the
appropriate documents with the applicable Governmental Authority to effectuate
such change of name, to the extent necessary to remove the Seller Marks. 
Promptly following the Closing Date and subject to applicable Law, Buyer shall
cause the Transferred Companies to change their names, and file the appropriate
documents with the relevant Governmental Authorities to effectuate such change
of names, to the extent necessary to remove any Seller Marks.  Following the
Closing Date, no license or other agreement to use any Seller Marks shall be
deemed to exist between Seller or any other member of the Parent Group, on the
one hand, and any of the Transferred Companies, on the other hand, by operation
of law, past practice or otherwise, and any such license or other agreement
currently in effect shall terminate at Closing; provided that the Transferred
Companies may, for a period of up to 90 days after the Closing Date, continue to
use the Seller Marks in existing corporate names (subject to the obligation to
change such corporate name as set forth in the proviso to the immediately
preceding sentence), stationery, business forms, business cards and similar
materials bearing any of the Seller Marks (“Branded Buyer Items”), subject to
any approval from any Governmental Authority with respect to the change to such
Branded Buyer Items, in which case the following period shall be extended until
30 days after such approval with respect to the applicable Branded Buyer Items. 
The use of the Seller Marks in the Branded Buyer Items is subject to the
following limitations:  (i) such use shall, and products or services provided in
connection with such use shall, conform to a level of quality at least as high
as that practiced by the Transferred Companies prior to the Closing and
(ii) Buyer shall not (A) alter the use of the Seller Marks on any such Branded
Buyer Items or (B) develop new materials bearing the Seller Marks.  Any such use
of the Seller Marks in the Branded Buyer Items under this Section 4.17(c) shall
be without any representation or warranty of any kind from Seller or any other
member of the Parent Group (it being understood that nothing in this sentence
shall be deemed to modify or limit the representations set forth in Article II).

 

(d)           After the Closing Date, in no event shall Seller or any other
member of the Parent Group have any right to use as a Trademark, nor shall
Seller or any other member of the Parent Group use as a Trademark, any corporate
names, trade names, service marks, logos, designs, acronyms or domain names
containing the words “Esurance” and “Answer Financial”, or any derivation
thereof or any application or registration therefor or any other name, mark,
logo, design, acronym or domain name that is confusingly similar thereto (the
“Companies Marks”).  Promptly following the Closing Date and subject to
applicable Law, Seller shall, if applicable, cause its Subsidiaries to change
their names, and file the appropriate documents with the relevant Governmental
Authorities to effectuate such change of names, to the extent necessary to
remove any Companies Marks.  Following the Closing Date, no license or other
agreement to use any

 

64

--------------------------------------------------------------------------------

 

Companies Marks shall be deemed to exist between Seller or any other member of
the Parent Group, on the one hand, and any of the Transferred Companies, on the
other hand, by operation of law, past practice or otherwise, and any such
license or other agreement currently in effect shall terminate at Closing;
provided that Seller and the other members of the Parent Group may, for a period
of up to 90 days after the Closing, continue to use the Companies Marks in any
existing corporate names, stationery, business forms and business cards and
similar materials bearing such corporate name (the “Branded Seller Items”),
subject to any approval from any Governmental Authority with respect to the
change to such Branded Seller Items, in which case the following period shall be
extended until 30 days after such approval with respect to the applicable
Branded Seller Items.  The use of the Companies Marks in the Branded Seller
Items is subject to the following limitations:  (i) such use shall, and products
or services provided in connection with such use shall, conform to a level of
quality at least as high as that practiced by the Transferred Companies prior to
Closing and (ii) Seller shall not, and shall cause the other members of the
Parent Group not to, (A) alter the use of the Companies Marks on any such
Branded Seller Items or (B) develop new materials bearing the Companies Marks. 
Any such use of the Companies Marks in the Branded Seller Items shall be at the
Parent Group’s sole risk and shall be without representation or warranty of any
kind from Buyer or the Transferred Companies.

 

Section 4.18           Remediation of Security Breaches.  To the extent
permitted by applicable Law, prior to the Closing, Seller shall and shall cause
the other members of the Parent Group to: (a) promptly notify Buyer if any of
the Transferred Companies (i) suffers a security breach with respect to the Data
or information systems used in the conduct of the Business, which breach has a
material impact on the operation of the Business or (ii) notifies or is required
under applicable Laws to notify (A) any Person in connection with any material
information security breach involving such Person’s personal information or
(B) any Governmental Authority in relation to any of the foregoing; and
(b) provide Buyer with copies of all material communications with Governmental
Authorities and timely updates with respect to all material measures taken or
proposed to be taken to remedy any such security breach described in this
Section 4.18.  In all cases, Seller shall reasonably cooperate with Buyer in
remedying any such security breach.

 

Section 4.19           Employment.

 

(a)           During the period from the Closing until December 31, 2012, Buyer
shall, or shall cause the Transferred Companies to, provide to (i) each
Employee, whether or not such Employee is actively at work at such time,
including any Employees who are on military leave, disability, workers’
compensation or any other leave of absence, whether or not paid, compensation
and benefits that are substantially

 

65

--------------------------------------------------------------------------------

 

comparable in the aggregate to the compensation and benefits provided to the
Employees by the Transferred Companies immediately prior to the Closing;
provided, however, that the foregoing shall not be deemed to require Buyer or an
Affiliate (including, after the Closing, the Transferred Companies) to grant
performance units, performance shares, restricted stock, restricted stock units
or similar long-term incentive awards, or to permit the deferral of such awards,
following the Closing Date and (ii) the Employees with severance benefits and
payments consistent with the past practices of the Transferred Companies.
Nothing in this Agreement shall be construed as limiting the right of Buyer or
its Subsidiaries (including, after the Closing, the Transferred Companies) to
(x) terminate the employment of any Employee, (y) amend or terminate any
compensation or employee benefit plan, agreement or arrangement, subject to the
terms of such plan, agreement or arrangement or (z) except as expressly set
forth herein, change the terms or conditions of employment of any Employee.  The
participation of the Employees in the compensation and benefit plans, programs
and arrangements of the Parent Group shall terminate effective as of the
Closing, and, following the Closing, neither Buyer nor its Subsidiaries
(including, after the Closing, the Transferred Companies) shall have any
Liability with respect to (and Buyer and its Subsidiaries (including, after the
Closing, the Transferred Companies) shall be indemnified and held harmless with
respect to) such compensation and benefit plans, programs and arrangements of
the Parent Group.

 

(b)           From and after the Closing Date, Buyer shall, or shall cause its
Subsidiaries (including, after the Closing, the Transferred Companies) to
(i) honor all obligations under the Company Benefit Plans described in the
second sentence of Section 2.17(a) (without regard to the word “material” set
forth therein) in accordance with their terms as in effect immediately prior to
the Closing, (ii) recognize all the Employees’ accrued and unused vacation and
other paid time-off benefits consistent with the terms of the vacation or
similar policies of the Transferred Companies applicable to Employees as in
effect immediately prior to the Closing and (iii) pay, no later than March 15,
2012, all annual bonuses that are payable to Employees with respect to the 2011
fiscal year, including, to the extent earned, bonuses accrued before the Closing
Date under the annual bonus plans of the Transferred Companies, provided that
the aggregate amount of the annual bonuses paid to the Employees in respect of
such fiscal year shall in no event be less than the amount accrued in full on
the Closing Balance Sheet and the balance sheet included in the Estimated
Closing Statement in respect thereof.  For the avoidance of doubt, for purposes
of any Company Benefit Plan listed on Section 2.17(a) of the Seller Disclosure
Letter that contains a definition of “change in control” or “change of control,”
the transactions contemplated by this Agreement shall be deemed to constitute a
“change in control” or “change of control” with respect to the Employees.

 

(c)           (i)            Prior to the Closing Date, Seller and the
Transferred Companies shall determine the following amounts (such amounts in the
aggregate, the “LTIP Amounts,” in each case, it being understood that the value
of the LTIP Amounts

 

66

--------------------------------------------------------------------------------

 

determined below shall be calculated assuming the relevant performance cycle
terminated as of the Closing Date and based on performance through the Closing
Date, and shall not be subject to any pro-ration for time (except as explicitly
provided in Section 4.19(c)(iv) below)):

 

(A)          with respect to the Esurance Holdings, Inc. Performance Unit Plan
2009-2011 (the “EHI 2009 PUP”), the Award Value (as defined in the EHI 2009 PUP)
as of the Closing Date of all Performance Units (as defined in the EHI 2009 PUP)
outstanding on the Closing Date;

 

(B)           with respect to the Esurance Holdings, Inc. Performance Unit Plan
2010-2012 (the “EHI 2010 PUP”), the Award Value (as defined in the EHI 2010 PUP)
as of the Closing Date of all Performance Units (as defined in the EHI 2010 PUP)
outstanding on the Closing Date;

 

(C)           with respect to the Answer Financial Inc. Performance Unit Plan
2009-2011 (the “AFI 2009 PUP”), the Award Value (as defined in the AFI 2009 PUP)
as of the Closing Date of all Performance Units (as defined in the AFI 2009 PUP)
outstanding on the Closing Date; and

 

(D)          with respect to the Answer Financial Inc. Performance Unit Plan
2010-2012 (the “AFI 2010 PUP”), the Award Value (as defined in the AFI 2010 PUP)
as of the Closing Date of all Performance Units (as defined in the AFI 2010 PUP)
outstanding on the Closing Date.

 

The EHI 2009 PUP, the EHI 2010 PUP, the AFI 2009 PUP and the AFI 2010 PUP, each
an “LTIP Plan” and collectively, the “LTIP Plans.”

 

(ii)           Following the Closing Date, there shall be no increase or
decrease of the LTIP Amounts.

 

(iii)          (A)          Prior to the Closing Date, Seller and the
Transferred Companies shall determine, with respect to any awards of
Esurance-related Performance Units (as defined under the White Mountains Long
Term Incentive Plan (the “WM LTIP”)) granted to the Tier One Executive under the
WM LTIP in respect of the 2009-2011 performance cycle and the 2010-2012
performance cycle (such awards, the “Tier One Executive Performance Units”), the
Earned Value (as defined in the WM LTIP) as of the Closing Date of such Tier One
Executive Performance Units outstanding on the Closing Date in the same manner
as the determination as of the Closing Date of the Award Value of Performance

 

67

--------------------------------------------------------------------------------

 

Units under the EHI 2009 PUP and the EHI 2010 PUP.  The amount of such Earned
Value, the “Tier One Unit Amounts.” Following the Closing Date, there shall be
no increase or decrease of the Tier One Unit Amounts.

 

(B)           Prior to the Closing Date, Seller shall cause Parent and EHI to
enter into an assumption, assignment and amendment agreement providing for EHI’s
assumption of the Tier One Executive Performance Units and all obligations in
respect thereof.

 

(C)           Promptly following the expiration of a performance cycle with
respect to a Tier One Executive Performance Unit, and in any event no later than
two and one-half months following the expiration of such performance cycle, the
portion of the Tier One Unit Amounts attributable to such performance cycle
shall be paid, subject to applicable withholdings, by the relevant Transferred
Company to the Tier One Executive if he is employed by the relevant Transferred
Company on the last day of such performance cycle.  Notwithstanding the
foregoing, if a Qualifying Termination Event (as defined under the EHI 2009 PUP
and the EHI 2010 PUP) occurs, a Pro Rata Portion of the unpaid portion of the
Tier One Unit Amounts shall be paid, subject to applicable withholdings, by the
relevant Transferred Company promptly following the Qualifying Termination
Event, and in any event no later than two and one-half months following such
Qualifying Termination Event.

 

(iv)          Promptly following the expiration of a performance cycle with
respect to an LTIP Plan, and in any event no later than two and one-half months
following the expiration of such performance cycle, the portion of the LTIP
Amounts attributable to such LTIP Plan shall be paid, subject to applicable
withholdings, by the relevant Transferred Company to holders of Performance
Units under such LTIP Plan who are employed by the relevant Transferred Company
on the last day of such performance cycle.  Notwithstanding the foregoing, if a
Qualifying Termination Event (as defined under the relevant LTIP Plan) occurs
(A) with respect to a holder of Performance Units under the EHI 2009 PUP or the
EHI 2010 PUP, a Pro Rata Portion of the unpaid portion of the LTIP Amounts
attributable to the Performance Units held by such holder shall be paid and
(B) with respect to a holder of Performance Units under the AFI 2009 PUP or the
AFI 2010 PUP, the entire unpaid portion of the LTIP Amounts attributable to the
Performance Units held by such holder shall be paid, in each case, subject to
applicable withholdings, by the relevant Transferred Company promptly following
the Qualifying Termination Event, and in any event no later than two and
one-half months following such Qualifying Termination Event.

 

68

--------------------------------------------------------------------------------

 

(v)           With respect to the WM LTIP and the Esurance White Mountains
Performance Share Plan (the “EHI WM PSP”), prior to the Closing Date, Seller and
the Transferred Companies shall determine the Actual Value (as defined in the WM
LTIP and the EHI WM PSP, as applicable) as of the Closing Date of all
Performance Shares (as defined in the WM LTIP and the EHI WM PSP, as applicable)
(A) granted to the Tier One Executive under the WM LTIP and (B) granted under
the EHI WM PSP to Employees, in each case, that are outstanding on the Closing
Date.  Such Actual Value shall be accrued in full on the Closing Balance Sheet
and the balance sheet included in the Estimated Closing Statement.  Buyer shall
cause the Transferred Companies to pay such Actual Value, subject to applicable
withholdings, to holders of such Performance Shares promptly following the
Closing Date.

 

(vi)          On or before the Closing Date, Seller and the Transferred
Companies shall determine the amounts owing under the Esurance Holdings, Inc.
Second Amended and Restated Top Hat Deferred Compensation Plan and the Esurance
Holdings, Inc. Select Deferred Compensation Plan (collectively, the “Deferred
Plans”).  Such amounts shall be accrued in full on the Closing Balance Sheet and
the balance sheet included in the Estimated Closing Statement.  Buyer shall
cause the Transferred Companies to pay all amounts due under the Deferred Plans,
subject to applicable withholdings, no later than 30 days after the Closing
Date.

 

(vii)         Seller acknowledges that to the extent there are any nonqualified
deferred compensation or long-term incentive compensation obligations to
Employees under arrangements adopted prior to the Closing that are not
(x) Company Benefit Plans listed in Section 2.17(a) of the Seller Disclosure
Letter and described in the second sentence of Section 2.17(a) or (y) otherwise
referred to in this Section 4.19(c), in each case other than any such
arrangements adopted after the date hereof and approved by Buyer in accordance
with the first sentence of Section 4.1, Seller shall bear the entire cost of
such obligations.  The foregoing shall not apply to the Employment Agreements.

 

(viii)        An amount (the “Aggregate LTIP Unit Amount”) equal to (x) the sum
of the LTIP Amounts plus the Tier One Unit Amounts, minus (y) the sum of (A),
(B), (C), (D), (E) and (F) shall be accrued in full on the Closing Balance Sheet
and the balance sheet included in the Estimated Closing Statement; where (A) is
one half of the Post-Closing Pro Rata Portion of the LTIP Amounts attributable
to the EHI 2009 PUP, (B) is one half of the Post-Closing Pro Rata Portion of the
LTIP Amounts attributable to the EHI 2010 PUP, (C) is one half of the
Post-Closing Pro Rata Portion of the LTIP Amounts attributable to the AFI 2009
PUP, (D) is one half of the Post-Closing Pro Rata Portion of the LTIP Amounts
attributable to the AFI 2010 PUP, (E) is one half of the Post-Closing Pro

 

69

--------------------------------------------------------------------------------

 

Rata Portion of the Tier One Unit Amounts attributable to the WM LTIP for the
2009-2011 performance cycle, and (F) is one half of the Post-Closing Pro Rata
Portion of the Tier One Unit Amounts attributable to the WM LTIP for the
2010-2012 performance cycle.

 

(d)           The service of each Employee with the Transferred Companies (or
any predecessor employer, to the extent service with such predecessor employer
is recognized by the Transferred Companies) prior to the Closing shall be
treated as service with Buyer and its Subsidiaries for all purposes, including
eligibility, vesting and benefit levels and accruals, under the employee benefit
plans of Buyer or any of its Subsidiaries in which such Employee participates
after the Closing; provided, however, that such service need not be recognized
to the extent that such recognition would result in any duplication of benefits
and shall not apply for purposes of benefit accrual under any defined benefit
pension plan (including a cash balance plan) and under Buyer’s frozen retiree
medical plan.  Following the Closing, for purposes of each employee benefit plan
in which any Employee or his or her eligible dependents participates after the
Closing, Buyer shall, or shall cause its Subsidiaries (including, after the
Closing, the Transferred Companies) to, (i) waive any pre-existing condition
exclusion, actively-at-work requirement or waiting period to the extent such
exclusion, requirement or waiting period was satisfied or waived under the
comparable Company Benefit Plan in which the Employee participated and
(ii) provide full credit for any co-payments, deductibles or similar payments
made or incurred prior to the Closing for the plan year in which the Closing
occurs.

 

(e)           From and after the Closing, Buyer shall, or shall cause its
Subsidiaries to, provide any required notice under the Worker Adjustment and
Retraining Notification Act, as amended, and any similar state or local law, and
otherwise comply with such laws with respect to the Employees.  On the Closing
Date, Seller shall provide Buyer a list of all Employees whose employment was
terminated on the Closing Date, but prior to the Closing, or within 90 days
prior to the Closing Date, including the place of employment and base salary for
each such terminated Employee.

 

(f)            Buyer and Seller agree to follow the alternate procedure for
employment tax withholding as provided in Section 5 of Revenue Procedure
2004-53, I.R.B. 2004-35.  Accordingly, the Parent Group shall have no United
States employment tax reporting responsibilities, and Buyer shall have full
United States employment tax reporting responsibilities, for Employees following
the close of business on the Closing Date.

 

70

--------------------------------------------------------------------------------

 

(g)           Prior to the Closing Date, Seller shall cause the Transferred
Companies to transfer to the Parent Group, and shall cause the Parent Group to
assume, the Deferred Compensation Plan listed on Section 2.5(e) of the Seller
Disclosure Letter and all liabilities and obligations thereunder.

 

(h)           Nothing in this Agreement shall be construed (i) to confer on any
Person, other than the parties hereto, their successors and permitted assigns,
any benefit under or right to enforce the provisions of this Section 4.19,
(ii) to cause any Person to be a third party beneficiary of this Agreement, or
(iii) as an amendment or waiver of any Company Benefit Plan or any comparable
compensation or benefit plan, agreement or arrangement of Buyer or its
Subsidiaries.

 

Section 4.20           Policyholder Surplus.  Prior to the Closing, Seller shall
use its reasonable best efforts (including using its reasonable best efforts to
obtain any required consents and approvals of a Governmental Authority) to cause
(through the payment of a dividend, a repurchase of shares or otherwise) the
aggregate Policyholder Surplus of the Insurance Subsidiaries on the Closing Date
to be in a reasonable dollar range to be provided to Seller by Buyer within 10
days after the date hereof; provided that this Section 4.20 shall not be deemed
to be breached by the inability of Seller, despite the use of such efforts, to
cause the aggregate Policyholder Surplus to be in such dollar range.  If
compliance with the foregoing sentence results in Seller effecting a reduction
of Policyholder Surplus (whether through the payment of a dividend, a repurchase
of shares or otherwise), Seller shall use reasonable best efforts to cause the
proceeds of such action to be distributed prior to the Closing to one or more
Persons that are not a Transferred Company.  For the avoidance of doubt, if
Seller has complied with its efforts obligations under this Section 4.20, it
shall not be a condition to Buyer’s obligation to consummate the transactions
contemplated hereby that such reduction of Policyholder Surplus have been
effected.  Notwithstanding anything else in this Agreement, except (a) to the
extent required by an Insurance Regulator or (b) for funding of operating
expenses in the ordinary course of business consistent with past practice by any
member of the Parent Group, from the date hereof until the Closing or the
termination of this Agreement in accordance with Section 7.1, Seller shall not,
and shall cause each other member of the Parent Group not to, make or commit to
make any investment in or capital contribution to any Insurance Subsidiary.

 

Section 4.21           Investment Assets.  Prior to the Closing, Seller shall,
at Buyer’s written request delivered not later than 90 days after the date
hereof (but in no event fewer than five Business Days prior to the Closing
Date), cause the applicable Insurance Subsidiaries to sell or otherwise
liquidate for cash or cash equivalents any Investment Asset held by any such
Insurance Subsidiary and designated in such written request (provided that
Seller will not be obligated to cause the sale or liquidation of

 

71

--------------------------------------------------------------------------------

 

Investment Assets having an aggregate Statutory Statement Value of more than 35%
of the aggregate Statutory Statement Value of all of the Investment Assets held
by the Insurance Subsidiaries (determined as of the last day of the calendar
month immediately preceding the calendar month in such written request is
delivered)), and, following the delivery of such written request, the applicable
Insurance Subsidiaries shall not invest in any Investment Assets other than cash
or cash equivalents.  For purposes of this Section 4.21, “cash equivalents”
shall include any direct obligations of the United States or any agency thereof
or obligations guaranteed by the United States or any agency thereof.

 

Section 4.22           Separation.

 

(a)           Prior to the Closing, Seller shall use its reasonable best efforts
to separate the Business from the businesses of the Parent Group.

 

(b)           Following the Closing for a period of 180 days, Buyer and Seller
shall cooperate with each other (and Buyer shall cause its Subsidiaries, and
Seller shall cause the Parent Group, to so cooperate) in order to ensure the
orderly transition of the Transferred Companies from Seller to Buyer and to
minimize any disruption to the Transferred Companies and the other respective
businesses of Seller and Buyer that might result from the transactions
contemplated hereby.  Each party shall be responsible for one-half of the
reasonable out-of-pocket costs and expenses incurred by the parties in
connection with this Section 4.22.  Neither party shall be required by this
Section 4.22 to take any action that would unreasonably interfere with the
conduct of its business or unreasonably disrupt its normal operations (or, in
the case of Buyer, those of the Transferred Companies).

 

Section 4.23           Intercompany Obligations and Agreements.

 

(a)           Except as set forth on Schedule 4.23, Seller shall, and shall
cause its Affiliates to, take such actions and make such payments as may be
necessary so that, prior to the Closing, each of the Transferred Companies, on
the one hand, and Seller and its Affiliates (other than the Transferred
Companies), on the other hand, shall settle, discharge, offset, pay, repay in
full, terminate or extinguish all Intercompany Obligations, including any
accrued and unpaid interest, fees and other amounts due or outstanding
thereunder, in each case by cash settlement or by netting or setting off debt
between the Transferred Companies, on the one hand, Seller and its Affiliates
(other than the Transferred Companies), on the other hand, such that, at or
prior to the Closing, the balances of each such Intercompany Obligation shall be
zero and no Transferred Company shall have any further rights or Liabilities
with respect thereto; provided,

 

72

--------------------------------------------------------------------------------

 

however, that this Section 4.23(a) shall not apply to any Intercompany
Obligations set forth on Schedule 4.23.

 

(b)           Except as set forth on Schedule 4.23, prior to the Closing, Seller
shall, and shall cause its Affiliates to, take such actions as may be necessary
to terminate and release the Transferred Companies from any and all Liabilities
arising in connection with all Intercompany Agreements.

 

Section 4.24           Relationship with AFI Partners, Etc.

 

(a)           Prior to the Closing, Seller shall use its reasonable best efforts
to prevent the occurrence of a Status Change (as defined in Section 4.25(a)(v)),
and shall at Buyer’s request use its reasonable best efforts to facilitate
meetings between Buyer and the AFI Partners (as defined in Section 4.25(a)(i))
to enable Buyer to discuss with the AFI Partners Buyer’s plans with respect to
the business of AFI after the Closing.

 

(b)           From and after the Closing, Buyer:  (i) shall, and shall cause AFI
to, protect the confidentiality of the AFI Partners’ proprietary information
(including from Buyer and its Affiliates (other than AFI and the AFI Transferred
Subsidiaries)); and (ii) shall cause AFI to continue to conduct business with
the AFI Partners in the ordinary course consistent with its past practice. 
Buyer shall notify the AFI Partners of Buyer’s and AFI’s commitment to take the
actions contemplated by clauses (i) and (ii).

 

Section 4.25           Status Changes.  If a Status Change occurs, Seller shall
make a payment to Buyer with respect thereto as, to the extent and at the times
provided in this Section 4.25.

 

(a)           The following capitalized terms have the meanings specified below:

 

(i)            “AFI Partners” means, collectively, the Carrier Partners.

 

(ii)           “Carrier Partners” means the five Persons identified on a list
captioned “Carrier Partners” agreed upon by the parties by exchange of emails on
or prior to the date hereof.

 

73

--------------------------------------------------------------------------------

 

(iii)          “Measurement Period” means the period beginning on the date that
is 60 days after the date hereof (or, if such date is less than 60 days prior to
the Closing Date, the date that is 60 days prior to the Closing Date) and ending
60 consecutive days after the Closing Date.

 

(iv)          “Specified Carrier Contract” means, with respect to a Carrier
Partner, the Carrier Contract to which such Carrier Partner is a party.

 

(v)           “Status Change” means during the Measurement Period, a Carrier
Partner does not offer to renew at least 50% of the insurance policies issued by
such Carrier Partner through AFI that become eligible for renewal during the
Measurement Period.

 

(b)           The amount of compensation in respect of Status Changes (the
“Carrier Status Change Compensation”) shall be as follows:

 

(i)            If not more than one Status Change occurs, the Carrier Status
Change Compensation shall be zero.

 

(ii)           If two Status Changes occur, the Carrier Status Change
Compensation shall be $10,000,000.

 

(iii)          If three Status Changes occur, the Carrier Status Change
Compensation shall be $20,000,000.

 

(iv)          If four Status Changes occur, the Carrier Status Change
Compensation shall be $35,000,000.

 

(v)           If five Status Changes occur, the Carrier Status Change
Compensation shall be $50,000,000.

 

(c)           Following the end of the Measurement Period, Seller shall, if two
or more Status Changes have occurred, pay to Buyer within five Business Days of
receipt of a certificate from an officer of Buyer (i) certifying that Buyer has
complied with its obligations under Section 4.24(b) and that AFI has complied
with its obligations under the applicable Specified Carrier Contract and
(ii) attaching reasonable supporting

 

74

--------------------------------------------------------------------------------

 

documentation of any such Status Changes, by wire transfer of immediately
available funds to an account designated in such certificate, an amount equal to
the Carrier Status Change Compensation; and provided, further, that, Buyer and
AFI shall provide as soon as reasonably practicable to Seller and its employees,
agents and representatives designated by Seller all books, records, documents
and other information and reasonable access to employees as Seller shall
reasonably request to the extent reasonably necessary to enable Seller to
confirm the occurrence of any such Status Changes resulting in such Carrier
Status Change Compensation.  If Seller fails timely to make any payment required
under this clause (c), the amount payable shall be increased by the interest on
such amount, compounded daily (based on a 365 day year), at the Interest Rate
from and including the date payment was due to and including the date of
payment.  Seller shall, after making any such payment, have the right to dispute
the occurrence of any such Status Changes.

 

(d)           Seller shall have no Liability under this Section 4.25 for any
Status Change if the principal reason for the Status Change was (i) a material
breach after the Closing Date of the applicable Specified Carrier Contract by
AFI or (ii) a material breach of Section 4.24(b).

 

(e)           Notwithstanding anything to the contrary contained herein, the
Carrier Status Change Compensation shall be Buyer’s exclusive remedy for any
Status Change or any other change in the business relationship between carriers
(including AFI Partners) and the Transferred Companies and shall not be
considered for purposes of determining the satisfaction of any of the conditions
set forth in Sections 6.2(a) or 6.2(c), except to the extent that (i) such
Status Change or other change in the business relationship between carriers
(including AFI Partners) and the Transferred Companies arises out of or relates
to a failure of Seller (or, prior to the Closing, the Transferred Companies) to
perform any covenant or agreement hereunder or (ii) the facts and circumstances
giving rise to such Status Change or other change in the business relationship
between carriers (including AFI Partners) and the Transferred Companies
constitute or give rise to an inaccuracy in or breach of any representation or
warranty made by Seller in or pursuant to this Agreement or any certificate
furnished by Seller pursuant to this Agreement.

 

Section 4.26           Reserves Adjustment.

 

(a)           Interim and Final Calculations and Adjustments.  From and after
the Closing, as promptly as reasonably practicable after filing, Buyer shall
deliver to Seller a true, complete and correct copy of each annual statutory
financial statement and each quarterly statutory financial statement of each
Insurance Subsidiary as filed with the

 

75

--------------------------------------------------------------------------------

 

appropriate Insurance Regulator for any period ending on or prior to the third
anniversary of the Reference Date (the “Final Settlement Date”), together with
any actuarial opinion, affirmation or certification filed in connection
therewith.  Not later than 90 days following each of (i) the first anniversary
of the Reference Date (the “First Interim Settlement Date”), (ii) the second
anniversary of the Reference Date (the “Second Interim Settlement Date”) and
(iii) the Final Settlement Date, Buyer shall provide Seller with a written
report (in each case, a “Reserve Report”) reflecting the calculation
contemplated by Section 4.26(b) (the “Indicated Reserve Amount”), together with
all work papers and actuarial memoranda used in establishing the Indicated
Reserve Amount.  “Reference Date” means the last day of the fiscal quarter
during which the Closing Date occurs.

 

(b)           Calculation Methodology.  The “Indicated Reserve Amount” shall be
calculated to be an amount, as of each of the First Interim Settlement Date, the
Second Interim Settlement Date and the Final Settlement Date (each, an
“Applicable Settlement Date”), equal to the sum of (i) the Indicated Loss
Reserve Amount as of such Applicable Settlement Date, (ii) the Indicated ALAE
Reserve Amount as of such Applicable Settlement Date and (iii) 8% of the sum of
(A) the Indicated Loss Reserve Amount plus (B) the Indicated ALAE Reserve
Amount, such percentage representing the agreed upon unallocated loss adjustment
expenses (“ULAE”) for the Subject Business, in each case of (i), (ii) and
(iii) solely with respect to insurance or reinsurance issued, underwritten or
assumed prior to the Closing Date by the Insurance Subsidiaries (the “Subject
Business”; provided that in no event shall the “Subject Business” include any OB
Liabilities whatsoever).  The calculation of each Indicated Reserve Amount will
be prepared in conformity with GAAP as in effect on the Closing Date
consistently applied and the Books and Records of the Insurance Subsidiaries
(with the exception of ULAE which shall be calculated in accordance with this
Section 4.26(b)), and will present fairly, in accordance with generally accepted
actuarial standards consistently applied, the loss and loss adjustment expense
reserves of the Insurance Subsidiaries as of each Applicable Settlement Date.

 

(c)           Indicated Loss Reserve Amount.  The “Indicated Loss Reserve
Amount” as of each Applicable Settlement Date shall be an amount equal to
(i) the sum of (x) claims paid from the Closing Date until the Applicable
Settlement Date for losses occurring prior to the Closing Date with respect to
the Subject Business, (y) case loss reserves held as of the Applicable
Settlement Date for losses occurring prior to the Closing Date with respect to
the Subject Business, and (z) the bulk and incurred but not reported (“IBNR”)
loss reserves held as of the Applicable Settlement Date for losses occurring
prior to the Closing Date with respect to the Subject Business, less
(ii) applicable third party reinsurance, salvage and subrogation recoveries
received or receivable after the Closing Date and applicable to losses incurred
prior to the Closing Date with respect to the Subject Business; provided,
however, that the Indicated Loss Reserve Amount shall not include amounts for
claims paid or to be paid outside the

 

76

--------------------------------------------------------------------------------

 

express terms and conditions or limits of the Insurance Contracts included in
the Subject Business or any amounts for claims paid or to be paid that
constitute Extra Contractual Obligations or Excess of Policy Limits
Liabilities.  Subject to the proviso to the preceding sentence, the loss and
IBNR reserves for the Subject Business will be calculated in accordance with
GAAP as in effect on the Closing Date consistently applied and generally
accepted actuarial practices consistently applied.

 

(d)           Indicated ALAE Reserve Amount.  The “Indicated ALAE Reserve
Amount” as of each Applicable Settlement Date shall be an amount equal to
(i) the sum of (x) allocated loss adjustment expenses (“ALAE”) paid from the
Closing Date until the Applicable Settlement Date for losses occurring prior to
the Closing Date with respect to the Subject Business, (y) case ALAE reserves
held as of the Applicable Settlement Date for losses occurring prior to the
Closing Date with respect to the Subject Business and (z) the bulk and IBNR ALAE
reserves held as of the Applicable Settlement Date for losses occurring prior to
the Closing Date with respect to the Subject Business, less (ii) applicable
third party reinsurance, salvage and subrogation recoveries received or
receivable after the Closing Date and applicable to losses incurred prior to the
Closing Date with respect to the Subject Business; provided, however, that the
Indicated ALAE Reserve Amount shall not include amounts for ALAE in respect of
liabilities that are outside the express terms and conditions or limits of the
Insurance Contracts included in the Subject Business or any amounts for ALAE
paid or to be paid that constitute Extra Contractual Obligations or Excess of
Policy Limits Liabilities.  Subject to the proviso to the preceding sentence,
the ALAE and IBNR ALAE reserves for the Subject Business will be calculated in
accordance with GAAP as in effect on the Closing Date consistently applied and
generally accepted actuarial practices consistently applied.

 

(e)           Dispute Resolution.  Following the delivery of each Reserve Report
to Seller, Buyer will cause the Insurance Subsidiaries to allow Seller and its
employees, agents and representatives reasonable access, during normal business
hours and upon reasonable notice, to all books, records, work papers and other
information and documents of the Insurance Subsidiaries in connection with the
review of the Reserve Report and the Indicated Reserve Amount.  Each Reserve
Report shall become final, binding and conclusive upon Seller and Buyer on the
45th day following Seller’s receipt of the applicable Reserve Report, unless
prior to such 45th day Seller delivers to Buyer a written dispute notice (a
“Reserve Dispute Notice”) stating that Seller disputes the Indicated Reserve
Amount reflected in the applicable Reserve Report.  If Seller delivers a Reserve
Dispute Notice, then Buyer and Seller shall seek in good faith to resolve such
dispute during the 15-day period beginning on the date Buyer receives the
Reserve Dispute Notice.  In the event that Seller and Buyer have not resolved
such dispute by the end of such 15-day period, any remaining dispute shall be
submitted to an independent actuarial firm of national standing and reputation
as Seller and Buyer shall jointly select and retain (the “Independent Actuary”)
for resolution by binding “baseball” arbitration in

 

77

--------------------------------------------------------------------------------

 

accordance with this Section 4.26(e).  In the event that the parties are unable
to jointly select the Independent Actuary, each of Buyer, on the one hand, and
Seller, on the other hand, shall select one independent certified public
accounting firm of national standing and reputation, which two firms shall
jointly select the Independent Actuary for joint retention by the parties. 
Within five days after engagement of the Independent Actuary, each of Seller and
Buyer shall submit to the Independent Actuary its calculation of the Indicated
Reserve Amount, together with such supporting documentation as each such party
may determine reasonable.  The Independent Actuary shall, within 30 days after
its engagement, select the submission of either Seller or Buyer, which selection
shall be final, binding and conclusive upon the parties hereto.  The Indicated
Reserve Amount reflected in the applicable Reserve Report shall be adjusted
accordingly to reflect any such final resolution and, as so adjusted, shall be
deemed final for purposes of the payments provided in Section 4.26(f).  Seller
on the one hand, and Buyer on the other hand, shall each pay one-half of the
fees and expenses of the Independent Actuary.  Buyer and Seller shall, and Buyer
shall cause the Insurance Subsidiaries to, cooperate in good faith with the
Independent Actuary and shall give the Independent Actuary access to all books,
records, work papers and other information and documents relating to the items
in dispute as the Independent Actuary may reasonably request.  For the avoidance
of doubt, Seller shall not be precluded from disputing any items or amounts in
any Reserve Report by reason of the fact that such items or amounts were
included in any prior Reserve Report or Reserve Reports.

 

(f)            Payment.  In respect of the First Interim Settlement Date, (i) if
(A) the Indicated Reserve Amount reflected on the final Reserve Report for the
First Interim Settlement Date, less (B) the loss and loss adjustment expense
reserves, net of related third party reinsurance, salvage and subrogation
recoverables and receivables, as reflected or provided for or reserved against
on the Closing Balance Sheet, but excluding any such loss and loss adjustment
expense reserves or related third party reinsurance, salvage and subrogation
recoverables and recoveries in respect of Seller Extra Contractual Obligations
or Seller Excess of Policy Liabilities (“Closing Reserves”), is a positive
amount, Seller shall pay or cause to be paid to Buyer in immediately available
funds 90% of such positive amount, and (ii) if (A) the Indicated Reserve Amount
reflected on the final Reserve Report for the First Interim Settlement Date,
less (B) the Closing Reserves, is a negative amount, Buyer shall pay or cause to
be paid to Seller in immediately available funds 90% of the absolute value of
such negative amount.  In respect of each of the Second Interim Settlement Date
and the Final Settlement Date, (i) if (A) the Indicated Reserve Amount reflected
on the final Reserve Report for such Applicable Settlement Date, less (B) the
Indicated Reserve Amount reflected on the final Reserve Report for the
immediately preceding Applicable Settlement Date is a positive amount, Seller
shall pay or cause to be paid to Buyer in immediately available funds 90% of
such positive amount, and (ii) if (A) the Indicated Reserve Amount reflected on
the final Reserve Report for such Applicable Settlement Date, less (B) the
Indicated Reserve

 

78

--------------------------------------------------------------------------------

 

Amount reflected on the final Reserve Report for the immediately preceding
Applicable Settlement Date is a negative amount, Buyer shall pay or cause to be
paid to Seller in immediately available funds 90% of the absolute value of such
negative amount.  Any payments pursuant to the foregoing in this
Section 4.26(f) shall be defined as a “Post-Closing Reserve Adjustment.”  If
Seller does not deliver a Reserve Dispute Notice to Buyer under Section 4.26(e),
balances due from either party under this Section 4.26(f) shall be paid within
five Business Days following the 45th day following Seller’s receipt of the
applicable Reserve Report contemplated by Section 4.26(a).  If Seller does
deliver a Reserve Dispute Notice to Buyer under Section 4.26(e), balances due
from either party under this Section 4.26(f) shall be paid within five Business
Days following final determination of any such payment pursuant to
Section 4.26(e).  Any such amount payable pursuant to this Section 4.26(f) shall
be increased by the interest on such amount, compounded daily, at the Interest
Rate from the date of the delivery of the applicable Reserve Report to and
including the date of payment, based on a 365 day year.

 

(g)           Certain Covenants. With respect to the Subject Business, from the
Closing Date until the Final Settlement Date, Buyer agrees to cause each
Insurance Subsidiary to, in good faith, pay and settle claims, and handle the
defense of pending or threatened claims, suits or proceedings (“Claims”), in the
ordinary course consistent with Buyer’s practices for the payment, settlement,
and defense of Claims in the personal lines business of Buyer’s property and
casualty insurance operations, and establish reserves for losses and loss
adjustment expenses in accordance with generally accepted actuarial standards
including on the basis of methodologies consistent in all material respects with
the methodologies used in establishing reserves for losses and loss adjustment
expenses in the personal lines business of Buyer’s property and casualty
insurance operations.  Until the Post-Closing Reserve Adjustment is paid in
respect of the Final Settlement Date, Buyer shall cause the Insurance
Subsidiaries to allow Seller and its employees, agents and representatives
reasonable access, during normal business hours and upon reasonable notice, to
all books, records, work papers and other information and documents of the
Insurance Subsidiaries pertaining to the Subject Business and payments of losses
and allocated loss adjustment expenses in respect thereof, to substantially the
same extent as Buyer is required to provide such access to any reinsurer,
retrocessionaire or other assuming company in the ordinary course of business. 
In no event shall the costs or expenses of any legal counsel, insurance adjuster
or other service provider who is an employee of Buyer or an Affiliate of Buyer
that performs work in respect of the Subject Business be accounted for purposes
of this Section 4.26 as ALAE.

 

Section 4.27           Electronic Data Site.  From and after the Closing, the
Parent Group shall cease to have access to the Electronic Data Site and Seller
shall cause the members of the Parent Group to destroy (or deliver to Buyer)
copies of any information, documents or materials made available on such data
site prior to the Closing and held (including on any electronic or magnetic
media or any electronic data base

 

79

--------------------------------------------------------------------------------

 

systems) by any member of the Parent Group, except that Cravath, Swaine & Moore
LLP may retain copies of any such information, documents or materials (including
pre-Closing access records with respect thereto) in a custodial capacity for
Seller solely for use in connection with resolving claims under Article VIII,
and all such information, documents or materials shall be kept confidential and
held in a secure environment.  If it is proposed that any members of the Parent
Group be provided with access to any such information, documents or materials in
accordance with the use restrictions in this Section 4.27, Seller shall provide
prior written notice to Buyer at least two Business Days prior to the grant of
such access (with such notice specifying in reasonable detail the information,
documents or materials proposed to be accessed).

 

Section 4.28           Seller Guaranties.  From and after the date hereof, Buyer
and Seller shall use their respective reasonable best efforts to obtain, on or
prior to the Closing Date, the termination of, and full release of Seller and
its Affiliates (other than the Transferred Companies) from any and all
Liabilities arising under, the Seller Guaranties listed on Schedule 4.28.  For
the avoidance of doubt, such efforts shall include an offer by Buyer to
substitute the obligations of a Subsidiary or other Affiliate of Buyer for those
of Seller and its Affiliates (other than the Transferred Companies) under any
such Seller Guaranty on terms that are no less favorable than the terms under
such Seller Guaranty are to Seller or the applicable Affiliate of Seller, as
applicable.  With respect to each such Seller Guaranty with respect to which the
parties do not obtain such termination and full release, Buyer shall,
concurrently with the Closing, enter into a hold harmless agreement in
substantially the form attached hereto as Exhibit B (the “Hold Harmless
Agreement”) with respect to such Seller Guaranty.

 

Section 4.29           Reinsurance Trust.  Prior to the Closing, Seller shall
cause OBIC, as grantor, to enter into and fund a reinsurance trust in
substantially the form of Exhibit C, naming each of EIC and EICNJ as
beneficiaries, in order to collateralize the OB Liabilities of EIC and EICNJ. 
Buyer shall have the right to consent to the party named as trustee under such
trust agreement, such consent not to be unreasonably withheld, conditioned or
delayed.

 

80

--------------------------------------------------------------------------------

 

ARTICLE V
TAX MATTERS

 

Section 5.1                                      Tax Indemnities.

 

(a)                          Seller shall be liable for and shall pay,
reimburse, indemnify, defend and hold harmless Buyer Indemnitees for, from and
against (without duplication) any:

 

(i)                             Taxes imposed on any Transferred Company for any
Pre-Closing Tax Period, or for which any Transferred Company may be liable as a
transferee, successor in interest, by Contract, under applicable Law or
otherwise for any Pre-Closing Tax Period;

 

(ii)                          Taxes imposed on any Transferred Company, or for
which any Transferred Company may be liable, under any Tax Contract entered into
on or prior to the Closing Date;

 

(iii)                       Taxes imposed on any Transferred Company, or for
which any Transferred Company may be liable pursuant to Treasury Regulations
Section 1.1502-6 or any similar provision of state, local or foreign Law, as a
result of any Transferred Company having been included in a combined,
consolidated, affiliated, unified or group Tax Return for any Pre-Closing Tax
Period or having had its Tax liability calculated on a combined, consolidated,
unified, group or affiliated basis for any Pre-Closing Tax Period;

 

(iv)                      Taxes relating to, resulting from or arising out of
any Loss Overstatement, any Loss Limitation or any Tax Asset Overstatement, in
each case, calculated as provided in subsection (c)(i) below, plus the amount of
any interest, penalty, fine or addition to Taxes arising from or imposed as a
result of any such Loss Overstatement, Loss Limitation or Tax Asset
Overstatement;

 

(v)                         Taxes relating to, resulting from or arising out of
(A) any SRLY Limitation (including those imposed as a result of the application
of Section 382 of the Code) that would not have been imposed but for the
existence of such SRLY Limitation immediately prior to the Closing or (B) any
Loss Expiration, in each case calculated as provided in subsection (c)(ii)
below;

 

(vi)                      Taxes relating to, resulting from or arising out of
(A) any of the Transferred Companies being required to include any item of
income or gain in, or exclude any item of loss or deduction from, the
determination of taxable income for any Post-Closing Tax Period as a result of
any (1) change in method of accounting for a Pre-Closing Tax Period under
Section 481 of the Code (or any corresponding provision of state, local or
foreign Law), (2) installment sale

 

81

--------------------------------------------------------------------------------

 

or open transaction made or entered into on or prior to the Closing Date, (3)
prepaid amount received on or prior to the Closing Date or (4) intercompany
transaction that will be required to be taken into account under Treasury
Regulations Section 1.1502-13 (or any predecessor provision or any similar
provision of state, local or foreign Law) and that occurs on or prior to the
Closing Date or (B) any of the Transferred Companies having made an election
under Section 108(i) of the Code to defer the recognition of any cancellation of
indebtedness income;

 

(vii)                   Taxes relating to, resulting from or arising out of any
breach or nonperformance of any covenant by Seller set forth in this Agreement
to the extent relating to Taxes or Tax matters;

 

(viii)                Taxes relating to, resulting from or arising out of (A)
the Restructuring, (B) any other transaction occurring on or prior to the
Closing Date pursuant to or as contemplated by this Agreement or any Ancillary
Agreement, (C) any transaction occurring pursuant to or as contemplated by
Sections 4.10, 4.14, 4.17 and 4.22(b) of this Agreement (including any such
transaction occurring after the Closing Date) and (D) any Liabilities under the
agreements that are required to be terminated pursuant to Section 5.7(b);

 

(ix)                        Transfer Taxes allocable to Seller pursuant to
Section 5.6;

 

(x)                           Taxes imposed on any Buyer Indemnitee with respect
to any Taxes required to be deducted or withheld from any amount paid or payable
(or treated for Tax purposes as paid or payable) by any Buyer Indemnitee
pursuant to this Agreement or any Ancillary Agreement to the extent such Taxes
are not deducted or withheld;

 

(xi)                        Non-U.S. Indemnifiable Taxes imposed on any amount
paid or payable (or treated for Tax purposes as paid or payable) to any Buyer
Indemnitee pursuant to or as contemplated by this Agreement or any Ancillary
Agreement; provided, however, that any payment described in Section 8.5(b) shall
be subject to the provisions of Section 8.5(b) rather than to this Section
5.1(a)(xi);

 

(xii)                     Taxes of GHI or any of its Subsidiaries or any of its
or their respective properties, business, operations, Contracts, assets or
liabilities; and

 

82

--------------------------------------------------------------------------------

 

(xiii)                  reasonable out of pocket costs, expenses, fees and other
amounts incurred in contesting, determining, investigating, or settling any
matter for which a claim for indemnity may be made pursuant to the foregoing
(including attorneys’ and accountants’ fees);

 

provided, however, that Seller shall not be liable for Taxes that are
specifically set forth on the Closing Balance Sheet as a Tax liability to the
extent taken into account in determining the Closing Date Tangible Book Value,
determined on an item by item or asset by asset basis (any such Tax described in
this proviso, an “Excluded Tax”); and provided, further, that any payments made
by Seller to Buyer pursuant to Section 5.3(b) shall not be duplicated by this
Section 5.1(a).

 

(b)                         Buyer shall be liable for and shall pay, reimburse,
indemnify, defend and hold harmless Seller Indemnitees for, from and against
(without duplication):

 

(i)                             Taxes imposed on any Transferred Company for any
Post-Closing Tax Period, or for which any Transferred Company may be liable for
any Post-Closing Tax Period, in each case excluding Taxes described in Section
5.1(a);

 

(ii)                          Taxes relating to, resulting from or arising as a
result of any breach or nonperformance of any covenant by Buyer set forth in
this Agreement to the extent relating to Taxes or Tax matters;

 

(iii)                       Transfer Taxes allocable to Buyer pursuant to
Section 5.6; and

 

(iv)                      reasonable out of pocket costs, expenses, fees and
other amounts incurred in contesting, determining, investigating, or settling
any matter for which a claim for indemnity may be made pursuant to the foregoing
(including attorneys’ and accountants’ fees).

 

(c)                          For purposes of Section 5.1(a)(iv):

 

(i)                                     Taxes relating to, resulting from or
arising out of any Loss Overstatement, any Loss Limitation or any Tax Asset
Overstatement shall be calculated on a hypothetical basis as follows: (A) in the
case of a Loss Overstatement, 35% times that Loss Overstatement; (B) in the case
of a Loss

 

83

--------------------------------------------------------------------------------

 

Limitation, 35% times (1) the Minimum WMI Losses or Minimum AFI Losses, as
applicable, minus (2) the amount of net operating losses and net operating loss
carryforwards of the WMI Consolidated Group or the AFI Consolidated Group, as
applicable, that are usable under the applicable limitation in the first Taxable
Period following the Closing; (C) in the case of a Tax Asset Overstatement, 35%
times that Tax Asset Overstatement; and (D) in each case, reduced by the present
value of any Tax amortization, depreciation or other deduction that arises after
the Closing Date relating to, resulting from or arising out of the same facts
that led to such Loss Overstatement, Loss Limitation or Tax Asset
Overstatement.  For purposes of this calculation, it shall be assumed that (w)
the applicable Tax rate is 35%, (x) the present value of any Tax deduction is
based on the Discount Rate, (y) each Tax deduction is used in the first Taxable
Period in which it can be claimed and (z) an increase in basis that does not
give rise to an Tax amortization or depreciation deduction shall not be
considered a Tax deduction for purposes of clause (D) of the preceding sentence.

 

(ii)                                  Taxes relating to, resulting from or
arising out of any Loss Expiration or SRLY Limitation shall be the actual
increase in the cash Taxes payable for any Taxable Period as a result of the
Loss Expiration or SRLY Limitation, as applicable, over the cash Taxes that
would have been payable for such Taxable Period had there been no such SRLY
Limitation or Loss Expiration, as applicable (such increase, the “Tax
Increase”); provided, however, that if in any subsequent Taxable Period there is
an actual reduction in cash Taxes payable for such subsequent Taxable Period
compared to the cash Taxes that would have been payable for such subsequent
Taxable Period had there been no such SRLY Limitation (such reduction, the “Tax
Reduction”), then the party experiencing such Tax Reduction (the “Benefited
Party”) shall pay to the party that previously indemnified such Benefited Party
for a prior Tax Increase the amount of such Tax Reduction; provided, further,
however, that the aggregate amount paid by the Benefited Party to the other
party under this Section 5.1(c)(ii) with respect to any Tax Reduction shall
never exceed the aggregate amount received by such Benefited Party with respect
to prior Tax Increases.

 

Section 5.2                                      Proration of Taxes.  For
purposes of Section 5.1 and Section 5.3, any liability for Taxes attributable to
a Straddle Period shall be apportioned between the portion of such period ending
on the Closing Date and the portion beginning on the day after the Closing Date
(i) in the case of real and personal property Taxes, by apportioning such Taxes
on a per diem basis, (ii) in the case of Taxes based upon an amount of premiums,
the amount of Tax imposed based upon the amount of premiums written or deposits
made as of and including the Closing Date, and (iii) in the case of all other
Taxes, on the basis of a closing of the books as of the end of day on the
Closing Date.

 

84

--------------------------------------------------------------------------------

 

Section 5.3                                      Tax Returns.

 

(a)                          Seller shall be responsible for (i) preparing and
filing (or causing to be prepared and filed) all Tax Returns with respect to the
Transferred Companies for Pre-Closing Tax Periods other than Straddle Periods
and (ii) paying to the relevant Tax Authority all Taxes of or with respect to
the Transferred Companies that are shown as due on such Tax Returns, in each
case, within the time and in the manner prescribed by Law.  All such Tax Returns
shall be prepared and filed in accordance with past practices and the
requirements of this Agreement and no position shall be taken on such Tax
Returns that could materially adversely affect any of the Transferred Companies
after the Closing Date.  Buyer shall allow Mark Zahler to assist Seller in
preparing and filing all Tax Returns described in clause (i) that are due after
the Closing Date.

 

(b)                         Buyer shall be responsible for (i) preparing and
filing (or causing to be prepared and filed) all Tax Returns with respect to the
Transferred Companies for all Straddle Periods and (ii) paying to the relevant
Tax Authority all Taxes shown as due on such Tax Returns, in each case, within
the time and in the manner prescribed by Law.  Seller shall pay to Buyer an
amount equal to all Taxes for Pre-Closing Tax Periods that are shown as due on
any such Tax Return and that are not an Excluded Tax, no later than five
Business Days before any such Tax is due, by wire transfer of immediately
available funds to an account designated by Buyer.  Should Seller not make full
payment of any such Taxes within such five Business Day period, any amount
payable shall be increased by the interest on such amount, compounded daily
(based on a 365 day year), at the Interest Rate from and including the date that
such a payment is due to and including the date of payment.

 

(c)                          Seller shall timely prepare and send to Buyer any
information with respect to GHI and its Subsidiaries that is required to be
included in any Tax Return that Buyer is required to file pursuant to Section
5.3(b).

 

(d)                         For the avoidance of doubt, this Section 5.3 relates
only to the process of filing Tax Returns and paying Taxes to the relevant Tax
Authority and shall not prejudice or interfere with any indemnification
obligations under Section 5.1 (except to the extent that Seller pays Buyer any
amounts under clause (b) above).

 

(e)                          Each of Seller and Buyer shall use reasonable best
efforts to make any Tax Returns and work papers in respect of a Pre-Closing Tax
Period for which such party is responsible for preparing available for review by
the other party sufficiently in advance of the due date for filing such Tax
Returns (after taking into account available

 

85

--------------------------------------------------------------------------------

 

extensions), but in all events at least 45 days prior to the date such Tax
Return is required to be filed, to provide such other party with a meaningful
opportunity to analyze, comment on and dispute such Tax Returns.  The reviewing
party shall notify the preparing party of any comments or disputes with respect
to such Tax Returns in advance of the due date for filing such Tax Returns
(after taking into account available extensions), but in all events at least 30
days prior to the date such Tax Return is required to be filed, to provide such
other party with a meaningful opportunity to consider such comments or disputes
and for such Tax Returns to be modified, as appropriate, before filing.  In the
event of any disagreement between Buyer and Seller, such disagreement shall be
resolved by an accounting firm of international reputation mutually agreeable to
Seller and Buyer (the “Tax Accountant”), and any such determination by the Tax
Accountant shall be final unless otherwise not consistent with a determination
(as defined in Section 1313(a) of the Code).  The fees and expenses of the Tax
Accountant shall be borne equally by Buyer and Seller.  If the Tax Accountant
does not resolve any differences between Seller and Buyer with respect to such
Tax Return at least five Business Days prior to the due date therefor, such Tax
Return shall be filed as prepared by the party having the responsibility
hereunder for preparing such Tax Return and amended to reflect the Tax
Accountant’s resolution.  The preparation and filing of any Tax Return with
respect to any Transferred Company that does not relate to a Pre-Closing Tax
Period shall be exclusively within the control of Buyer.

 

Section 5.4                                      Tax Contests.

 

(a)                          Buyer or Seller, as the case may be, will provide
written notice to the other party within 30 days of its discovery of any matter
that may give rise to a claim for indemnity pursuant to this Article V (a “Tax
Claim” and such notice a “Tax Claim Notice”); provided, however, that failure to
comply with this Section 5.4(a) by an Indemnified Party shall not affect the
Indemnifying Party’s indemnification obligation hereunder except only to the
extent the Indemnifying Party’s ability to control such Tax Claim is adversely
and materially affected by such failure.  A Tax Claim Notice shall contain a
summary of the facts (set forth with reasonable specificity based on the then
available information) underlying or relating to the relevant claim, any
correspondence or notice received from any third party with respect thereto and
a statement that the Indemnified Party seeks indemnification for Taxes relating
to such claim.

 

(b)                         Seller, at its expense, shall have the right to
control the conduct of the defense of any Tax Claim brought by a Tax Authority
that involves solely a matter for which Seller is required to indemnify the
Buyer Indemnitees; provided, that (i) Buyer is provided written notice by Seller
of its intent to control the defense of such matter within 15 days after Seller
has received the underlying Tax Claim Notice (which will include Seller’s
acknowledgement that it is liable for all Taxes and Losses of the

 

86

--------------------------------------------------------------------------------

 

Buyer Indemnitees that result or arise from such Tax Claim), (ii) Seller shall
not have the right to control the defense of any Tax Claim with respect to any
Tax matter that involves a consolidated, combined, affiliated or unified filing
that includes Buyer or an Affiliate of Buyer (other than Tax Claims for
Pre-Closing Periods that include solely one or more Transferred Companies), and
(iii) Seller shall not have the right to control the conduct of the defense of,
or settle, any Tax Claim if the resolution or determination of such Tax Claim
could materially adversely affect or prejudice the Buyer Indemnitees.  Except as
provided in the foregoing, Buyer shall control (at Seller’s expense to the
extent the Tax Claim relates to or involves a matter for which Seller is
required to indemnify the Buyer Indemnitees) the conduct of the defense of all
Tax Claims.  Buyer (at its expense) shall have the right to participate in the
conduct of the defense of any Tax Claim controlled by Seller.  Seller (at its
expense) shall have the right to participate in the conduct of the defense of
any Tax Claim relating to the Transferred Companies that is not controlled by
Seller to the extent (A) the defense relates solely to the Tax Claim and (B)
Seller has acknowledged in writing that it is liable for all Taxes and Losses of
the Buyer Indemnitees that arise from such Tax Claim.

 

(c)                          Except as set forth in Section 5.4(b),
notwithstanding any provision in this Agreement to the contrary, the parties
agree that they will not settle, compromise or agree to any Tax adjustment with
respect to any Tax Claim without first obtaining the prior written consent of
the other party if such compromise, settlement or agreement affects or could
affect the other party’s Tax liability (including Tax liabilities of or with
respect to the Transferred Companies), which consent shall not be unreasonably
withheld or delayed.

 

Section 5.5                                      Books and Records; Cooperation.

 

(a)                          The parties to this Agreement and their respective
Affiliates will provide each other with such cooperation and information as
Buyer or Seller reasonably may request of the other or such Affiliates with
respect to any Tax matter at the expense of the requesting party (unless such
expense is an expense for which an indemnity is due).  Such cooperation shall
include providing signatures with respect to any Tax Returns that must be filed,
and providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
other determinations by Tax Authorities.  Seller shall make itself, its advisors
and the Transferred Companies’ auditors for all Pre-Closing Tax Periods
available to provide explanations of any documents or information provided
hereunder and to assist with any matter relating to Taxes, including any Audit
or the preparation of any financial statements.  Each of Seller, Buyer and their
respective Affiliates shall retain all Tax Returns, schedules and work papers,
records and other documents in its possession relating to Tax matters of the
Transferred Companies until the later of (i) the

 

87

--------------------------------------------------------------------------------

 

expiration of the statute of limitations of the Taxable Periods to which such
Tax Returns and other documents relate, without regard to extensions, or (ii)
six years following the due date (without extension) for such Tax Returns. 
Prior to disposing of any such records, notice shall be given by Buyer or
Seller, as applicable, to the other party providing reasonable terms allowing
such other party to take, at its sole expense, possession of such records.

 

(b)                         Without limiting the foregoing, at the Closing,
Seller may retain any Tax Returns with respect to the Transferred Companies in
the possession of Seller or any of its Affiliates, and Buyer shall be provided
with copies of the Transferred Companies’ separate Tax Returns and the pro forma
portion of any consolidated or combined Tax Returns relating solely to the
Transferred Companies.

 

Section 5.6                                      Transfer Taxes.  All Transfer
Taxes incurred in connection with transactions contemplated by this Agreement
shall be borne by Seller and Buyer as follows: (a) Seller shall bear and pay (i)
all Transfer Taxes arising under the Laws of any jurisdiction other than the
United States or any state or other political subdivision thereof, and (ii) any
Transfer Taxes that are real estate Taxes, and (b) Seller and Buyer shall each
bear and pay one half of any Transfer Taxes not described in the preceding
clause (a).  Seller and Buyer shall cooperate with each other in the timely
filing and execution of any Tax Returns and other documentation relating to
Transfer Taxes, the remitting of payment of all such Taxes and the delivery of
any forms claiming exemption or relief from any such Taxes.

 

Section 5.7                                      Additional Covenants.

 

(a)                          All powers of attorney with respect to any Tax
matters granted by or on behalf of the Transferred Companies prior to the
Closing Date will be terminated as of the day prior to the Closing Date.

 

(b)                         All Tax Sharing Agreements with respect to or
involving the Transferred Companies shall be terminated with respect to any
Liability of the Transferred Companies as of the day prior to the Closing Date
and the Transferred Companies shall not be bound thereby or have any Liability
thereunder at any time thereafter. For the avoidance of doubt and
notwithstanding any provision to the contrary, this Section 5.7(b) shall not be
interpreted in any manner that will relieve Seller or its Affiliates from paying
to the Transferred Companies the receivable due to the Transferred Companies
under the Tax Sharing Agreement in an amount equal to the amount of such
receivable set forth or otherwise taken into account in the Year End

 

88

--------------------------------------------------------------------------------

 

Balance Sheets or the calculation of the Closing Date Tangible Book Value, and
such payment shall be made to the Transferred Companies prior to the Closing
Date.

 

(c)                          Seller and Buyer (and each of their respective
Affiliates) agree to treat all payments made by either of them under this
Agreement (other than payments made under Section 1.2(b) or Section 1.4, which
payments constitute the Purchase Price) as adjustments to the Purchase Price for
all Tax purposes and that such treatment shall govern for purposes hereof except
to the extent that the Laws of a particular jurisdiction provide otherwise. 
Buyer will determine the appropriate allocation of any such adjustment to the
portions of the Purchase Price paid with respect to the WMI Shares or the AFI
Shares.  If Seller disagrees with Buyer’s allocation pursuant to the preceding
sentence, the allocation shall be determined by the Tax Accountant, as provided
in Section 5.7(g).

 

(d)                         Notwithstanding anything in this Agreement to the
contrary, except as provided in Section 8.5(b), the rights and obligations of
the parties with respect to indemnification for any and all Tax matters shall be
solely governed by this Article V and the rights to indemnification set forth in
this Article V shall not in any manner be subject to any of the limitations on
indemnification set forth in Article VIII (including Section 8.4); provided,
however, that the foregoing shall not apply to limit the indemnification for any
Tax matter relating to Sections 2.16, 2.17, 4.1(q), (r) or (s), 4.19 or 8.2(f). 
For the avoidance of doubt, Section 8.5(b) shall apply to indemnity payments
made under this Article V; provided, however, that any Tax benefit that has been
or will be taken into account in determining any amount payable under this
Article V shall not be taken into account in determining the net after-Tax basis
amount in Section 8.5(b).

 

(e)                          Notwithstanding any provision in this Agreement to
the contrary, all agreements, covenants and indemnification matters contained in
this Article V shall survive the Closing and shall not terminate until 60 days
after the expiration of all relevant statutes of limitations and the
representations and warranties set forth in Section 2.18 shall not survive the
Closing; provided, however, that upon an Indemnified Party providing an
Indemnifying Party with a Tax Claim Notice prior to the applicable date
determined pursuant to the immediately preceding sentence, the agreements that
are the subject of such indemnification claim shall survive with respect to such
claim until such time as such claim is resolved.

 

(f)                            Except as provided in Section 5.3(b) or as
otherwise specifically provided for in this Article V, all payments due with
respect to Taxes or Losses for which an Indemnifying Party has provided an
Indemnified Party with an indemnity

 

89

--------------------------------------------------------------------------------

 

pursuant to this Agreement shall be made upon the earlier to occur of (i) three
Business Days after an agreement by the Indemnifying Party and the Indemnified
Party as to the Indemnifying Party’s Liabilities for such Taxes or Losses, and
(ii) in the case of a matter that is being litigated or arbitrated between an
Indemnifying Party and an Indemnified Party, three Business Days after the first
conclusion of such matter that results in a payment due from the Indemnifying
Party.

 

(g)                         To the extent that Buyer and Seller are unable to
agree on the amount of the Taxes determined under Section 5.1(c), any Purchase
Price adjustment allocation required under Section 5.7(c), the amount of the
adjustments required under Section 8.5(b), or the amount of any other item
subject to indemnification pursuant to this Article V, then Buyer and Seller
shall jointly engage and submit the unresolved items (the “Unresolved Tax
Items”) to the Tax Accountant.  Buyer and Seller shall use their reasonable best
efforts to cause the Tax Accountant to issue its written determination regarding
the Unresolved Tax Items within 30 days after the Unresolved Tax Items are
submitted for review.  The Tax Accountant shall make a determination with
respect to the Unresolved Tax Items only, and in a manner consistent with the
provisions of Section 5.1(c), Section 5.7(c), Section 8.5(b), or this Article V,
as applicable, and in no event shall the Tax Accountant’s determination of the
Unresolved Tax Items be for an amount that is outside the range of Buyer’s and
Seller’s disagreement on the Unresolved Tax Items.  Each party shall use its
reasonable best efforts to furnish to the Tax Accountant such work papers,
books, records, documents and other information pertaining to the Unresolved Tax
Items as the Tax Accountant may request.  The determination of the Tax
Accountant shall be final, binding and conclusive on Buyer and Seller absent
manifest error.  Judgment may be entered upon the determination of the Tax
Accountant in any court having jurisdiction over the party against which such
determination is to be enforced.  Buyer and Seller shall each bear and pay one
half of any fees, expenses and costs of the Tax Accountant incurred in rendering
any determination pursuant to this Section 5.7(g).

 

90

--------------------------------------------------------------------------------

 

ARTICLE VI

CONDITIONS PRECEDENT

 

Section 6.1                                      Conditions to the Obligations
of Buyer and Seller.  The obligations of Buyer and Seller to consummate the
transactions contemplated hereby shall be subject to the fulfillment or waiver
at or prior to the Closing of the following conditions:

 

(a)                                  HSR Act Notification.  The notifications of
Buyer and Seller pursuant to the HSR Act shall have been made and the applicable
waiting period and any extensions thereof shall have expired or been terminated.

 

(b)                                 No Injunction, Etc.  The consummation of the
transactions contemplated hereby or by the Ancillary Agreements shall not have
been restrained, enjoined or otherwise prohibited or made illegal by any
applicable Law, and there shall be no Litigation by any Governmental Authority
pending or threatened in writing that would reasonably be expected to result in
such a restraint, injunction or prohibition.

 

(c)                                  Governmental Approvals.  All Governmental
Approvals set forth on Schedule 6.1(c) shall have been obtained (or any waiting
period shall have been terminated or shall have expired) and shall be in full
force and effect without the imposition of a Burdensome Condition.

 

Section 6.2                                      Conditions to Obligations of
Buyer.  The obligations of Buyer to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver in writing at or prior to
the Closing of the following additional conditions:

 

(a)                                  Representations; Performance.  The
representations and warranties of Seller contained in this Agreement and in any
certificate delivered pursuant hereto shall be true and correct (except in the
case of any of the Qualified Reps, without giving effect to any qualifications
or limitations as to materiality or Material Adverse Effect (which instead shall
be read as an adverse effect) set forth therein) as of the date hereof and as of
the Closing Date as if they were made on and as of the Closing Date, except for
such representations and warranties that speak to an earlier date (in which
case, such representations and warranties shall be true and correct as of such
earlier date), in each case except where the failure of such representations and
warranties to be true and correct, individually or in the aggregate, has not had
and would not reasonably be expected to have a Material Adverse Effect; provided
that the representations and

 

91

--------------------------------------------------------------------------------

 

warranties in Section 2.4(a) (subsection (a) to Capitalization; Title to
Shares), Section 2.5(e) (subsection (e) to Transferred Subsidiaries; Ownership
Interests), and Section 2.34 (Finders’ Fees) shall be true and correct in all
material respects as of the date hereof and as of the Closing Date as if they
were made on and as of the Closing Date.  Seller shall have in all material
respects duly performed and complied with all agreements and covenants required
by this Agreement to be performed or complied with by Seller at or prior to the
Closing.  Seller shall have delivered to Buyer a certificate dated the Closing
Date and signed by a duly authorized officer to the effect set forth above in
this Section 6.2(a).

 

(b)                                 No Litigation.  There shall be no Litigation
by any Governmental Authority pending or threatened in writing that would
reasonably be expected to result in a material limitation on Buyer’s ownership
or control of the Shares or the Transferred Companies ownership or control of
the Business (other than Litigation seeking as a remedy any action to which
Buyer and its Affiliates shall be obligated to accept pursuant to the last
sentence of Section 4.7(b)).

 

(c)                                  No Material Adverse Effect.  No event,
occurrence, fact, condition, change, development or effect shall exist or have
occurred or come to exist since the Balance Sheet Date that, individually or in
the aggregate, has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect.

 

(d)                                 Ancillary Agreements.  The Ancillary
Agreements shall have been executed and delivered by the applicable Seller
Parties thereto and shall be in full force and effect.

 

(e)                                  AFI FIRPTA Certificate.  Seller shall have
delivered to Buyer a statement, meeting the requirements of Treasury Regulations
Sections 1.897-2(g)(2) and 1.1445-2(c)(3), to the effect that the AFI Shares do
not constitute U.S. real property interests as of the Closing Date within the
meaning of Section 897(c)(1) of the Code and the Treasury Regulations
promulgated thereunder.

 

(f)                                    WMI FIRPTA Certificate.  Seller shall
have delivered to Buyer a statement, meeting the requirements of Treasury
Regulations Sections 1.897-2(g)(2) and 1.1445-2(c)(3), to the effect that the
WMI Shares do not constitute U.S. real property interests as of the Closing Date
within the meaning of Section 897(c)(1) of the Code and the Treasury Regulations
promulgated thereunder.

 

(g)                                 Restructuring.  The Restructuring shall have
been consummated.

 

92

--------------------------------------------------------------------------------

 

(h)                                 Certain Employees.  (i) The Tier One
Executive, at least two Tier Two Executives and at least 10 Covered Executives
shall each be full time, active employees of a Transferred Company on the
Closing Date and shall not have repudiated or challenged in writing, prior to
the Closing, the enforceability of the Employment Agreement to which such
individual is a party and (ii) the Tier One Executive, at least two Tier Two
Executives and at least 10 Covered Executives shall not have given written
notice of his or her intention to terminate employment with a Transferred
Company.

 

Section 6.3                                      Conditions to Obligations of
Seller.  The obligation of Seller to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver in writing at or prior to
the Closing of the following additional conditions:

 

(a)                                  Representations; Performance.  The
representations and warranties of Buyer contained in this Agreement and in any
certificate delivered pursuant hereto shall be true and correct (without giving
effect to any qualifications or limitations as to materiality or Buyer Material
Adverse Effect (which instead shall be read as an adverse effect) set forth
therein) as of the date hereof and as of the Closing Date as if they were made
on and as of the Closing Date, except for such representations and warranties
that speak to an earlier date (in which case, such representations and
warranties shall be true and correct as of such earlier date), in each case
except where the failure of such representations and warranties to be true and
correct, individually or in the aggregate, has not had and would not reasonably
be expected to have a Buyer Material Adverse Effect.  Buyer shall have in all
material respects duly performed and complied with all agreements and covenants
required by this Agreement to be performed or complied with by Buyer at or prior
to the Closing.  Buyer shall have delivered to Seller a certificate dated the
Closing Date and signed by a duly authorized officer to the effect set forth
above in this Section 6.3(a).

 

(b)                                 Ancillary Agreements.  The Ancillary
Agreements shall have been executed and delivered by the applicable Buyer
Parties thereto and shall be in full force and effect.

 

Section 6.4                                      Frustration of Closing
Conditions.  Neither Seller nor Buyer may rely on the failure of any condition
set forth in this Article VI to be satisfied if such failure was caused by such
party’s failure to act in good faith or to use its reasonable best efforts to
cause the Closing to occur, as required by Section 4.7.

 

93

--------------------------------------------------------------------------------

 

ARTICLE VII

TERMINATION

 

Section 7.1                                      Termination.  This Agreement
may be terminated at any time prior to the Closing:

 

(a)                                  by the written agreement of Buyer and
Seller;

 

(b)                                 by either Buyer or Seller by notice to the
other party, if:

 

(i)                                     the Closing shall not have been
consummated on or before December 31, 2011 (the “End Date”), provided that the
right to terminate this Agreement pursuant to this Section 7.1(b)(i) shall not
be available to any party whose breach of any provision of this Agreement
results in the failure of the Closing to be consummated by such time; or

 

(ii)                                  (A) there shall be any Law that makes the
consummation of the Closing illegal or otherwise prohibited or (B) any judgment,
injunction, order or decree of any Governmental Authority having competent
jurisdiction enjoining Buyer or Seller from consummating the Closing is entered
and such judgment, injunction, judgment or order shall have become final and
nonappealable;

 

(c)                                  by Buyer by notice to Seller, if a breach
of any representation or warranty or failure to perform any covenant or
agreement on the part of Seller or any of the Transferred Companies set forth in
this Agreement shall have occurred that would cause the condition set forth in
Section 6.2(a) not to be satisfied, and such breach is incapable of being cured
by the End Date, or if capable of being cured prior to the End Date, shall not
have been cured within 30 days after written notice of such breach shall have
been received by Seller;

 

(d)                                 by Seller by notice to Buyer, if a breach of
any representation or warranty or failure to perform any covenant or agreement
on the part of Buyer set forth in this Agreement shall have occurred that would
cause the condition set forth in Section 6.3(a) not to be satisfied, and such
breach is incapable of being cured by the End Date, or if capable of being cured
prior to the End Date, shall not have been cured within 30 days after written
notice of such breach shall have been received by Buyer; or

 

94

--------------------------------------------------------------------------------

 

(e)                                  by Buyer by notice to Seller, if there
shall have occurred and be continuing for 45 days any event, occurrence, fact,
condition, change, development or effect that, individually or in the aggregate,
has resulted in, or would reasonably be expected to result in, a Material
Adverse Effect.

 

Section 7.2                                      Effect of Termination.  If this
Agreement is terminated pursuant to Section 7.1, this Agreement shall become
void and of no effect without Liability of any party (or any of its directors,
officers, employees, stockholders, Affiliates, agents, representatives or
advisors) to the other party hereto, provided that no such termination shall
relieve either party of Liability for a breach of this Agreement or impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement.  The provisions of Section 4.4(a) (subsection
(a) to Access to Information; Confidentiality), Section 4.6 (Public
Announcements), this Section 7.2 and Sections 7.1 (Termination), 9.1 (Certain
Terms), 9.2 (Construction) and Article X (Miscellaneous) shall survive any
termination hereof pursuant to Section 7.1.  If this Agreement is terminated
pursuant to Section 7.1, (i) Buyer shall return all documents received from
Seller or the Transferred Companies relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to Seller and
(ii) all confidential information received by Buyer with respect to the Business
shall be treated in accordance with the Confidentiality Agreement, which shall
remain in full force and effect in accordance with its terms notwithstanding the
termination of this Agreement.

 

ARTICLE VIII

INDEMNIFICATION

 

Section 8.1                                      Survival.  The representations
and warranties of the parties contained in this Agreement or in any certificate
or other writing delivered pursuant hereto or in connection herewith and all
covenants and agreements contained in this Agreement that are to be fully
performed or complied with at or prior to the Closing shall survive the Closing
solely for purposes of this Article VIII until the date that is 18 months
following the Closing Date; provided that the representations and warranties in
Sections 2.1 (Corporate Status), 2.2(a) (subsection (a) to Corporate and
Governmental Authorization), 2.4 (Capitalization and Title to Shares), 2.5(e)
(subsection (e) to Transferred Subsidiaries; Ownership Interests), 2.17(c)(ii)
(subsection (c)(ii) to Employee Benefit Plans and Related Matters; ERISA), and
2.34 (Finders’ Fees) shall survive until the latest date permitted by law and
the representations and warranties in Section 2.11(j) (Other Intellectual
Property Matters) shall survive until the date that is the fifth anniversary of
the Closing Date; provided, further, that the representations and warranties in
Section 2.18 (Tax Matters) shall survive as provided in Section 5.7(e); and
provided, further, that the representations and warranties in clauses (a) and
(b) of Section 2.22

 

95

--------------------------------------------------------------------------------

 

(Reserves) and Section 2.28 (Claims Handling) shall not survive the Closing. 
The covenants and agreements of the parties contained in this Agreement that are
to be performed or complied with after the Closing shall survive until fully
performed or complied with.  The obligations to indemnify any party under this
Agreement shall terminate when the applicable representation, warranty, covenant
or agreement terminates pursuant to this Section 8.1.  Notwithstanding the
preceding sentences, any breach of representation, warranty, covenant or
agreement in respect of which indemnity may be sought under this Agreement shall
survive the time at which it would otherwise terminate pursuant to the preceding
sentences, if notice of the inaccuracy or breach thereof giving rise to such
right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.

 

Section 8.2                                      Indemnification by Seller. 
From and after the Closing, subject to Section 8.4, Seller shall defend,
indemnify and hold harmless each of Buyer, its Affiliates, and, after the
Closing, the Transferred Companies, and their respective officers, directors,
employees, agents, advisors and representatives (collectively, the “Buyer
Indemnitees”) from and against, and pay or reimburse the Buyer Indemnitees for,
any and all damages, losses, Liabilities and expenses (including reasonable fees
and expenses of attorneys, accountants, consultants and other third party
advisors and other reasonable out-of-pocket expenses incurred in the
investigation, defense or settlement of any of the same or in asserting,
preserving or enforcing any rights under this Agreement), whether in respect of
third party claims, claims between the parties or otherwise (collectively,
“Losses”) (without duplication of the dollar amount of any Loss for which
indemnification may be provided under Article V or under more than one provision
of this Section 8.2), resulting from or arising out of:

 

(a)                                  any inaccuracy in or breach of any
representation or warranty made by Seller in or pursuant to this Agreement or
any certificate furnished by Seller pursuant to this Agreement;

 

(b)                                 any failure of Seller (or, prior to the
Closing, the Transferred Companies) to perform any covenant or agreement under
this Agreement (other than any covenant or agreement contained in Section 4.2);

 

(c)                                  any of the matters set forth in Schedule
8.2(c);

 

(d)                                 any Special Litigation (“Special Litigation
Losses”);

 

96

--------------------------------------------------------------------------------

 

(e)                                  any Seller Extra Contractual Obligations or
Seller Excess of Policy Limits Liabilities (“ECO Losses”);

 

(f)                                    the Seller Pension Plan (including by
reason of any of the Transferred Companies being an ERISA Affiliate of Seller or
any of its Affiliates (other than the Transferred Companies) or the imposition
by the PBGC of any contribution obligations, funding enhancements or similar
obligations on the Transferred Companies, Buyer or their Affiliates) and the
Deferred Compensation Plan listed on Section 2.5(e) of the Seller Disclosure
Letter; or

 

(g)                                 the Restructuring, or relating to or arising
out of GHI or any of its Subsidiaries or any of its or their respective
properties, business, operations, Contracts, assets or liabilities.

 

Section 8.3                                      Indemnification by Buyer.  From
and after the Closing, subject to Section 8.4, Buyer shall defend, indemnify and
hold harmless Seller, its Affiliates and their respective officers, directors,
employees, agents, advisors and representatives (collectively, the “Seller
Indemnitees”) from and against, and pay or reimburse the Seller Indemnitees for,
any and all Losses (without duplication of the dollar amount of any Loss for
which indemnification may be provided under Article V or under more than one
provision of this Section 8.3) resulting from or arising out of (a) any
inaccuracy in or breach of any representation or warranty made by Buyer in or
pursuant to this Agreement or any certificate furnished by Buyer pursuant to
this Agreement, or (b) any failure of Buyer (or, after the Closing, the
Transferred Companies) to perform any covenant or agreement under this Agreement
(other than any covenant or agreement contained in Section 4.2).

 

Section 8.4                                      Certain Limitations.

 

(a)                                  After the Closing, Seller shall not be
required to indemnify Buyer Indemnitees for:

 

(i)                                     Losses under Section 8.2(a) (with
respect solely to the representations and warranties set forth in the first
sentence of Section 2.11(a), the first sentence of Section 2.11(b), the first
sentence of Section 2.17(a), Section 2.20(a), Section 2.22, Section 2.23 and
Section 2.33) for any particular claim or series of claims arising out of the
same facts where the Loss relating thereto is less than $20,000 (the “De Minimis
Amount”) (and the Losses related to any such

 

97

--------------------------------------------------------------------------------

 

claim or series of claims of less than the De Minimis Amount shall be
disregarded for purposes of calculating whether the Deductible has been
reached);

 

(ii)                                  (w) Losses under Section 8.2(a) (except
with respect to inaccuracies in or breaches of the representations and
warranties contained in Sections 2.1 (Corporate Status), 2.2(a) (subsection (a)
to Corporate and Governmental Authorization), 2.4 (Capitalization; Title to
Shares), 2.5(e) (subsection (e) to Transferred Subsidiaries; Ownership
Interests), and 2.34 (Finders’ Fees), (x) Losses under Section 8.2(d) (Special
Litigation Losses), (y) Losses under Section 8.2(e) (ECO Losses) or (z) Losses
under Section 8.2(b) (solely with respect to any failure to perform any covenant
or agreement contained in Section 4.5(a) (subsection (a) to Subsequent Financial
Statements and Reports, Etc.)), until the aggregate amount of all such Losses
exceeds $20,000,000 (the “Deductible”), in which event Seller shall be
responsible only for any such Losses in excess of such Deductible;

 

(iii)                               (x) Losses under Section 8.2(a) (except with
respect to inaccuracies in or breaches of the representations and warranties
contained in Sections 2.1 (Corporate Status), 2.2(a) (subsection (a) to
Corporate and Governmental Authorization), 2.4 (Capitalization; Title to
Shares), 2.5(e) (subsection (e) to Transferred Subsidiaries; Ownership
Interests) and 2.34 (Finders’ Fees)) or (y) Losses under Section 8.2(b) (solely
with respect to any failure to perform any covenant or agreement contained in
Section 4.5(a) (subsection (a) to Subsequent Financial Statements and Reports,
Etc.)), in the aggregate in excess of $200,000,000 (the “Cap”); provided that,
solely with respect to Losses under Section 8.2(a) resulting from inaccuracies
in or breaches of the representations and warranties contained in Section
2.11(j) (Other Intellectual Property Matters), such limit shall be $600,000,000
(the “Special Cap”); provided further that any Special Litigation Losses shall
also count against and are subject to the Special Cap.  For the avoidance of
doubt, (i) any Losses under Section 8.2(a) resulting from inaccuracies in or
breaches of the representations and warranties contained in Section 2.11(j)
(Other Intellectual Property Matters) shall count against the Cap as well as the
Special Cap and (ii) Special Litigation Losses shall count against and are
subject to the Special Cap but shall not count against the Cap.

 

(b)                                 After the Closing, except with respect to
inaccuracies in or breaches of the representations and warranties contained in
Sections 3.1 (Corporate Status), 3.2(a) (Corporate and Governmental
Authorization) and 3.7 (Finders’ Fees), Buyer shall not be required to indemnify
Seller Indemnitees for Losses under Section 8.3(a) (i) until the aggregate
amount of all such Losses exceeds the Deductible, in which

 

98

--------------------------------------------------------------------------------

 

event Buyer shall be responsible only for Losses in excess of such Deductible,
or (ii) for Losses in the aggregate in excess of the Cap.

 

(c)                                  For purposes of this Article VIII, (i) an
inaccuracy in or breach of a representation or warranty, except for any
Qualified Reps, shall be deemed to exist either if such representation or
warranty is actually inaccurate or breached or would have been inaccurate or
breached if such representation or warranty had not contained any qualification
as to materiality or Material Adverse Effect (which instead shall be read as an
adverse effect) or similar language and (ii) the amount of Losses in respect of
any breach of a representation or warranty, except for any Qualified Reps,
including any deemed breach resulting from the application of clause (i), shall
be determined without regard to any limitation or qualification as to
materiality or Material Adverse Effect (which instead shall be read as an
adverse effect) or similar language set forth in such representation or
warranty.

 

(d)                                 The rights and remedies of any party in
respect of any inaccuracy or breach of any representation, warranty, covenant or
agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts or circumstances upon which any claim of any
such inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.  The representations, warranties and covenants of Seller,
and the Buyer Indemnitees’ rights to indemnification with respect thereto, shall
not be affected or deemed waived by reason of (and the Buyer Indemnitees shall
be deemed to have relied upon the representations and warranties of Seller set
forth herein notwithstanding) (i) any investigation made by or on behalf of any
of the Buyer Indemnitees (including by any of its advisors, consultants or
representatives) or by reason of the fact that any of the Buyer Indemnitees or
any of such advisors, consultants or representatives knew or should have known
that any such representation or warranty is, was or might be inaccurate,
regardless of whether such investigation was made or such knowledge was obtained
before or after the execution and delivery of this Agreement or (ii) Buyer’s
waiver of any condition set forth in Article VI.  The representations,
warranties and covenants of Buyer, and the Seller Indemnitees’ rights to
indemnification with respect thereto, shall not be affected or deemed waived by
reason of (and the Seller Indemnitees shall be deemed to have relied upon the
representations and warranties of Buyer set forth herein notwithstanding) (i)
any investigation made by or on behalf of any of the Seller Indemnitees
(including by any of its advisors, consultants or representatives) or by reason
of the fact that any of the Seller Indemnitees or any of such advisors,
consultants or representatives knew or should have known that any such
representation or warranty is, was or might be inaccurate, regardless of whether
such investigation was made or such knowledge was obtained before or after the
execution and delivery of this Agreement or (ii) Seller’s waiver of any
condition set forth in Article VI.

 

99

--------------------------------------------------------------------------------

 

(e)                                  Except as provided in Article V and Section
10.9, the indemnity provided for in this Article VIII shall be the sole and
exclusive monetary remedy (including equitable remedies that involve monetary
payment, such as restitution or disgorgement, other than specific performance to
enforce a payment or performance obligation hereunder) of Buyer Indemnitees or
Seller Indemnitees, as the case may be, after the Closing with respect to any
and all claims relating to this Agreement and the transactions contemplated
hereby (other than claims of, or causes of action arising from, fraud or willful
misconduct).  Notwithstanding anything to the contrary in this Agreement, none
of the limitations on indemnities set forth in this Article VIII shall apply in
the event of any fraud or willful misconduct on the part of any of the parties
or their Affiliates.

 

(f)                                    With respect to any Loss for which a
Buyer Indemnitee is entitled to indemnification pursuant to this Article VIII
and which arises out of or relates to a Liability that is specifically provided
for, accrued or reserved against on the Closing Balance Sheet (in the form that
has become final, binding and conclusive upon Seller and Buyer), Seller shall be
liable to such Buyer Indemnitee for such Loss only to the extent such Loss
exceeds the amount of such specific provision, accrual or reserve.

 

(g)                                 Seller’s obligation to indemnify Buyer
Indemnitees in respect of ECO Losses pursuant Section 8.2(e) shall terminate on
the date that is the 10th anniversary of the Closing Date, provided that with
respect to claims for indemnification for ECO Losses made prior to such date,
such obligation shall survive until such claims are paid in full or otherwise
finally resolved by the parties in accordance with this Agreement.

 

(h)                                 After the Closing, any party that is an
Indemnified Party shall use its commercially reasonable efforts to mitigate any
Losses that are indemnifiable under this Article VIII upon and after becoming
aware of any such Losses (it being understood that the reasonable costs relating
to such efforts shall be deemed to be Losses subject to indemnification as
provided in this Article VIII).  After the Closing, each of Seller and Buyer
shall reasonably cooperate with each other to mitigate any such Loss, including
by providing reasonable notice to the other of such Loss (or of matters that
would reasonably be expected to give rise to any such Loss) of which such party
has knowledge; provided, however, that this sentence shall not be deemed to
alter the third party claims procedures set forth in Section 8.6 or the direct
claims procedures set forth in Section 8.7.  For purposes solely of this clause
(h), “knowledge” means, when used with respect to Buyer, the actual knowledge of
the Persons listed on Schedule 8.4(h).  In the event that such Indemnified Party
shall fail to use its commercially reasonable efforts to mitigate or to
reasonably cooperate with respect to any such Losses as provided in this clause
(h), then, notwithstanding anything to the contrary contained herein, an
Indemnifying Party shall

 

100

--------------------------------------------------------------------------------

 

not be required to indemnify any Person for the amount of any such Losses that
would have been avoided if such Indemnified Party had used such efforts or
provided such cooperation, which shall be the sole remedy for any breach of the
covenants set forth in this clause (h).  In no event shall either party be
required to provide any information to the other party that is subject to an
attorney-client privilege or other legal privilege, constitutes attorney work
product or is subject to any obligation of confidentiality or privacy.

 

(i)                                     Seller and Buyer agree that (i) Losses
subject to recovery pursuant to this Article VIII may include damages for lost
profits but only to the extent that such damages for lost profits are
recoverable under the laws of the State of New York, (ii) all of the elements
necessary for proof of such damages for lost profits under the laws of the State
of New York shall apply and (iii) the failure by the parties to list any
categories of losses or damages (or measures thereof) in the definition of
“Losses” in Section 8.2 shall not be deemed to be a waiver by any party of its
ability to recover any such losses or damages if (A) such losses or damages are
recoverable under the laws of the State of New York and (B) such party satisfies
all of the elements necessary for recovery of such losses or damages under the
laws of the State of New York.

 

(j)                                     In no event shall Seller’s or Buyer’s
aggregate indemnification obligation for Losses pursuant to this Article VIII
exceed the Purchase Price.

 

Section 8.5                                      Adjustments; Payments, Etc.

 

(a)                                  Any indemnity payment made by Seller to
Buyer Indemnitees, on the one hand, or by Buyer to Seller Indemnitees, on the
other hand, pursuant to this Article VIII in respect of any Loss shall be net of
an amount equal to (x) any insurance proceeds actually received by the
Indemnified Party in respect of such claim minus (y) any related costs and
expenses, including the aggregate cost of pursuing any related insurance claims
plus any related increases in insurance premiums or other chargebacks; provided,
however, that any amount payable by an Indemnifying Party pursuant to this
Article VIII shall not be delayed or reduced pending any receipt of insurance
proceeds.  If an Indemnified Party receives any amounts under applicable
insurance policies, or from any other Person alleged to be responsible for any
Losses, subsequent to an indemnification payment by the Indemnifying Party, then
such Indemnified Party shall promptly reimburse the Indemnifying Party for any
payment made or expense incurred by such Indemnifying Party in connection with
providing such indemnification payment up to the amount received by the
Indemnified Party, net of any expenses incurred by such Indemnified Party in
collecting such amount.

 

101

--------------------------------------------------------------------------------

 

(b)                                 Any indemnity payment made by Seller to
Buyer Indemnitees on the one hand, or by Buyer to Seller Indemnitees on the
other hand, pursuant to Article V or this Article VIII, shall be made on a net
after-Tax basis, which net after-Tax basis shall be determined employing a
hypothetical present value calculation using the following assumptions: (i) the
applicable Tax rate is the highest marginal federal income tax rate applicable
to domestic corporations in effect, or reasonably expected to be in effect, when
the Tax benefit or Tax cost is recognized or incurred, (ii) any Tax benefit or
Tax cost relating to the indemnity payment or relating to the event giving rise
to the indemnity payment is recognized or incurred, as applicable, in the first
Taxable Period in which it can be recognized or incurred, (iii) an increase in
Tax basis that does not give rise to a Tax amortization or depreciation
deduction shall not be considered a Tax benefit for purposes of the hypothetical
present value calculation, and (iv) the present value of any future Tax benefit
or future Tax cost is determined based on the Discount Rate.

 

(c)                                  Once a Loss is agreed in writing by the
Indemnifying Party, or finally adjudicated to be payable pursuant to this
Article VIII, the Indemnifying Party shall satisfy its obligations within five
Business Days of such agreement or such final adjudication by wire transfer of
immediately available funds to an account designated by the Indemnified Party. 
The parties hereto agree that should an Indemnifying Party not make full payment
of any such obligations within such five Business Day-period, any amount payable
shall be increased by the interest on such amount, compounded daily (based on a
365 day year), at the Interest Rate from and including the date of agreement of
the Indemnifying Party or final adjudication or determination to and including
the date of payment.

 

Section 8.6                                      Third Party Claim Procedures.

 

(a)                                  In the event that any Litigation for which
an indemnifying party (an “Indemnifying Party”) may have liability hereunder to
a Buyer Indemnitee or a Seller Indemnitee, as the case may be (an “Indemnified
Party”), other than any such Litigation relating to Taxes (which are the subject
of Section 5.4), is asserted against or sought to be collected from any
Indemnified Party by a third party (a “Third Party Claim”), such Indemnified
Party shall reasonably promptly, but in no event more than 20 Business Days
following such Indemnified Party’s receipt of a Third Party Claim, notify the
Indemnifying Party in writing of such Third Party Claim describing in reasonable
detail the facts and circumstances with respect to the subject matter of such
Third Party Claim, the amount or the estimated amount of damages sought
thereunder to the extent then ascertainable (which estimate shall not be
conclusive of the final amount of such Third Party Claim), any other remedy
sought thereunder, any relevant time constraints relating thereto, the basis for
which indemnification is sought and copies of the relevant documents evidencing
such Third Party Claim (a “Claim Notice”); provided, however,

 

102

--------------------------------------------------------------------------------

 

that the failure timely to give a Claim Notice shall not relieve the
Indemnifying Party of its indemnification obligation under this Agreement with
respect to such Third Party Claim except to the extent that such failure has a
prejudicial effect on the Indemnifying Party with respect to such Third Party
Claim (except that the Indemnifying Party shall not be liable for any expenses
incurred during the period in which the Indemnified Party failed to provide such
notice).  Thereafter, the Indemnified Party shall deliver to the Indemnifying
Party, as soon as reasonably practicable following the Indemnified Party’s
receipt thereof, copies of all notices, court papers and other relevant
documents received by the Indemnified Party relating to the Third Party Claim. 
The Indemnifying Party shall have 20 Business Days (or such lesser number of
days set forth in the Claim Notice as may be required by court proceeding in the
event of a litigated matter) after receipt of the Claim Notice (the “Notice
Period”) to notify the Indemnified Party that it desires to defend the
Indemnified Party against such Third Party Claim unless the Indemnified Party
has notified the Indemnifying Party in the Claim Notice that it has determined
in good faith that there is a reasonable probability that such Third Party Claim
may result in injunctive or other nonmonetary relief against the Indemnified
Party or any of its Affiliates, in which case the Indemnifying Party shall not
have any rights to defend the Indemnified Party against such Third Party Claim
and the Indemnified Party shall assume such defense at the Indemnifying Party’s
expense.

 

(b)                                 In the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against a Third Party Claim, the Indemnifying Party
shall have the right to defend the Indemnified Party by appropriate proceedings
and shall have the sole power to direct and control such defense at its expense,
with counsel reasonably satisfactory to the Indemnified Party; provided that the
Indemnifying Party shall so direct and control the defense of any Special
Litigation.  Once the Indemnifying Party has duly assumed the defense of a Third
Party Claim, the Indemnified Party shall have the right, but not the obligation,
to participate in any such defense and to employ separate counsel of its
choosing.  The Indemnified Party shall participate in any such defense at its
expense; provided, however, that if (i) the Indemnifying Party and the
Indemnified Party are both named parties to the proceedings and the Indemnified
Party shall have reasonably concluded that representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them, (ii) the Indemnified Party assumes the defense of a
Third Party Claim after the Indemnifying Party has failed to diligently pursue a
Third Party Claim it has assumed, as provided in the first sentence of clause
(c) of this Section 8.6, or (iii) the Indemnifying Party is not entitled to a
legal defense or counterclaim available to the Indemnified Party, then the
Indemnifying Party shall be liable for the reasonable fees and expenses of one
outside counsel to the Indemnified Party in each jurisdiction for which the
Indemnified Party reasonably determines counsel is required.  The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party,
settle, compromise or offer to settle or compromise any Third Party

 

103

--------------------------------------------------------------------------------

 

Claim on a basis that would result in (A) injunctive or other nonmonetary relief
against the Indemnified Party or any of its Affiliates, including the imposition
of a consent order, injunction or decree that would restrict the future activity
or conduct of the Indemnified Party or any of its Affiliates, (B) a finding or
admission of a violation of Law or violation of the rights of any Person by the
Indemnified Party or any of its Affiliates or (C) any monetary liability of the
Indemnified Party that will not be promptly paid or reimbursed by the
Indemnifying Party.  Whether or not the Indemnifying Party assumes the defense
of a Third Party Claim, the Indemnified Party shall not, without the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, conditioned or delayed, settle, compromise or offer to
settle or compromise any Third Party Claim.

 

(c)                                  If the Indemnifying Party (i) elects not to
defend the Indemnified Party against a Third Party Claim, whether by not giving
the Indemnified Party timely notice of its desire to so defend or otherwise,
(ii) is not entitled to defend the Third Party Claim pursuant to clause (a) of
this Section 8.6 or (iii) after assuming the defense of a Third Party Claim,
fails to take reasonable steps necessary to defend diligently such Third Party
Claim within 10 Business Days after receiving written notice from the
Indemnified Party to the effect that the Indemnifying Party has so failed, the
Indemnified Party shall have the right, at all times, but not the obligation to
assume its own defense and the Indemnifying Party shall have the right, but not
the obligation, to participate in any such defense and to employ separate
counsel of its choosing at its own expense.  In no event shall the Indemnified
Party’s right to indemnification for a Third Party Claim be adversely affected
by its assumption of the defense of such Third Party Claim.

 

(d)                                 The Indemnified Party and the Indemnifying
Party shall cooperate in order to ensure the proper and adequate defense of a
Third Party Claim, including by providing access to each other’s relevant
business records and other documents, and employees; it being understood that
such cooperation shall not affect the indemnifiability hereunder of the costs
and expenses of the Indemnified Party relating thereto.  The Indemnifying Party
shall keep the Indemnified Party reasonably apprised of any significant
developments relating to any Third Party Claim of which the Indemnifying Party
has assumed the defense, including any proposed compromise, settlement or appeal
with respect thereto.

 

(e)                                  The Indemnified Party and the Indemnifying
Party shall use their reasonable best efforts to avoid production of
confidential information (consistent with applicable Law), and to cause all
communications among employees, counsel and others representing any party to a
Third Party Claim to be made so as to preserve any applicable attorney-client or
work-product privileges.

 

104

--------------------------------------------------------------------------------

 

Section 8.7                                      Direct Claims.  If an
Indemnified Party wishes to make a claim for indemnification hereunder for a
Loss that does not result from a Third Party Claim (a “Direct Claim”), the
Indemnified Party shall notify the Indemnifying Party in writing of such Direct
Claim describing in reasonable detail the facts and circumstances with respect
to the subject matter of such Direct Claim, the amount or the estimated amount
of damages sought thereunder to the extent then ascertainable (which estimate
shall not be conclusive of the final amount of such Direct Claim), any other
remedy sought thereunder, any relevant time constraints relating thereto, the
basis for which indemnification is sought and copies of the relevant documents
evidencing such Direct Claim; provided, however, that the failure to give such
notice on a timely basis shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement with respect to such Direct
Claim except to the extent that such failure results in a lack of actual notice
to the Indemnifying Party and has a prejudicial effect on the Indemnifying Party
with respect to such Direct Claim.  The Indemnifying Party shall have a period
of 30 days within which to respond to such Direct Claim.  If the Indemnifying
Party does not respond within such 30-day period, the Indemnifying Party will be
deemed to have accepted the Direct Claim.  If the Indemnifying Party rejects all
or any part of the Direct Claim, the Indemnified Party shall be free to seek
enforcement of its rights to indemnification under this Agreement with respect
to such Direct Claim.

 

ARTICLE IX
DEFINITIONS

 

Section 9.1                                      Certain Terms.  The following
terms have the respective meanings given to them below:

 

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, as the same may be amended from time to
time.

 

“Acquisition Proposal” means, other than the transactions contemplated by this
Agreement, any Third Party offer, proposal or inquiry relating to, or any Third
Party indication of interest in, any acquisition or purchase, direct or
indirect, whether by way of asset purchase, stock purchase, merger,
consolidation, share exchange, business combination or otherwise, of any Shares
or any material assets of the Transferred Companies (other than sales of
inventory in the ordinary course of business, consistent with past practice).

 

“Affiliate,” with respect to any Person, means any Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such first Person.  For purposes of this
definition, “control,” when used with respect to any Person, means the power to
direct the management and policies

 

105

--------------------------------------------------------------------------------

 

of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlling” and
“controlled” have the meanings correlative to the foregoing.

 

“Affiliate Transaction” has the meaning set forth in Section 2.30(b).

 

“AFI” has the meaning set forth in the Recitals.

 

“AFI 2009 PUP” has the meaning set forth in Section 4.19(c)(i)(C).

 

“AFI 2010 PUP” has the meaning set forth in Section 4.19(c)(i)(D).

 

“AFI Closing Date Tangible Book Value” means the (a) the stockholders’ equity of
AFI and the AFI Transferred Subsidiaries minus (b) goodwill and identifiable
intangibles, in each of the cases of clauses (a) and (b), as of the Closing
Balance Sheet Date as shown on the Closing Balance Sheet.

 

“AFI Consolidated Group” means the affiliated group, within the meaning of
Section 1504 of the Code, of which AFI is the common parent.

 

“AFI Partners” has the meaning set forth in Section 4.25(a)(i).

 

“AFI Shares” has the meaning set forth in the Recitals.

 

“AFI Transferred Subsidiaries” has the meaning set forth in the Recitals.

 

“After-Acquired Business” has the meaning set forth in Section 4.11(b).

 

“Aggregate LTIP Unit Amount” has the meaning set forth in Section 4.19(c)(viii).

 

“Agreement” has the meaning set forth in the Preamble.

 

“ALAE” has the meaning set forth in Section 4.26(d).

 

“A.M. Best” has the meaning set forth in Section 2.32.

 

“Ancillary Agreements” means the Parent Guaranty, the Commutation Agreement, the
reinsurance trust agreement contemplated by Section 4.29 and, if required to be
executed and delivered pursuant to Section 4.28, the Hold Harmless Agreement and
any other agreement, if any, between the parties that is identified therein as
an Ancillary Agreement.

 

“Applicable Accounting Principles” has the meaning set forth in Section 1.4(b).

 

“Applicable Settlement Date” has the meaning set forth in Section 4.26(b).

 

106

--------------------------------------------------------------------------------

 

“ASC 740” means GAAP Accounting Standards Codification Topic 740.

 

“Assets” has the meaning set forth in Section 2.10(a).

 

“Audit” has the meaning set forth in Section 2.18(g).

 

“Balance Sheet Date” has the meaning set forth in Section 2.6(a).

 

“Benefited Party” has the meaning set forth in Section 5.1(c)(ii).

 

“Books and Records” means all written or electronic accounts, ledgers and
records (including computer generated, recorded or stored records) relating to
the business of the Transferred Companies, including customer lists, contract
forms, applications, enrollment forms, policy information, policyholder
information, claim records, sales records, underwriting records, administrative,
pricing, underwriting, claims handling and reserving manuals, corporate and
accounting and other records (including the books of account and other records),
Tax records (including Tax Returns), disclosure and other documents and filings
required under applicable Law, financial records, and compliance records
relating to the business of the Transferred Companies, including any database,
magnetic or optical media and any other form of recorded, computer generated or
stored information or process relating to the operations of the Transferred
Companies; provided, however, that Books and Records does not include the
physical copies of financial and operational reports provided to Parent in the
ordinary course of business.

 

“Branded Buyer Items” has the meaning set forth in Section 4.17(c).

 

“Branded Seller Items” has the meaning set forth in Section 4.17(d).

 

“Burdensome Condition” has the meaning set forth in Section 4.7(b).

 

“Business” means the business and operations of the Transferred Companies as
conducted as of the date hereof and at any time between the date hereof and the
Closing.  For the avoidance of doubt, Business does not include the business and
operations of, or relating to, GHI and its Subsidiaries.

 

“Business Day” means any day, other than a Saturday or a Sunday, on which
commercial banks in New York, New York, are open for normal banking business.

 

“Buyer” has the meaning set forth in the Preamble.

 

“Buyer Extra Contractual Obligations” means all Liabilities that relate to the
administration of Insurance Contracts, to the extent such Liabilities are caused
by any alleged or actual reckless conduct or bad faith by any Transferred
Company or any of its Affiliates or any of its or their directors, officers,
employees, agents or representatives on or after the Closing in connection with
the handling of any claim arising out of or under

 

107

--------------------------------------------------------------------------------

 

any of the Insurance Contracts issued by any of the Transferred Companies or
assumed by them after the Closing.

 

“Buyer Excess of Policy Limits Liabilities” means loss in excess of the policy
limit of an Insurance Contract included in the Subject Business to the extent
arising from the handling by Buyer, an Insurance Subsidiary or any of their
Affiliates on or after the Closing of any claim on business covered thereunder,
such loss in excess of policy limits having been incurred because of the
following:  failure by Buyer, an Insurance Subsidiary or such Affiliates to
settle within the policy limit or by reason of alleged or actual gross
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such
action.

 

“Buyer Indemnitees” has the meaning set forth in Section 8.2.

 

“Buyer Material Adverse Effect” means a material adverse effect on the ability
of Buyer to consummate the transactions contemplated hereby.

 

“Buyer Party” means Buyer or any Affiliate of Buyer that is a party to any
Ancillary Agreement.

 

“Cap” has the meaning set forth in Section 8.4(a)(iii).

 

“Carrier Contract” has the meaning specified in Section 2.9(a)(vii).

 

“Carrier Partners” has the meaning set forth in Section 4.25(a)(ii).

 

“Carrier Status Change Compensation” has the meaning set forth in Section
4.25(b).

 

“Claim Notice” has the meaning set forth in Section 8.6(a).

 

“Claims” has the meaning set forth in Section 4.26(g).

 

“Closing” has the meaning set forth in Section 1.2.

 

“Closing Balance Sheet” has the meaning set forth in Section 1.4(c)(i).

 

“Closing Balance Sheet Auditors” has the meaning set forth in Section 1.4(c).

 

“Closing Balance Sheet Date” has the meaning set forth in Section 1.4(a).

 

“Closing Date” has the meaning set forth in Section 1.2.

 

108

--------------------------------------------------------------------------------

 

“Closing Date Tangible Book Value” means (a) the stockholders’ equity of the
Transferred Companies minus (b) goodwill and identifiable intangibles, in each
of the cases of clauses (a) and (b), as of the Closing Balance Sheet Date as
shown on the Closing Balance Sheet.

 

“Closing Reserves” has the meaning set forth in Section 4.26(f).

 

“Closing Statement” has the meaning set forth in Section 1.4(c).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commutation Agreement” has the meaning set forth in Section 4.16.

 

“Companies” has the meaning set forth in the Recitals.

 

“Companies Marks” has the meaning set forth in Section 4.17(d).

 

“Company Benefit Plans” means each employee benefit plan, scheme, program,
policy, practice, arrangement or contract providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind (including, but not limited to, any “employee benefit plan,” as
defined in Section 3(3) of ERISA, whether or not subject to ERISA, any bonus,
deferred compensation, stock bonus, stock purchase, restricted stock, stock
option or other equity-based arrangement, and any employment, consulting,
termination, retention, change in control or severance plan, program, policy,
arrangement or contract), whether written or unwritten, funded or unfunded, in
each case, sponsored, maintained, contributed to or required to be contributed
to by the Transferred Companies for the benefit of any Employee or with respect
to which any of the Transferred Companies is a party or has or may have any
Liability, other than the Employment Agreements, the Seller Pension Plan and the
Deferred Compensation Plan listed in Section 2.5(e) of the Seller Disclosure
Letter.

 

“Company Securities” has the meaning set forth in Section 2.4(b).

 

“Competing After-Acquired Revenues” has the meaning set forth in Section
4.11(b).

 

“Competing Business” has the meaning set forth in Section 4.11(a).

 

“Confidentiality Agreement” means the confidentiality agreement between Buyer
and Parent dated September 20, 2010.

 

“Consumer Privacy Information” has the meaning set forth in Section 2.11(f).

 

109

--------------------------------------------------------------------------------

 

“Contract” means any contract, agreement, indenture, note, bond, loan, lease,
conditional sale contract, purchase or sales order, mortgage, license or other
enforceable arrangement or agreement.

 

“Covered Executives” means, collectively, the Tier One Executive, the Tier Two
Executives, and the eight other individuals identified on a list captioned
“Covered Executives” agreed upon by the parties by exchange of emails on or
prior to the date hereof.

 

“Data” has the meaning set forth in Section 2.11(e).

 

“Deductible” has the meaning set forth in Section 8.4(a)(ii).

 

“Deferred Plans” has the meaning set forth in Section 4.19(c)(vi).

 

“De Minimis Amount” has the meaning set forth in Section 8.4(a)(i).

 

“Designated Employees” means the individuals identified on a list captioned
“Designated Employees” agreed upon by the parties by exchange of emails on or
prior to the date hereof.

 

“Direct Claim” has the meaning set forth in Section 8.7.

 

“Discount Rate” means 6%, compounded annually.

 

“Disputed Item” has the meaning set forth in Section 1.4(d).

 

“Dispute Notice” has the meaning set forth in Section 1.4(d).

 

“ECO Losses” has the meaning set forth in Section 8.2(e).

 

“EHI” has the meaning set forth in the Recitals.

 

“EHI 2009 PUP” has the meaning set forth in Section 4.19(c)(i)(A).

 

“EHI 2010 PUP” has the meaning set forth in Section 4.19(c)(i)(B).

 

“EHI Business” means (a) the marketing, underwriting, sale, distribution or
servicing by EHI or its Subsidiaries of private passenger automobile insurance
policies for customers in the United States and (b) the marketing, sale (not
underwriting) or distribution by EHI or its Subsidiaries of other personal lines
insurance policies and life and health insurance policies to customers of EHI
and its Subsidiaries in the United States, in each case, on or after (i)
February 21, 2002, in the case of EIC, (ii) April 4, 2002, in the case of EPCIC,
and (iii) August 9, 2007, in the case of EICNJ.

 

110

--------------------------------------------------------------------------------

 

“EHI WM PSP” has the meaning set forth in Section 4.19(c)(v).

 

“EIC” has the meaning set forth in the Recitals.

 

“EICNJ” has the meaning set forth in the Recitals.

 

“EISI” has the meaning set forth in the Recitals.

 

“Electronic Data Site” means (a) the virtual data site established and
maintained by Seller and its representatives at http://datasite.merrillcorp.com/
in connection with the transactions contemplated by this Agreement and the
Ancillary Agreements to which access was provided to Buyer and its
representatives and (b) the intranet data site maintained by the Transferred
Companies covering benefit plan information to which access was provided to
Buyer and its representatives.

 

“Employee” means any current or former employee of the Transferred Companies,
including any such person who is absent from employment due to illness,
vacation, injury, military service or other authorized absence (including an
employee who is “disabled” within the meaning of the short-term disability plan
currently in place for the applicable employer or who is on approved leave under
the Family and Medical Leave Act of 1993, as amended).

 

“Employee Restrictive Agreements” has the meaning set forth in Section 2.11(d).

 

“Employment Agreements” means the employment agreements entered into as of the
date hereof between each of the Covered Executives and a Transferred Company.

 

“End Date” has the meaning set forth in Section 7.1(b)(i).

 

“Enforceability Exception” means (a) the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors’ rights and remedies generally and (b) the effect of equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at law).

 

“Environmental Law” means any foreign, federal, state or local law, treaty,
statute, rule, regulation, order, ordinance, decree, injunction, judgment,
governmental restriction or any other requirement of law regulating or relating
to the protection of human health, natural resources or the environment,
including laws relating to environmental contamination.

 

“Environmental Permit” means any permit, license, authorization or consent
required pursuant to applicable Environmental Laws.

 

“EPCIC” has the meaning set forth in the Recitals.

 

111

--------------------------------------------------------------------------------

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” means any corporation that is or was part of the same
controlled group of corporations with any Transferred Company within the meaning
of Section 414(b) of the Code, any trade or business (whether or not
incorporated) that is or was under common control with any Transferred Company
within the meaning of Section 414(c) of the Code, and any other entity that is
or was, together with any Transferred Company, a “single employer” under Section
414(m) or (o) of the Code.

 

“Estimated Closing Date Tangible Book Value” has the meaning set forth in
Section 1.4(b).

 

“Estimated Closing Statement” has the meaning set forth in Section 1.4(b).

 

“Excess of Policy Liabilities” means Buyer Excess of Policy Limits Liabilities
and Seller Excess of Policy Limits Liabilities, collectively.

 

“Excluded Assets” means any interest of any kind in GHI or any of its
Subsidiaries or any of its or their respective properties, Contracts or other
assets, which properties, Contracts or other assets are not used or held for use
in the Business.

 

“Excluded Tax” has the meaning set forth in Section 5.1(a).

 

“Exclusivity Period” has the meaning set forth in Section 4.3.

 

“Extra Contractual Obligations” means Buyer Extra Contractual Obligations and
Seller Extra Contractual Obligations, collectively.

 

“Final Settlement Date” has the meaning set forth in Section 4.26(a).

 

“First Interim Settlement Date” has the meaning set forth in Section 4.26(a).

 

“GAAP” has the meaning set forth in Section 2.6(a).

 

“GAAP Financial Statements” has the meaning set forth in Section 2.6(a).

 

“GHI” has the meaning set forth in Section 2.5(d).

 

“Governmental Approval” has the meaning set forth in Section 2.2(b).

 

“Governmental Authority” means any federal, state, local or foreign government
or any court of competent jurisdiction, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign.

 

112

--------------------------------------------------------------------------------

 

“Hazardous Substances” means: (a) asbestos, urea formaldehyde insulation,
polychlorinated biphenyls, petroleum or petroleum products, radon gas,
microbiological contamination or related materials, (b) or any substance that
requires investigation or remedial action pursuant to any Environmental Law, or
is defined, listed or identified as a “hazardous waste,” “hazardous substance,”
“toxic substance” or words of similar import thereunder, or (c) is regulated
under any Environmental Law.

 

“Hold Harmless Agreement” has the meaning set forth in Section 4.28.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.

 

“IAC” has the meaning set forth in the Recitals.

 

“IBNR” has the meaning set forth in Section 4.26(c).

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all
obligations of such Person for borrowed money, or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid (other than trade payables
incurred in the ordinary course of business consistent with past practices), (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to any property purchased by such Person, (e) all
obligations of such Person incurred or assumed as the deferred purchase price of
property or services (excluding obligations of such Person to creditors for raw
materials, inventory, services and supplies incurred in the ordinary course of
business consistent with past practices), (f) all lease obligations of such
Person capitalized on the books and records of such Person, (g) all obligations
of others secured by a Lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (h)
all obligations of such Person under interest rate, currency or commodity
derivatives or hedging transactions, (i) all letters of credit or performance
bonds issued for the account of such Person (excluding (i) letters of credit
issued for the benefit of suppliers to support accounts payable to suppliers
incurred in the ordinary course of business consistent with past practices, (ii)
standby letters of credit relating to workers’ compensation insurance and (iii)
surety bonds and customs bonds) and (j) all guaranties and arrangements having
the economic effect of a guaranty by such Person of any Indebtedness of any
other Person.

 

“Indemnified Party” has the meaning set forth in Section 8.6(a).

 

“Indemnifying Party” has the meaning set forth in Section 8.6(a).

 

“Independent Accountant” has the meaning set forth in Section 1.4(f).

 

113

--------------------------------------------------------------------------------

 

“Independent Actuary” has the meaning set forth in Section 4.26(e).

 

“Indicated ALAE Reserve Amount” has the meaning set forth in Section 4.26(d).

 

“Indicated Loss Reserve Amount” has the meaning set forth in Section 4.26(c).

 

“Indicated Reserve Amount” has the meaning set forth in Section 4.26(a).

 

“Insurance Agreement” means (a) any reinsurance or retrocession Contract between
Parent or any of its Affiliates (other than any Transferred Company), on the one
hand, and any Transferred Company, on the other hand, (b) any insurance policies
purchased or obtained by any Transferred Company from Parent or any of its
Affiliates (other than any Transferred Company), which policy solely provides
coverage to any Transferred Company, and (c) any other Contracts entered into in
connection with any Contract or policy contemplated by clauses (a) or (b) of
this definition.

 

“Insurance Contract” means any all insurance Contracts, binders, slips,
certificates, endorsements, riders, treaties, policies, products or other
arrangements, other than the Reinsurance Agreements, sold, issued, entered into,
serviced or administered by any of the Insurance Subsidiaries, EISI or IAC in
connection with the Business, in each case as such Contract, binder, slip,
certificate, endorsement, rider, treaty, policy, product or other arrangement
may have been amended, modified or supplemented.

 

“Insurance Regulator” means any insurance supervisory department or officials
having jurisdiction over any part of the operations, business, assets,
liabilities, products and services of the Companies or any of the Insurance
Subsidiaries.

 

“Insurance Reserves” means any reserves, funds or provisions for losses, claims,
premiums, loss and loss adjustment expenses (including reserves for incurred but
not reported losses and loss adjustment expenses) and other Liabilities in
respect of the insurance contracts issued by the Insurance Subsidiaries.

 

“Insurance Subsidiaries” has the meaning set forth in the Recitals.

 

“Intellectual Property” means (a) patents, patent applications and statutory
invention registrations, including reissues, divisions, continuations,
continuations in part, renewals, reissues, extensions and reexaminations of any
of the foregoing, all patents that may issue on such applications, and all
rights therein provided by applicable local Law, international treaties or
conventions (“Patents”), (b) trademarks, service marks, trade dress, logos,
designs, emblems, slogans, signs or insignia, Internet domain names, other
similar designations of source, any and all common law rights thereto, and
registrations and applications for registration of any of the foregoing
(including intent-to-use applications), all rights therein provided by
applicable local Law, international treaties or conventions and all reissues,
extensions and renewals of any of the foregoing together

 

114

--------------------------------------------------------------------------------

 

with the goodwill symbolized by or associated with any of the foregoing
(“Trademarks”), (c) copyrightable works and works of authorship (including
Software (in any form including source code and executable or object code)),
copyrights, whether or not registered, moral rights, rights of attribution and
integrity and registrations and applications for registration of any of the
foregoing, and all rights therein provided by applicable local Law,
international treaties or conventions (“Copyrights”), (d) Trade Secrets, (e)
Data, databases and datasets, (f) rights of privacy and publicity and (g) the
right to sue for past infringement of any of the foregoing.

 

“Intercompany Agreement” means any Contract between any of the Transferred
Companies, on the one hand, and Seller or any of its Affiliates (other than the
Transferred Companies), on the other hand.

 

“Intercompany Obligation” means any loan, note, advance, receivable or payable
between Seller or any of its Affiliates (other than the Transferred Companies),
on the one hand, and any of the Transferred Companies, on the other hand.

 

“Interest Rate” means an interest rate per annum equal to the average of the
three month LIBOR for United States dollars that appears on page LIBOR 01 (or a
successor page) of the Reuters Telerate Screen as of 11:00 a.m. (London time) on
each day during the period for which interest is to be paid.

 

“Investment Assets” means any investment assets (whether or not required by GAAP
or SAP to be reflected on a balance sheet) beneficially owned (within the
meaning of Rule 13d-3 under the 1934 Act) by any Transferred Company, including
bonds, notes, debentures, mortgage loans, real estate and all other instruments
of Indebtedness, stocks, partnership or joint venture interests and all other
equity interests, certificates issued by or interests in trusts, derivatives and
all other assets acquired for investment purposes.

 

“Investment Guidelines” has the meaning set forth in Section 2.27(c).

 

“IP License” has the meaning set forth in Section 2.11(b).

 

“IRS” means the Internal Revenue Service.

 

“Key Employee” means, at any applicable time, an employee or officer of a
Transferred Company holding the title of “vice president” or senior at a
Transferred Company.

 

“Knowledge” means, with respect to Seller, the knowledge after reasonable
inquiry of the individuals listed in Schedule 9.1(a).

 

“Laws” has the meaning set forth in Section 2.13(a).

 

“Leased Real Property” has the meaning set forth in Section 2.10(d).

 

115

--------------------------------------------------------------------------------

 

“Leases” has the meaning set forth in Section 2.10(d).

 

“Liability” means any and all liabilities, obligations, debts and commitments of
any kind, character or description, whether known or unknown, asserted or not
asserted, absolute or contingent, fixed or unfixed, matured or unmatured,
accrued or unaccrued, disputed or undisputed, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due, vested or
unvested, executory, determined, determinable or otherwise, whenever or however
incurred or arising (including whether arising out of any contract or tort based
on negligence or strict liability) and whether or not the same would be required
by GAAP or SAP to be reflected in financial statements or disclosed in the notes
thereto.

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest, lease, encumbrance or other adverse claim of any kind
in respect of such property or asset.

 

“Litigation” means any action, cause of action, claim, cease and desist letter,
demand, suit, arbitration proceeding, citation, summons, subpoena or
investigation of any nature, civil, criminal, regulatory or otherwise, in law or
in equity.

 

“Losses” has the meaning set forth in Section 8.2.

 

“Loss Expiration” means the amount, if any, of the Minimum WMI Losses or Minimum
AFI Losses set forth in Section 5.1(a)(v) of the Seller Disclosure Letter that
expire (other than as a result of a change in Law after the Closing) in any
Taxable Period prior to the number of Taxable Periods before expiration set
forth on the Seller Disclosure Letter with respect to such Minimum WMI Losses or
Minimum AFI Losses. For purposes of this definition, the amounts of Minimum WMI
Losses or Minimum AFI Losses, as applicable, attributable to the Taxable Periods
of 2010 and the portion of 2011 ending on or prior to the Closing Date shall be
determined using the amounts of net operating losses for U.S. federal income tax
purposes for such Taxable Periods as reflected in the Closing Statement (as
finalized pursuant to clauses (d), (e) or (f) of Section 1.4) with respect to
WMI and the WMI Transferred Subsidiaries and AFI and the AFI Transferred
Subsidiaries, as applicable.

 

“Loss Limitation” means any limitation on the Minimum WMI Losses or the Minimum
AFI Losses under Section 382 of the Code or the Treasury Regulations issued
thereunder or issued under Section 1502 of the Code and relating to Section 382
of the Code, as of the end of the Closing Date based on the Laws in effect as of
the Closing Date and taking into account all activity through the Closing other
than the purchase and sale of the Shares.

 

“Loss Overstatement” means the amount, if any, by which (a) the Minimum WMI
Losses exceed the actual amount of the net operating losses and net operating
loss

 

116

--------------------------------------------------------------------------------

 

carryforwards of the WMI Consolidated Group or (b) the Minimum AFI Losses exceed
the actual amount of the net operating losses and net operating loss
carryforwards of the AFI Consolidated Group, in each case, as of the end of the
Closing Date based on the Laws in effect as of the Closing Date and taking into
account (i) all activity through the end of the day on the Closing Date and (ii)
any allocation of any net operating losses or net operating loss carryforwards
under the Treasury Regulations issued under Section 1502 of the Code to any
entity that ceases to be a member of the WMI Consolidated Group or the AFI
Consolidated Group on or before the Closing Date.

 

“LTIP Amounts” has the meaning set forth in Section 4.19(c)(i).

 

“LTIP Employee” means, at any applicable time, any employee or officer of a
Transferred Company who participates in a long-term incentive plan of Parent or
any of its Subsidiaries; provided that the “LTIP Employees”, at any applicable
time, shall in all cases include all Key Employees at such applicable time
(whether or not they participate in a long-term incentive plan of Parent or any
of its Subsidiaries).

 

“LTIP Plans” has the meaning set forth in Section 4.19(c)(i).

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
operations, condition (financial or otherwise) or results of operations of the
Transferred Companies, taken as a whole or (b) the ability of Seller to
consummate the transactions contemplated hereby, but excluding, in the case of
clause (a), any effect resulting after the date hereof from (i) any change,
development, event or occurrence arising out of or relating to general economic
or market conditions, (ii) any change, development, event or occurrence
affecting the property and casualty insurance or reinsurance industry generally,
(iii) changes in applicable Law, GAAP or SAP, (iv) any change, development,
event or occurrence arising out of or relating to natural catastrophe events,
acts of terrorism, war (whether or not declared) or other hostilities, (v) any
failure, in and of itself, of the Transferred Companies to meet any internal or
published projections, forecasts, estimates or predictions in respect of
revenues, earnings or other financial or operating metrics, or any downgrade or
potential downgrade of the credit or financial strength rating of any
Transferred Company by any rating agency (it being understood that the
underlying facts giving rise or contributing to such failure, change or
downgrade or potential downgrade and the other effects thereof shall not be
excluded pursuant to this clause (v)), (vi) the announcement of this Agreement
and the transactions contemplated hereby, including any loss of or change in
relationship with any customer or business partner (including any with respect
to any AFI Partner), or departure of any employee or officer, of any Transferred
Company resulting therefrom, (vii) the performance by the Seller Parties of
their obligations under the Transaction Agreements (other than any effect
resulting from (A) a violation or breach of any provision of the Organizational
Documents of any of the Seller Parties or the Transferred Companies, (B) any
conflict with or violation or breach of any provision of any applicable Law or
(C) the requirement of any consent of any Person under, any breach of, or any
default (or event which, with

 

117

--------------------------------------------------------------------------------

 

the giving of notice or lapse of time, or both, would constitute a default)
under, or the giving to any Person of any rights of termination, acceleration or
cancellation of, or creation of any Lien (other than Permitted Liens) on any of
the assets or properties of any of the Transferred Companies pursuant to, any
Contract to which any of the Transferred Companies is a party or by which any of
them or any of their respective properties or assets is bound or subject, in
each case, as a result of any such performance, action or failure to act) or any
action or failure to act on the part of Seller or any Transferred Company which
action or failure to act is expressly requested or consented to in writing by
Buyer, (viii) any condition or requirement imposed by any Governmental Authority
in connection with the granting or issuance of any Governmental Approval
required to be obtained pursuant to Section 4.7 that does not constitute a
Burdensome Condition, and (ix) any action on the part of Buyer or any of its
Affiliates other than as required by any Transaction Agreement, to the extent
that any such effect described in the preceding clauses (i) through (iv) does
not materially and disproportionately affect the Transferred Companies relative
to other Persons engaged in the industries in which the Transferred Companies
operate.

 

“Measurement Period” has the meaning set forth in Section 4.25(a)(iii).

 

“Minimum AFI Losses” means net operating losses and net operating loss
carryforwards for U.S. federal income tax purposes of the AFI Consolidated Group
in the aggregate amount of at least $181,000,000 consisting of those losses set
forth in the column under the heading “Total” in the chart under the heading
“AFG” in Section 5.1(a)(iv) of the Seller Disclosure Letter.

 

“Minimum WMI Losses” means the aggregate amount of net operating losses and net
operating loss carryforwards for U.S. federal income tax purposes that are
reflected in the gross federal Tax asset of the Transferred Companies on the
Closing Statement (as finalized pursuant to clauses (d), (e) or (f) of Section
1.4) with respect to WMI and the WMI Transferred Subsidiaries.

 

“Multi-User Software” means Software that is licensed to Seller or any Affiliate
of Seller (other than a Transferred Company) pursuant to a multi-unit or
multi-user license (including any enterprise-wide or multi-seat license and any
other license permitting installation or use of multiple copies or instances of
the Software) and is used by the Transferred Companies in the operation of the
Business.

 

“Non-Compete Period” has the meaning set forth in Section 4.11(a).

 

“Non-U.S. Indemnifiable Taxes” means any Taxes imposed by any Tax Authority of
any jurisdiction other than the United States or any political subdivision
thereof on any amount paid or payable (or treated for Tax purposes as paid or
payable) to any Person pursuant to or as contemplated by this Agreement or any
Ancillary Agreement, other than Taxes that would not be imposed but for a
present or former connection between such

 

118

--------------------------------------------------------------------------------

 

jurisdiction and such Person (including, without limitation, a connection
arising from such Person having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction but excluding any connection arising from
the entering into, exercise of any rights under, or performance of any
obligations under this Agreement or any Ancillary Agreement).

 

“Notice Period” has the meaning set forth in Section 8.6(a).

 

“OB Contracts” has the meaning set forth in Section 2.21(c).

 

“OBIC” has the meaning set forth in Section 2.21(c).

 

“OB Liabilities” has the meaning set forth in Section 2.21(c).

 

“Organizational Documents” means the articles of incorporation, certificate of
incorporation, charter, bylaws, articles of formation, certificate of formation,
operating agreement, certificate of limited partnership, partnership agreement,
and all other similar documents, instruments or certificates executed, adopted,
or filed in connection with the creation, formation or organization of a Person,
including any amendments thereto.

 

“Owned Intellectual Property” has the meaning set forth in Section 2.11(a).

 

“Parent” has the meaning set forth in the Recitals.

 

“Parent Group” means Parent and its Subsidiaries (other than the Transferred
Companies).

 

“Parent Guaranty” has the meaning set forth in the Recitals.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Permits” has the meaning set forth in Section 2.14(a).

 

“Permitted Liens” means (a) statutory Liens for Taxes and other governmental
charges and assessments that are not yet due and payable or that are being
contested in good faith by appropriate proceedings and for which accruals or
reserves have been established against the full amount of such Liability on the
Year End Balance Sheets, (b) statutory Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens arising in the ordinary course of
business, (c) easements, rights of way, zoning ordinances and other similar
encumbrances of record affecting real property, (d) Liens arising under
conditional sales contracts and equipment leases with third parties entered into
in the ordinary course of business, (e) statutory Liens in favor of lessors
arising in connection with any property leased to the Transferred Companies and
(f) other imperfections of title or encumbrances, if any, which do not
materially detract from the

 

119

--------------------------------------------------------------------------------

 

current value or materially interfere with the current use by the Transferred
Companies of the assets, properties or rights affected thereby and would not
reasonably be expected to have or result in a Material Adverse Effect.

 

“Person” means a natural person, corporation, partnership, limited liability
company, joint venture, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

 

“Policyholder Surplus” means, with respect to any Insurance Subsidiary, the
policyholder surplus of such Insurance Subsidiary determined in accordance with
SAP (as reflected in line 35 of the “Liabilities, Surplus and Other Funds” page
of the most recent Statutory Statement filed with the domiciliary Insurance
Regulator of such Insurance Subsidiary).

 

“Post-Closing Pro Rata Portion” means a fraction, the numerator of which is the
number of days after the Closing Date in the relevant performance cycle under
the relevant LTIP Plan or WM LTIP, and the denominator of which is the total
number of days in such performance cycle.

 

“Post-Closing Reserve Adjustment” has the meaning set forth in Section 4.26(f).

 

“Post-Closing Tax Period” means any Taxable Period beginning after the Closing
Date; and, with respect to a Straddle Period, the portion of such Straddle
Period beginning after the Closing Date.

 

“Pre-Closing Tax Period” means any Taxable Period ending on or before the
Closing Date; and, with respect to a Straddle Period, the portion of such
Straddle Period ending on and including the Closing Date.

 

“Proposed Estimated Closing Statement” has the meaning set forth in Section
1.4(b).

 

“Pro Rata Portion” means a fraction, the numerator of which is the number of
days in the relevant performance cycle under the LTIP Plan or with respect to
the Tier One Executive Performance Units, as applicable, through and including
the date of the Qualifying Termination Event, and the denominator of which is
the total number of days in the relevant performance cycle under the LTIP Plan
or with respect to the Tier One Executive Performance Units, as applicable.

 

“Purchase Price” has the meaning set forth in Section 1.1.

 

“Qualified Reps” means the representations and warranties set forth in Section
2.6(a) and (b), Section 2.7 and Section 2.9(a).

 

“Reference Date” has the meaning set forth in Section 4.26(a).

 

120

--------------------------------------------------------------------------------

 

“Registered Owned Intellectual Property” has the meaning set forth in
Section 2.11(a).

 

“Reinsurance Agreement” means any reinsurance or retrocessional treaty or
agreement to which any of the Insurance Subsidiaries is a party and (a) which is
in force as of the date hereof, (b) is terminated or expired as of the date
hereof but under which an Insurance Subsidiary or any of its Affiliates may
continue to receive benefits or have obligations or (c) is an assumption
reinsurance agreement.

 

“Release” means any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including, the moving
of any materials through, into or upon, any land, soil, surface water,
groundwater or air, or otherwise entering into the indoor or outdoor
environment.

 

“Reserve Dispute Notice” has the meaning set forth in Section 4.26(e).

 

“Reserve Report” has the meaning set forth in Section 4.26(a).

 

“Resolution Period” has the meaning set forth in Section 1.4(e).

 

“Restructuring” has the meaning set forth in Section 4.14.

 

“Sample Balance Sheet” has the meaning set forth in Section 1.4(b).

 

“SAP” means, with respect to any Insurance Subsidiary, the statutory accounting
practices prescribed or permitted by its domiciliary Insurance Regulator.

 

“Scheduled Investments” has the meaning set forth in Section 2.27(a).

 

“Second Interim Settlement Date” has the meaning set forth in Section 4.26(a).

 

“Securities Act” means the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

 

“Seller” has the meaning set forth in the Preamble.

 

“Seller Disclosure Letter” means the letter, dated as of the date hereof,
delivered by Seller to Buyer prior to the execution of this Agreement and
identified as the Seller Disclosure Letter.

 

“Seller Excess of Policy Limits Liabilities” means loss in excess of the policy
limit of an Insurance Contract included in the Subject Business to the extent
arising from the handling by Parent, Seller or its Subsidiaries prior to the
Closing of any claim on business covered thereunder, such loss in excess of
policy limits having been incurred

 

121

--------------------------------------------------------------------------------

 

because of the following:  failure by Parent, Seller or such Subsidiaries of
Seller to settle within the policy limit or by reason of alleged or actual gross
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such
action.

 

“Seller Extra Contractual Obligations” means all Liabilities that relate to the
administration of Insurance Contracts, to the extent such Liabilities are caused
by any alleged or actual reckless conduct or bad faith by any Transferred
Company or any of its Affiliates or any of its or their directors, officers,
employees, agents or representatives prior to the Closing in connection with the
handling of any claim arising out of or under any of the Insurance Contracts
issued by any of the Transferred Companies or assumed by them prior to the
Closing.

 

“Seller Guaranties” has the meaning set forth in Section 2.9(a)(xiv).

 

“Seller Indemnitees” has the meaning set forth in Section 8.3.

 

“Seller Marks” has the meaning set forth in Section 4.17(c).

 

“Seller Party” means Parent, Seller or any Affiliate of Seller which is a party
to any Ancillary Agreement.

 

“Seller Pension Plan” means the OneBeacon Insurance Pension Plan.

 

“Shares” has the meaning set forth in the Recitals.

 

“Software” means all computer software, including but not limited to,
application software, system software and firmware, including all source code
and object code versions thereof and all executables and utilities, in any and
all forms and media, and all related documentation.

 

“Special Cap” has the meaning set forth in Section 8.4(a).

 

“Special Litigation” means any Litigation described in a list captioned “Special
Litigation Matters” and agreed upon by the parties by exchange of emails on or
prior to the date hereof.

 

“Special Litigation Losses” has the meaning set forth in Section 8.2(d).

 

“Specified Carrier Contract” has the meaning set forth in Section 4.25(a)(iv).

 

“SRLY Limitation” means any limitation (other than a Loss Limitation),
determined on a loss by loss basis, on the Minimum WMI Losses or the Minimum AFI
Losses under (a) the separate return limitation year rules contained in the
Treasury

 

122

--------------------------------------------------------------------------------

 

Regulations issued under Section 1502 of the Code or (b) any other provision of
the Code or the Treasury Regulations issued thereunder, in each case based on
the Laws in effect as of the Closing Date and taking into account all activity
through the Closing other than the purchase and sale of the Shares.

 

“SSAP” means the Statement of Statutory Accounting Practices issued by the
National Association of Insurance Commissioners.

 

“Status Change” has the meaning set forth in Section 4.25(a)(v).

 

“Statutory Statements” has the meaning set forth in Section 2.6(b).

 

“Statutory Statement Value”, with respect to any Investment Asset held by an
Insurance Subsidiary, means the statutory statement value of such Investment
Asset as reflected on the most recent Statutory Statement filed with the
domiciliary Insurance Regulator of such Insurance Subsidiary.

 

“Straddle Period” means any Taxable Period that begins on or before the Closing
Date and ends after the Closing Date.

 

“Subject Business” has the meaning set forth in Section 4.26(b).

 

“Subsequent Audited GAAP Financial Statements” has the meaning set forth in
Section 4.5(b).

 

“Subsequent GAAP Financial Statements” has the meaning set forth in
Section 4.5(b).

 

“Subsidiary” of any Person means any corporation, general or limited
partnership, joint venture, limited liability company, limited liability
partnership or other Person that is a legal entity, trust or estate of which (or
in which) (a) the issued and outstanding securities or ownership interests of
such entity having ordinary voting power to elect a majority of the board of
directors (or a majority of another body performing similar functions) of such
corporation or other Person (irrespective of whether at the time securities or
ownership interests of any other class or classes of such corporation or other
Person shall or might have voting power upon the occurrence of any contingency),
(b) more than 50% of the interest in the capital or profits of such partnership,
joint venture or limited liability company or (c) more than 50% of the
beneficial interest in such trust or estate, is at the time of determination
directly or indirectly beneficially owned or controlled by 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 the meanings
correlative to the foregoing.

 

123

--------------------------------------------------------------------------------

 

“Tax” means (a) all taxes, charges, fees, duties, customs, tariffs, imposts,
payments in lieu, levies or other assessments or charges in the nature of a tax
or any other similar payment imposed by any Tax Authority, including, but not
limited to, income, license, recording, occupation, environmental, customs
duties, single business, margin, unemployment, disability, mortgage, inventory,
alternative or add-on minimum, profits, receipts, premium, excise, property,
sales, use, transfer, franchise, payroll, withholding, social security,
estimated or other taxes or any other similar item and (b) any interest,
penalty, fine or addition to any of the foregoing, whether disputed or not.

 

“Tax Accountant” has the meaning set forth in Section 5.3(e).

 

“Tax Asset” means any item or asset (whether deferred or current) relating to
Taxes, determined on an item by item and asset by asset basis, that is reflected
in the gross Tax asset of the Transferred Companies, or otherwise as an asset,
on the Closing Statement as finalized pursuant to clauses (d), (e) or (f) of
Section 1.4 other than any item or asset (whether deferred or current) (i) for
which a full valuation allowance has been established on the Closing Statement
as finalized pursuant to clauses (d), (e) or (f) of Section 1.4 or (ii) to the
extent not covered in clause (i), that is reflected in Minimum WMI Losses or
Minimum AFI Losses.

 

“Tax Asset Overstatement” means the amount, if any, by which (a) any Tax Asset
exceeds (b) the actual amount of any such item or asset as of the end of the
Closing Date based on the Laws in effect as of the Closing Date and taking into
account (i) all activity through the end of the day on the Closing Date and
(ii) any allocation of any item or asset under the Treasury Regulations issued
under Section 1502 of the Code (or any similar provision of state, local or
foreign Law) to any entity that is not a Transferred Company or that ceases to
be a member of the WMI Consolidated Group or the AFI Consolidated Group on or
before the end of the day on the Closing Date.

 

“Tax Authority” means any Governmental Authority having jurisdiction over the
assessment, determination, collection or imposition of any Tax.

 

“Tax Claim” has the meaning set forth in Section 5.4(a).

 

“Tax Claim Notice” has the meaning set forth in Section 5.4(a).

 

“Tax Contract” means any Contract or provision thereof under which any
Transferred Company may have an obligation to another party with respect to
Taxes.

 

“Tax Increase” has the meaning set forth in Section 5.1(c)(ii).

 

“Tax Reduction” has the meaning set forth in Section 5.1(c)(ii).

 

124

--------------------------------------------------------------------------------

 

“Tax Return” means any federal, state, local or foreign Tax report, return
(including information return), claim for refund, election, notice, estimated
Tax filing, declaration, statement, schedule, form, request or other document
(including any related or supporting information or any amendment to any of the
foregoing) supplied to, required to be filed with or required to be maintained
by any Tax Authority with respect to Taxes, including any return or filing made
on a consolidated, group, combined, unified or affiliated basis.

 

“Tax Sharing Agreement” has the meaning set forth in Section 2.18(o).

 

“Taxable Period” shall mean any taxable year or any other period that is treated
as a taxable year, with respect to which any Tax may be imposed under any
applicable statute, rule, or regulation.

 

“Third Party” means any Person as defined in this Agreement or in
Section 13(d) of the 1934 Act, other than Seller or any of its Affiliates.

 

“Third Party Claim” has the meaning set forth in Section 8.6(a).

 

“Third Party Consent” has the meaning set forth in Section 4.7(c).

 

“Tier One Executive” means the individual identified as such by the parties by
exchange of emails on or prior to the date hereof.

 

“Tier One Executive Performance Units” has the meaning set forth in
Section 4.19(c)(iii)(A).

 

“Tier One Unit Amounts” has the meaning set forth in Section 4.19(c)(iii)(A).

 

“Tier Two Executives” means the three individuals identified as such by the
parties by exchange of emails on or prior to the date hereof.

 

“Trade Secrets” means trade secrets and all other proprietary confidential
information, including customer lists, forms and types of financial, business,
scientific, technical, economic, or engineering information, discoveries or
know-how, including algorithms, apparatuses, patterns, plans, compilations,
devices, formulae, inventions, designs, prototypes, methods, techniques,
processes, inventions, procedures, programs or codes.

 

“Transaction Agreements” means, collectively, this Agreement and the Ancillary
Agreements.

 

“Transferred Companies” has the meaning set forth in the Recitals.

 

“Transferred Subsidiaries” has the meaning set forth in the Recitals.

 

125

--------------------------------------------------------------------------------

 

“Transferred Subsidiary Securities” has the meaning set forth in Section 2.5(b).

 

“Transfer Taxes” means any and all sales, use, stamp, documentary, filing,
recording, transfer, real estate, stock transfer, intangible property transfer,
personal property transfer, registration, securities transactions, conveyance
and notarial Taxes, and similar fees, Taxes and governmental charges (together
with any interest, penalty, addition to Tax, and additional amount imposed in
respect thereof).

 

“Treasury Regulation” means the regulations prescribed under the Code.

 

“ULAE” has the meaning set forth in Section 4.26(b).

 

“Unresolved Items” has the meaning set forth in Section 1.4(f).

 

“Unresolved Tax Items” has the meaning set forth in Section 5.7(g).

 

“WMI” has the meaning set forth in the Recitals.

 

“WMI Consolidated Group” means the affiliated group, within the meaning of
Section 1504 of the Code, of which WMI is the common parent.

 

“WMI Shares” has the meaning set forth in the Recitals.

 

“WMI Transferred Subsidiaries” has the meaning set forth in the Recitals.

 

“WM LTIP” has the meaning set forth in Section 4.19(c)(iii)(A).

 

“Year End Balance Sheets” means (a) the GAAP balance sheets as of December 31,
2010 included in the GAAP Financial Statements described in Section 2.6(a) and
(b) the unaudited statutory balance sheets as of December 31, 2010 included in
the annual statement of each of the Insurance Subsidiaries as filed with the
domiciliary Insurance Regulator of such Insurance Subsidiary, in each case, as
of and for the year ended December 31, 2010.

 

Section 9.2             Construction.  The words “hereby,” “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 words “party” or “parties” shall refer to parties to this
Agreement.  The headings and 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, Section, Exhibits and Schedules of this Agreement unless otherwise
specified.  All Exhibits, Schedules and Disclosure Letters 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 term used in any Exhibit or
Schedule or in the Seller

 

126

--------------------------------------------------------------------------------

 

Disclosure Letter but not otherwise defined therein shall have the meaning given
to such term 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.  The word “or”
when used in this Agreement is not exclusive.  The word “extent” in the phrase
“to the extent” shall mean the degree to which a subject or other thing extends,
and such phrase shall not mean simply “if”.  References to any agreement,
contract, instrument, statute, rule or regulation are to that agreement,
contract, instrument, statute, rule or regulation as amended, modified,
supplemented or replaced from time to time (and, in the case of statutes,
includes rules and regulations promulgated under said statutes).  References to
any Person include the successors and permitted assigns of that Person. 
References to “dollars” or “$” means lawful money of the United States of
America.  References from or through any date mean, unless otherwise specified,
from and including or through and including, respectively.  Any reference to
“days” means calendar days unless Business Days are expressly specified.  All
time periods within or following which any payment is to be made or act is to be
done shall be calculated by excluding the date on which the period commences and
including the date on which the period ends and by extending the period to the
first succeeding Business Day if the last day of the period is not a Business
Day.  The Transaction Agreements are to be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.  The Carrier Status Change
Compensation shall not be deemed to be an acknowledgement of the value of AFI
and its Subsidiaries.

 

ARTICLE X

MISCELLANEOUS

 

Section 10.1          Notices.  All notices, requests, demands, waivers and
other communications required or permitted to be given or made under this
Agreement shall be in writing and shall be deemed to have been duly given or
made if (a) delivered personally, (b) mailed by certified or registered mail
with postage prepaid, (c) sent by next-Business Day or overnight mail or
delivery, or (d) sent by facsimile or email with receipt confirmed (followed by
delivery of an original via next-Business Day or overnight mail or delivery), as
follows (or at such other address for a party as shall be specified by like
notice):

 

(i)            if to Buyer,

 

127

--------------------------------------------------------------------------------

 

The Allstate Corporation

2775 Sanders Road, Suite F8

Northbrook, Illinois 60062

Telephone:            (847) 402-8050

Fax:                         (847) 326-9772
Attention:              Chief Financial Officer

Email:                     Don.Civgin@allstate.com

 

with copies (which will not constitute notice) to:

 

The Allstate Corporation

2775 Sanders Road, Suite F7

Telephone:            (847) 402-7722

Fax:                         (847) 402-1904

Attention:              General Counsel

Email:                     Michele.Mayes@allstate.com

 

Dewey & LeBoeuf LLP

1301 Avenue of the Americas

New York, New York 10019

Telephone:            (212) 259-8000

Fax:                         (212) 259-6333

Attention:              John M. Schwolsky

Alexander M. Dye

Email:                     jschwolsky@dl.com

adye@dl.com

 

(ii)           if to Seller,

 

White Mountains Holdings (Luxembourg) S.à r.l.

5, rue Guillaume Kroll

R.C.S. Luxembourg: B 118.444

Telephone:

Fax:                         (+352) 48 18 28 3461

Attention:

Email:

 

with copies (which will not constitute notice) to:

 

White Mountains Insurance Group, Ltd.

14 Wesley Street, Fifth Floor

Hamilton HM 11

Bermuda

Telephone:            (441) 278-3160

 

128

--------------------------------------------------------------------------------

 

Fax:                         (441) 278-3170

Attention:              General Counsel

Email:                     rseelig@whitemountains.com

 

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, New York 10019-7475

Telephone:            (212) 474-1000

Fax:                         (212) 474-3700

Attention:              Philip A. Gelston

Erik R. Tavzel

Email:                     pgelston@cravath.com

etavzel@cravath.com

 

All such notices, requests, demands, waivers and other communications will be
deemed to have been received (A) if by personal delivery, on the day of such
delivery, (B) if by certified or registered mail, on the fifth Business Day
after the mailing thereof, (C) if by next-Business Day or overnight mail or
delivery, on the day delivered or (D) if by fax or email prior to 5:00 p.m. at
the place of receipt, on the day on which such fax or email was sent; provided
that a copy is also sent by next Business Day or overnight mail or delivery.

 

Section 10.2           Amendment; Waivers, Etc.  This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.  Buyer, on the one hand, or Parent and Seller, on the other
hand, may waive compliance by the other party with any term or provision of this
Agreement that such other parties were or are obligated to comply with or
perform only by an instrument in writing provided in the manner contemplated by
Section 10.1.  Any such waiver shall constitute a waiver only with respect to
the specific matter described in such writing and shall in no way impair the
rights of the party granting such waiver in any other respect or at any other
time.  Neither the waiver by any of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure by any of
the parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder.

 

Section 10.3           Expenses.  Except as otherwise provided herein, all
costs, fees and expenses incurred in connection with this Agreement, the
Ancillary Agreements and the transactions contemplated hereby and thereby,
whether or not consummated, shall be paid by the party incurring such costs,
fees or expenses.

 

129

--------------------------------------------------------------------------------

 

Section 10.4           Governing Law, Etc.

 

(a)           THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OR RULES OF CONFLICT OF LAWS THEREOF. 
Buyer and Seller hereby irrevocably submit to the exclusive jurisdiction of the
courts of the State of New York and the federal courts of the United States of
America located in the State, City and County of New York for the purposes of
any suit, action or other proceeding arising out of this Agreement, any
Ancillary Agreement or any transaction contemplated hereby or thereby.  Each of
Buyer and Seller hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement hereof or of
any such document or in respect of any such transaction, that it is not subject
to such jurisdiction.  Each of Buyer and Seller hereby waives, and agrees not to
assert, to the maximum extent permitted by law, as a defense in any action, suit
or other proceeding arising out of this Agreement, any Ancillary Agreement or
any transaction contemplated hereby or thereby, that such action, suit or
proceeding may not be brought or is not maintainable in such courts or that the
venue thereof may not be appropriate or that this Agreement or any such
Ancillary Agreement may not be enforced in or by such courts.  Buyer and Seller
hereby consent to and grant any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agree that mailing
of process or other papers in connection with any such action or proceeding in
the manner provided in Section 10.1 (or to a party’s agent for service of
process, if any, as set forth below) or in such other manner as may be permitted
by law, shall be valid and sufficient service thereof.  EACH OF BUYER AND SELLER
HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.  EACH OF BUYER AND
SELLER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE ANCILLARY AGREEMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.4.

 

(b)           By the execution and delivery of this Agreement, Seller appoints
White Mountains Capital, Inc. (80 South Main Street, Hanover, NH 03755, Attn:
Corporate Secretary) as its agent upon which process may be served in any in any
action,

 

130

--------------------------------------------------------------------------------

 

suit or other proceeding arising out of this Agreement, any Ancillary Agreement
or any transaction contemplated hereby or thereby.  Service of process upon such
agent, together with notice of such service given to Seller in the manner
specified in Section 10.1, shall be deemed in every respect effective service of
process upon Seller in any legal action or proceeding.

 

Section 10.5           Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns; provided that except as permitted below, this
Agreement shall not be assignable or otherwise transferable by any party hereto
without the prior written consent of the other party hereto.  Notwithstanding
the foregoing, without the consent of Seller, Buyer may transfer or assign
(including by way of a pledge), in whole or from time to time in part, to one or
more of its Affiliates, the right to purchase all or a portion of the Shares;
provided that no such transfer or assignment will relieve Buyer of its
obligations hereunder.  Upon any such permitted assignment, the references in
this Agreement to Buyer shall also apply to any such assignee unless the context
otherwise requires.

 

Section 10.6           Entire Agreement.  This Agreement (including the
schedules, exhibits, documents or instruments referred to herein), the Ancillary
Agreements (when executed and delivered) and the Confidentiality Agreement
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof.  None of the parties hereto shall be liable
or bound to any other party in any manner by any representations, warranties or
covenants relating to such subject matter except as specifically set forth
herein or in the Ancillary Agreements or the Confidentiality Agreement.

 

Section 10.7           Severability.  If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is determined by a
court of competent jurisdiction to be invalid, inoperative or unenforceable for
any reason, such circumstances shall not have the effect of rendering such
provision in question invalid, inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.  Upon any such
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.

 

131

--------------------------------------------------------------------------------

 

Section 10.8           Counterparts; Effectiveness; Third Party Beneficiaries. 
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which shall together constitute one and the
same instrument.  This Agreement shall become effective when each party shall
have received a counterpart hereof signed by all of the other parties.  Until
and unless each party has received a counterpart hereof signed by the other
party, this Agreement shall have no effect and no party shall have any right or
obligation hereunder (whether by virtue of any other oral or written agreement
or other communication).  Except as specifically provided under Article VIII, no
provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations or liabilities hereunder upon any Person other than the
parties and their respective successors and assigns.

 

Section 10.9           Specific Performance.  The parties agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with its terms or otherwise breached and that, without the necessity
of posting any bond or other security or undertaking, the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any court specified in Section 10.4, in addition to any other remedy to which
they are entitled at law or in equity.  If any Litigation is brought in equity
to enforce the provisions of this Agreement, no party shall allege, and each
party hereby waives, the defense or counterclaim that there is an adequate
remedy at law.

 

[Remainder of page intentionally left blank.]

 

132

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have duly executed this Agreement in two
originals as of the date first above written, each party acknowledging having
received an original.

 

 

 

WHITE MOUNTAINS HOLDINGS (LUXEMBOURG) S.À R.L.

 

 

 

 

 

 

 

By

/s/ Göran Thorstensson

 

 

Name:

Göran Thorstensson

 

 

Title:

Manager

 

 

 

 

 

 

 

THE ALLSTATE CORPORATION

 

 

 

 

 

 

 

By

/s/ Don Civgin

 

 

Name:

Don Civgin

 

 

Title:

Executive Vice President and Chief Financial Officer

 

--------------------------------------------------------------------------------

 

SCHEDULE A-1

 

WMI TRANSFERRED SUBSIDIARIES

 

Esurance Holdings, Inc., a Delaware corporation

Esurance Insurance Company, a Wisconsin corporation

Esurance Property and Casualty Insurance Company, a California corporation

Esurance Insurance Company of New Jersey, a Wisconsin corporation

Esurance Insurance Services, Inc., a Delaware corporation

 

--------------------------------------------------------------------------------

 

SCHEDULE A-2

 

AFI TRANSFERRED SUBSIDIARIES

 

Mortgage Answer Center, Inc., a Delaware corporation

Insurance Answer Center, LLC, a Delaware limited liability company

 

--------------------------------------------------------------------------------

 

SCHEDULE 4.1(y)

 

EXCEPTIONS TO INVESTMENT GUIDELINES

 

Parent Group will transfer EIC’s limited partnership interest in KVO Capital
Partners Value Fund, LP out of the WMI Transferred Subsidiaries’ investment
portfolio prior to the Closing.

 

--------------------------------------------------------------------------------

 

SCHEDULE 4.23

 

AFFILIATE OBLIGATIONS

 

1.               Limited Assignment Distribution Agreement, entered into as of
January 1, 2007, by and between AutoOne Insurance Company (“AutoOne”) and EIC,
as amended effective January 1, 2008, January 1, 2009, January 1, 2010 and
January 1, 2011 (for New York).

 

2.               Limited Assignment Distribution Agreement, entered into as of
January 1, 2007, by and between AutoOne and EIC, as amended effective January 1,
2008, January 1, 2009, January 1, 2010 and January 1, 2011 (for Pennsylvania).

 

3.               Limited Assignment Distribution Program Agreement, effective
January 1, 2008, by and between Pennsylvania General Insurance Company and EIC,
as amended effective January 1, 2009, January 1, 2010 and January 1, 2011 (for
Connecticut).

 

4.               Limited Assignment Distribution Agreement, dated January 1,
2009, by and between AutoOne and EIC, as amended effective January 1, 2010 and
January 1, 2011 (for South Carolina).

 

5.               California Automobile Assigned Risk Plan Limited Assignment
Distribution Agreement, dated April 27, 2007, by and between AutoOne Insurance
Company and EPCIC, as amended effective January 1, 2008, January 1, 2009,
January 1, 2010 and January 1, 2011 (for California).

 

6.               Low Cost Automobile Insurance Agreement, dated January 1, 2007,
by and between AutoOne and EPCIC, as amended effective January 1, 2008,
January 1, 2009, January 1, 2010 and January 1, 2011 (for California).

 

7.               Limited Assignment Distribution Agreement, dated January 1,
2007, by and between Camden Fire Insurance Association and EICNJ, as amended
effective January 1, 2008, January 1, 2009, January 1, 2010 and January 1, 2011
(for New Jersey).

 

8.               Stock Purchase Agreement, dated June 30, 2006, as amended on
January 25, 2007, by and between OBIC and EIC.

 

9.               Instrument of Transfer and Assumption, by and between OBIC as
transferee and assignee and EICNJ as transferor and assignor, effective June 30,
2005.

 

10.         Transfer and Assumption Agreement, by and between OBIC as transferee
and assignee and EIC as transferor and assignor, effective January 1, 2003.

 

--------------------------------------------------------------------------------

 

11.         Amended and Restated Transfer and Assumption Agreement, by and
between OBIC as transferee and assignee and EIC as transferor and assignor,
effective January 1, 2003.

 

12.         Letter of Acknowledgement and Agreement dated May 3, 2011, from the
chairman of OBIC to the chairman of EIC, EPCIC and EICNJ.

 

--------------------------------------------------------------------------------

 

SCHEDULE 4.28

 

CERTAIN SELLER GUARANTIES

 

1.               Any payment obligations of PSC Holdings Ltd. or White Mountains
Investments (Bermuda) Ltd. arising out of the provisions set forth in
Section 10.11 of the Stock Purchase Agreement among PSC Holdings Ltd., White
Mountains Investments (Bermuda) Ltd., Elliott Associates, L.P., Elliott
International, L.P., and Answer Financial, Inc. dated December 14, 2007.

 

2.               Any payment obligation of members of the Parent Group arising
under surety bonds issued or outstanding in the ordinary course of business on
behalf of the Transferred Companies from time to time between the date hereof
and the Closing, which surety bonds are guaranteed by members of the Parent
Group through the insurance programs of the Parent Group.  As of the date
hereof, three such surety bonds are outstanding for the benefit of the
Transferred Companies, with an aggregate limit of $52,500 (CA DMV Bond
(1/23/11-1/23/12) Limit $50,000; CA Dept of Insurance (2/20/11-2/20/12) Limit
$2,000; and Notary Bond (3/3/09-3/3/13) Limit $500).

 

--------------------------------------------------------------------------------

 

SCHEDULE 6.1(c)

 

GOVERNMENTAL APPROVALS

 

Buyer’s Approvals

 

·                  Approval of Form A Change of Control Applications by the
California Department of Insurance for EPCIC and the Wisconsin Office of the
Commissioner of Insurance for EIC and EICNJ.

 

·                  Form E pre-acquisition notification filings by Buyer
pertaining to the competitive impact of the transaction with the insurance
regulatory authorities in jurisdictions where the Insurance Subsidiaries are
licensed to transact insurance where the requirement of such Form E is triggered
by the combined market concentration of the Insurance Subsidiaries and the
Buyer’s insurance subsidiaries in specific lines of insurance, and the waiting
period applicable to such filings expire or the Buyer receives approval from the
applicable insurance regulatory authority.

 

Seller’s Approvals

 

·                  Form D or bulk reinsurance approval or non-disapproval as
required in Wisconsin and New York for the commutation of the reinsurance
agreements referenced in Section 4.16.

 

·                  Form D approval or non-disapproval as required in Wisconsin
for the reinsurance trust agreement referenced in Section 4.29.

 

--------------------------------------------------------------------------------

 

SCHEDULE 8.2(c)

 

CERTAIN INDEMNIFIED MATTERS

 

1.               Keeling v. EIC.

 

2.               All Family Clinic of Daytona Beach, Inc. v. EIC.

 

3.               MRI Associates of St. Pete, Inc. v. EIC.

 

4.               Englewood Hospital & Medical Center v. EIC.

 

--------------------------------------------------------------------------------

 

SCHEDULE 8.4(h)

 

KNOWLEDGE OF BUYER

 

The named Persons holding the titles indicated below, and, in the event any such
Person ceases to hold such title, such Person’s successor:

 

1.                                       Don Civgin, Executive Vice President
and Chief Financial Officer, The Allstate Corporation

 

2.                                       James D. DeVries, Executive Vice
President, Human Resources, Allstate Insurance Company

 

3.                                       Suren Gupta, Executive Vice President
and Chief Information Officer, Allstate Insurance Company

 

4.             Joseph P. Lacher, Jr., President Allstate Protection, Allstate
Insurance Company

 

5.             Gary Tolman, President and Chief Executive Officer, Esurance
Holdings, Inc.

 

6.                                       Robert J. Slingerland, President and
Chief Executive Officer, Answer Financial Inc.

 

--------------------------------------------------------------------------------

 

SCHEDULE 9.1(a)

 

KNOWLEDGE OF SELLER

 

Gary Tolman

Jonathan Adkisson

Christopher Henn

Wayne Sharrah

Phil Swift

John Swigart

Kerian Bunch

David Staples

Sandy Hynes

Marj Hutchings

Robert J. Slingerland

Daniel J. Bryce

Shelby Fogelman

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

FORM OF HOLD HARMLESS AGREEMENT

 

[        ], 2011

 

The Allstate Corporation
2775 Sanders Road
Northbrook, IL 60062

 

Re:                               Hold Harmless and Indemnification under
Certain Guaranty Agreements

 

Ladies and Gentlemen:

 

Reference is hereby made to that certain Stock Purchase Agreement, dated as of
May 17, 2011 (as amended, modified or supplemented from time to time in
accordance with its terms, the “Purchase Agreement”), by and between The
Allstate Corporation, a Delaware corporation (“Buyer”), and White Mountains
Holdings (Luxembourg) S.à r.l., a Luxembourg société à responsabilité limitée
(“Seller”).  Capitalized terms used but not otherwise defined in this letter
agreement (this “Agreement”) shall have the respective meanings assigned to them
in the Purchase Agreement.

 

Reference is also hereby made to the Seller Guaranties listed on Schedule 4.28
of the Purchase Agreement pursuant to which PSC Holdings Ltd. and White
Mountains Investments (Bermuda) Ltd. (together, the “Guarantors”) have
obligations, which Seller Guaranties were entered into for the benefit of one or
more Persons (the “Guaranteed Persons”) in connection with certain payment and
other obligations of the Transferred Companies.

 

This Agreement is a Hold Harmless Agreement required to be executed and
delivered pursuant to Section 4.28 of the Purchase Agreement.  In consideration
of the execution and delivery of the Purchase Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantors and Buyer agree as follows:

 

--------------------------------------------------------------------------------

 

1.                                  Indemnity.

 

(a).                                   Buyer shall defend, indemnify and hold
harmless each Guarantor against, and shall reimburse each Guarantor for, any
Losses incurred by any such Guarantor arising under any Seller Guaranties.

 

(b).                                  The indemnification obligations of Buyer
under this Agreement are absolute, direct and immediate, not subject to any
set-off or counterclaim and not conditional or contingent upon the pursuit of
any remedies against Buyer or any other Person.  The obligations of Buyer set
forth herein constitute the full recourse obligations of Buyer enforceable
against it to the full extent of all its assets and properties.

 

(c).                                   Section 8.6 of the Purchase Agreement is
hereby incorporated into this Agreement, mutatis mutandis, by this reference;
provided that for purposes of this Agreement, any reference in such Section 8.6
to (i) the “Indemnifying Party” will be deemed a reference to Buyer, (ii) the
“Indemnified Party” will be deemed a reference to the applicable Guarantor and
(iii) a “Third Party Claim” will be deemed a reference to a claim made by a
Guaranteed Person against a Guarantor.

 

(d).                                  With respect to any Liability
indemnifiable pursuant to paragraph 1(a) of this Agreement, Buyer shall be
subrogated to the rights of the Guarantor under the applicable Guaranty
Agreement, and such Guarantor shall at Buyer’s expense, take such steps as Buyer
may reasonably request to implement such subrogation.

 

(e).                                   In the event that Buyer becomes a party
to any transaction that would result in the sale, transfer, lease or other
disposition of all or substantially all of its properties and assets, whether in
one transaction or a series of related transactions, to one or more Persons,
then, and in each such case, proper provision, which provision shall be subject
to the consent of Seller (which consent Seller shall not unreasonably withhold,
delay or condition), shall be made prior to the consummation of any such
transaction so that each such Person shall assume (on a pro rata basis relative
to the proportion of such properties and assets acquired by such Person) the
obligations of Buyer set forth in this Agreement.

 

2.                                  Miscellaneous.

 

(a).                                   This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors and
assigns.

 

(b).                                  The obligations of Buyer under this
Agreement are continuing in nature and shall remain in full force and effect and
shall survive until all of the Seller Guaranties have been terminated, provided
that

 

2

--------------------------------------------------------------------------------

 

nothing contained in this paragraph 2(b) shall limit or otherwise affect Buyer’s
obligations hereunder with respect to any indemnifiable Losses incurred by a
Guarantor prior to such termination.

 

(c).                                   This Agreement contains the entire
agreement between the parties with respect to the matters set forth herein and
supersedes all prior agreements, whether written or oral, between the parties
with respect to such matters.  Any amendments or modifications hereto, to be
effective, must be in writing and executed by the parties hereto. 
Notwithstanding anything to the contrary contained herein, this Agreement shall
not and shall not be deemed to limit, reduce or otherwise affect the validity or
enforceability of the terms of any of (x) the Seller Guaranties or (y) the
indemnification obligations of Seller under the Purchase Agreement.

 

(d).                                  Pursuant to Section 5-1401 of the New York
General Obligations Law, this Agreement shall be governed in all respects,
including as to validity, interpretation and effect, by the Laws of the State of
New York, without giving effect to the principles or rules of conflict of laws
thereof.

 

(e).                                   All notices, requests, demands, claims or
other communications to be sent by one party hereto to another under this
Agreement shall be in writing and sent in accordance with Section 10.1 of the
Purchase Agreement.

 

(f).                                     The failure of any party hereto to
enforce any right or remedy under this Agreement, or to promptly enforce any
such right or remedy, shall not constitute a waiver thereof nor shall such
failure give rise to any estoppel against such party or excuse any of the
parties hereto from its obligations under this Agreement.

 

(g).                                  EACH PARTY HERETO ACKNOWLEDGES AND AGREES
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION PERMITTED UNDER THIS AGREEMENT.  EACH PARTY
HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE

 

3

--------------------------------------------------------------------------------

 

IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER VOLUNTARILY AND (D) IT HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS SET FORTH IN THIS PARAGRAPH.

 

(h).                                  This Agreement may be executed in several
counterparts, each of which when executed shall be deemed an original but all of
which taken together shall constitute one agreement, binding on all the parties
hereto.  Delivery of an executed counterpart of a signature page of this
Agreement by facsimile or electronic mail shall be as effective as delivery of a
manually executed counterpart of this Agreement.

 

[Signature page follows]

 

4

--------------------------------------------------------------------------------

 

If the foregoing is acceptable to you, please sign where indicated below.

 

 

 

WHITE MOUNTAINS HOLDINGS (LUXEMBOURG) S.À R.L.

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

 

PSC HOLDINGS LTD.

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

 

WHITE MOUNTAINS INVESTMENTS (BERMUDA) LTD.)

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Accepted and agreed as of the date first written above:

 

THE ALLSTATE CORPORATION

 

By:

 

 

Name:

 

 

Title:

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT C

 

TRUST AGREEMENT,

 

dated as of [                    ], 2011,

 

by and among

 

ONEBEACON INSURANCE COMPANY,

 

as Grantor,

 

ESURANCE INSURANCE COMPANY

 

and

 

ESURANCE INSURANCE COMPANY OF NEW JERSEY,

 

as Beneficiaries,

 

and

 

[     BANK, N.A.],

 

as Trustee

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

 

 

Page

Section 1.

Deposit of Assets to the Trust Account

2

 

 

 

Section 2.

Withdrawal of Assets from the Trust Account

3

 

 

 

Section 3.

Application of Assets

4

 

 

 

Section 4.

Redemption, Investment and Substitution of Assets

5

 

 

 

Section 5.

The Income Account

6

 

 

 

Section 6.

Right to Vote Assets

6

 

 

 

Section 7.

Additional Rights and Duties of the Trustee

7

 

 

 

Section 8.

The Trustee’s Compensation, Expenses and Indemnification

9

 

 

 

Section 9.

Resignation or Removal of the Trustee

10

 

 

 

Section 10.

Taxes

10

 

 

 

Section 11.

Termination of the Trust Account

10

 

 

 

Section 12.

Qualified Fiduciary United States Financial Institution

11

 

 

 

Section 13.

Beneficiaries Agent

11

 

 

 

Section 14.

Definitions

11

 

 

 

Section 15.

Governing Law; Compliance with Regulations; Venue

13

 

 

 

Section 16.

Successors and Assigns

13

 

 

 

Section 17.

Severability

13

 

 

 

Section 18.

Entire Agreement

14

 

 

 

Section 19.

Amendment; Consent

14

 

 

 

Section 20.

Notices, etc.

14

 

 

 

Section 21.

Certain Covenants

15

 

 

 

Section 22.

Headings

15

 

 

 

Section 23.

Counterparts

15

 

i

--------------------------------------------------------------------------------

 

TRUST AGREEMENT

 

TRUST AGREEMENT, dated as of [                    ], 2011 (the “Agreement”), by
and among (i) OneBeacon Insurance Company, a Pennsylvania corporation (the
“Grantor”), (ii) Esurance Insurance Company, a Wisconsin corporation (“EIC”),
and Esurance Insurance Company of New Jersey, a Wisconsin corporation (“EICNJ,”
and together with EIC and their respective successors by operation of law,
including, without limitation, any liquidator, rehabilitator, receiver or
conservator, the “Beneficiaries” or each individually, a “Beneficiary”), and
(iii) [     Bank, N.A.], a national banking association organized and existing
under the laws of the United States (the “Trustee”) (the Grantor, the
Beneficiaries and the Trustee are hereinafter each sometimes referred to
individually as a “Party” and collectively as the “Parties”).

 

W I T N E S S E T H:

 

WHEREAS, each Beneficiary has entered into the reinsurance agreements listed on
Exhibit A hereto with the Grantor (the “Reinsurance Agreements”);

 

WHEREAS, the Beneficiaries desire the Grantor to secure payments of all amounts
at any time and from time to time owing by the Grantor to the Beneficiaries
under or in connection with the Reinsurance Agreements;

 

WHEREAS, the Grantor desires to transfer to the Trustee for deposit to a trust
account (the “Trust Account”) Assets (as hereinafter defined) in order to secure
payments under or in connection with the Reinsurance Agreements;

 

WHEREAS, the Trustee has agreed to act as Trustee hereunder, and in accordance
with the terms hereof, to hold such Assets in trust in the Trust Account for the
sole benefit of the Beneficiaries in accordance with the provisions hereof;

 

WHEREAS, this Agreement is made for the sole benefit of the Beneficiaries and
for the purpose of setting forth the duties and powers of the Trustee with
respect to the Trust Account, and the Grantor’s and Beneficiaries’ rights and
obligations with respect thereto; and

 

WHEREAS, EICNJ is a wholly owned subsidiary of EIC and pursuant to the terms
hereof has appointed EIC to act as its agent in connection with any and all
matters under or in connection with this Agreement.

 

NOW, THEREFORE, for and in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Parties
hereby agree as follows:

 

--------------------------------------------------------------------------------

 

Section 1.                                          Deposit of Assets to the
Trust Account.

 

(a)                                  The Grantor hereby establishes the Trust
Account [in the State of New York] and the Trustee hereby accepts the Trust
Account herein created and declared upon the terms provided herein and shall
administer the Trust Account in the Grantor’s name as Trustee for the
Beneficiaries.  The Trust Account shall be subject to withdrawal by the
Beneficiaries as provided herein.  The Trustee and its lawfully appointed
successors are authorized and shall have power to receive such cash, securities
and property as the Grantor from time to time may transfer or remit to or vest
in the Trustee or place under the Trustee’s possession and control, and to hold,
invest, reinvest, manage and dispose of the same for the uses and purposes and
in the manner and according to the provisions hereinafter set forth.  The
Trustee shall receive and hold the Assets in a safe place at an office of the
Trustee [in New York, New York].

 

(b)                                 The Grantor shall transfer to the Trustee,
for deposit to the Trust Account, the Assets listed on Exhibit B hereto, and
shall transfer to the Trustee, for deposit to the Trust Account, such other
assets as may from time to time be required by this Agreement (all such assets
actually received in the Trust Account are herein referred to individually as an
“Asset” and collectively as the “Assets”).  The Assets shall consist only of
Eligible Trust Assets (as hereinafter defined).

 

(c)                                  Within 45 days following the end of each
calendar quarter ending after the date hereof, the Grantor shall calculate and
deliver to the Beneficiaries the amount of the Obligations as of the end of such
calendar quarter (the “Required Balance”), along with a statement of the fair
market value of the Assets in the Trust Account as of the end of such calendar
quarter as determined by the Investment Manager, or in the absence of an
Investment Manager, by the Trustee, in accordance with paragraph (d) below (the
“Asset Valuation Report”, and together with the calculation of the Required
Balance, the “Quarterly Report”).  If the fair market value of the Assets as of
any calendar quarter end is less than the Required Balance as of such calendar
quarter end, then within ten Business Days of its delivery to the Beneficiaries
of the Quarterly Report for such calendar quarter, the Grantor shall cause to be
deposited into the Trust Account such additional assets consisting of Eligible
Trust Assets with an aggregate fair market value equal to such shortfall.  If
the fair market value of the Assets as of any calendar quarter end is greater
than 102% of the Required Balance as of such calendar quarter end, then within
ten Business Days of its receipt of the Quarterly Report for such calendar
quarter, the Beneficiaries shall instruct the Trustee to release to the Grantor
Assets with an aggregate fair market value equal to such excess.

 

(d)                                 As used in this Trust Agreement, the fair
market value of any Asset shall mean the fair market value of such Asset as
calculated by the Investment Manager, or in the absence of an Investment
Manager, by the Trustee.  In providing this calculation, the Investment Manager
or the Trustee, as applicable, shall use prices published by a nationally
recognized pricing service for assets for which such prices are available, and
for assets for which such prices are not available, the Investment Manager or
the Trustee, as applicable, shall use methodologies consistent with those which
it uses for determining the fair market value of assets held for its own account
in the ordinary course of business.  If either the Grantor or the Beneficiaries
shall

 

2

--------------------------------------------------------------------------------

 

dispute the valuation of any Asset, and the parties are unable to resolve such
dispute within 20 days, the fair market value of such Asset shall be determined
by a Third Party Appraiser and the parties shall be bound by such valuation. 
All fees, costs and expenses relating to the foregoing work by any Third Party
Appraiser shall be shared equally by the Beneficiaries, on the one hand, and the
Grantor, on the other hand.

 

(e)                                  The Grantor hereby represents, warrants and
covenants (i) that any Assets transferred by the Grantor to the Trustee for
deposit to the Trust Account will be in such form that a Beneficiary whenever
necessary may, and the Trustee upon direction by a Beneficiary will, negotiate
any such Assets without consent or signature from the Grantor or any other
Person; and (ii) that all Assets transferred by the Grantor to the Trustee for
deposit to the Trust Account shall consist only of Eligible Trust Assets.

 

(f)                                    The Trustee shall have no responsibility
to determine whether the Assets in the Trust Account are sufficient to secure
the Obligations under the Reinsurance Agreements.

 

Section 2.                                          Withdrawal of Assets from
the Trust Account.

 

(a)                                  Subject to Section 3, without notice to the
Grantor, a Beneficiary shall have the right, at any time and from time to time,
to withdraw from the Trust Account, upon written notice to the Trustee delivered
to the Trustee at the address indicated in Section 19 (and, as a matter of legal
right, at the Trustee’s principal office in the United States) in substantially
the form of Exhibit C hereto (the “Withdrawal Notice”), such Assets or amounts
as are specified in such Withdrawal Notice.  The Withdrawal Notice may designate
a third party (the “Designee”) to whom Assets or amounts specified therein shall
be delivered.  A Beneficiary need present no statement or document in addition
to a Withdrawal Notice in order to withdraw any Assets; nor is such right of
withdrawal or any other provision of this Agreement subject to any conditions or
qualifications not contained in this Agreement.  The Beneficiaries agree to
provide to the Grantor a copy of any Withdrawal Notice at the same time as such
notice is provided to the Trustee.

 

(b)                                 Upon receipt of a Withdrawal Notice from a
Beneficiary, the Trustee shall immediately take any and all steps necessary to
transfer, absolutely and unequivocally, all right, title and interest to the
Assets or amounts specified in such Withdrawal Notice and shall deliver such
Assets or amounts to or for the account of such Beneficiary or such Designee as
specified in such Withdrawal Notice.  The Beneficiaries shall acknowledge to the
Trustee receipt of any withdrawn Assets.

 

(c)                                  Except as provided in Section 4(a), the
Trustee shall allow no withdrawal of Assets except on written instruction from a
Beneficiary for each individual withdrawal at the time the withdrawal is
executed.

 

(d)                                 Without limiting any other provision of this
Agreement, the Trustee shall have no responsibility whatsoever to determine that
any Assets withdrawn from the Trust Account pursuant to this Section 2 will be
used and applied in the manner contemplated by Section 3 of this Agreement.

 

3

--------------------------------------------------------------------------------

 

Section 3.                                          Application of Assets.

 

(a)                                  Each Beneficiary hereby covenants to the
Grantor that it shall withdraw Assets from the Trust Account, and use and apply
any such withdrawn Assets, without diminution because of the insolvency of such
Beneficiary or the Grantor, for the following purposes only:

 

(i)                                     to pay or reimburse such Beneficiary for
the Grantor’s share under the Reinsurance Agreement with such Beneficiary of any
losses and allocated loss expenses paid or incurred by such Beneficiary, but not
recovered from the Grantor pursuant to the terms of such Reinsurance Agreement,
or for unearned premiums due to such Beneficiary under the terms of such
Reinsurance Agreement if not otherwise paid by the Grantor;

 

(ii)                                  to pay the Grantor any amounts held in the
Trust Account that exceed 102% of the Obligations;

 

(iii)                               where a Beneficiary has received a
Termination Notice (as hereinafter defined) pursuant to Section 10 of this
Agreement and where all of the Obligations have been liquidated or discharged
ten days prior to the Termination Date (as hereinafter defined), to make payment
to the Grantor of any amounts held in the Trust Account; and

 

(iv)                              where a Beneficiary has received a Termination
Notice pursuant to Section 10 of this Agreement and where all or any part of the
Obligations remain unliquidated and undischarged ten days prior to the
Termination Date, to withdraw Assets equal to the Obligations and deposit such
amounts in a separate account (the “Termination Account”), in the name of the
Beneficiaries in any Qualified Fiduciary United States Financial Institution (as
hereinafter defined), apart from the Beneficiaries’ other assets, in trust for
the uses and purposes specified in subparagraphs (i) – (iii) of this Section as
may remain executory after such withdrawal and for any period after such
Termination Date.  The relative rights and obligations of the Grantor and the
Beneficiaries under this Agreement shall apply to the Termination Account.  The
Beneficiaries shall pay interest in cash to the Grantor on the amount withdrawn,
equal to the actual amount of interest, dividends and other income earned on the
assets in the Termination Account.  The Beneficiaries may at any time substitute
or exchange any assets held in the Termination Account and invest or reinvest
such assets, provided that the assets so substituted or exchanged and all
reinvestment assets are in cash equivalents.

 

(b)                                 In the event that Assets are withdrawn in
excess of amounts due under Sections (a)(i) – (a)(iv) above, the Beneficiaries
or the Grantor, as applicable, shall promptly return to the Trust Account such
excess Assets withdrawn.

 

4

--------------------------------------------------------------------------------

 

Section 4.                                          Redemption, Investment and
Substitution of Assets.

 

(a)                                  Upon call or maturity of a Trust Asset, the
Trustee may withdraw the Asset without the consent of the Beneficiaries if the
Trustee provides notice to the Beneficiaries, liquidates or redeems the Asset,
and the proceeds are paid to the Trust Account.

 

(b)                                 With consent of the Beneficiaries, the
Grantor may appoint an investment manager (the “Investment Manager”) with
respect to the Trust Account.  Any such appointment shall be pursuant to a
written investment management agreement that requires the Investment Manager to
manage the Assets in the Trust Account consistent with the definition of
Eligible Trust Assets.  For so long as the Grantor is an Affiliate of White
Mountains Insurance Group, Ltd., the Beneficiaries’ consent shall not be
required for the appointment of any Affiliate of White Mountains Insurance
Group, Ltd. which is registered under the Investment Advisers Act of 1940, as
amended, as Investment Manager.

 

(c)                                  The Trustee is authorized to act upon any
written demand, instruction, direction, acknowledgment, statement, notice,
resolution, request, consent, order, certificate, report, appraisal, opinion,
telegram, cablegram, facsimile, radiogram, letter, or other communication
(collectively, “Communications”) concerning the investment, reinvestment, or
substitution of securities (each, an “Investment Order”) received from the
Investment Manager to the same extent that the Trustee would act upon an
Investment Order of the Grantor, provided that the Trustee has received written
evidence of the Investment Manager’s appointment by the Grantor and the consent
thereto of the Beneficiaries (if required), written confirmation from the
Investment Manager evidencing its acceptance of such appointment, and written
certification from the Investment Manager of the names of individuals authorized
to give instructions with respect to the Trust Account, together with specimen
signatures of those persons.

 

(d)                                 Except as provided in Section 4(a), the
Trustee shall allow no substitution of Assets except on written instructions
from the Beneficiaries for each individual substitution at the time the
substitution is executed.  From time to time, the Grantor may request that the
Beneficiaries give such written instructions to the Trustee, which instructions
shall not be unreasonably withheld, conditioned or delayed.  The Trustee shall
have no responsibility whatsoever to determine the value of such substituted
securities or that such substituted securities constitute Eligible Trust
Assets.  The Beneficiaries’ prior written approval of such substitution shall be
deemed to approve such substituted securities as Eligible Trust Assets.

 

(e)                                  The Beneficiaries and the Grantor agree
that all investments, reinvestments and substitutions of securities referred to
in paragraph (d) of this Section 4 shall be in compliance with the definition of
“Eligible Trust Assets” in Section 13 of this Agreement.  The Trustee shall have
no responsibility whatsoever to determine that any Assets in the Trust Account
are or continue to be Eligible Trust Assets.  The Trustee, based upon Investment
Orders from the Investment Manager or the Grantor if no Investment Manager is
appointed, shall execute Investment Orders and settle securities transactions by
itself or by means of an agent or broker (provided that such securities shall
ultimately be held only by the Trustee and not by such

 

5

--------------------------------------------------------------------------------

 

agent or broker).  The Trustee shall not be responsible for any act, error or
omission, or for the solvency, of any Investment Manager, agent or broker unless
such act, error or omission is the result, in whole or in part, of the Trustee’s
negligence, willful misconduct or lack of good faith.  The Trustee shall not be
responsible for any Loss (as hereinafter defined) suffered by the Beneficiaries
or the Grantor due to the insolvency of any agent or broker unless the Trustee
negligently, willfully or with lack of good faith chooses the agent or broker.

 

(f)                                    Any loss, liability, claim or damage paid
or incurred (“Loss”) from any investment, reinvestment or substitution pursuant
to the terms of this Agreement shall be borne exclusively by the Trust Account
other than a Loss due to the Trustee’s own negligence, willful misconduct or
lack of good faith.  Without limiting any other provision herein, the Trustee
shall not be liable for any Loss due to changes in market rates or penalties for
early redemption.  Other than the execution of an Investment Order, as provided
herein, the Trustee shall not be required to take any action with respect to the
investment or reinvestment of the Assets.

 

Section 5.                                          The Income Account.

 

(a)                                  All payments of interest or dividends
actually received in respect of Assets in the Trust Account shall be deposited
by the Trustee in a separate account established by the Grantor (the “Income
Account”) at an office of the Trustee [in New York, New York].  The Income
Account will not be included in, or become part of, the Trust Account.

 

(b)                                 In the event that the Trustee has not been
paid in accordance with Section 8(a) within 90 days of the receipt by the
Grantor of an invoice from the Trustee therefor, the Trustee may deduct its
unpaid compensation and expenses from the Income Account.

 

(c)                                  From time to time, the Trustee may elect,
but shall not be required to, credit the Income Account with the amount of
interest and dividends due in respect of Assets in the Trust Account before
actually receiving such payments from a payor, Depository (as hereinafter
defined), broker or other agent.  Any such crediting shall be at the Grantor’s
sole risk, and the Trustee shall be authorized to reverse any such credit in the
event it does not receive good funds from such payor, Depository, broker or
other agent.  The Trustee shall not be required to enforce collection by legal
means or otherwise of any such payment, but shall use reasonable diligence to
make all such collections as may be affected in the ordinary course of business.

 

Section 6.                                          Right to Vote Assets.

 

The Trustee will forward all annual and interim stockholder reports and all
proxies and proxy materials relating to the Assets in the Trust Account to the
Grantor.  The Grantor or its designee shall have the full and unqualified right
to vote any Assets in the Trust Account.

 

6

--------------------------------------------------------------------------------

 

Section 7.                                          Additional Rights and Duties
of the Trustee.

 

(a)                                  The Trustee shall notify the Grantor and
the Beneficiaries in writing within ten days following each deposit to or
withdrawal from the Trust Account.

 

(b)                                 Before accepting any Asset for deposit to
the Trust Account, the Trustee shall determine that such Asset is in such form
that a Beneficiary whenever necessary may, or the Trustee upon direction by a
Beneficiary may, negotiate such Asset without consent or signature from the
Grantor or any other Person.

 

(c)                                  The Trustee may deposit any Assets in the
Trust Account in a book-entry account maintained at a Federal Reserve Bank or in
depositories such as the Depository Trust Company and the Participants Trust
Company (the Federal Reserve Bank and such other depositories being referred to
herein as “Depositories”).

 

(d)                                 The Trustee shall accept and may open all
mail directed to the Grantor or a Beneficiary in care of the Trustee.  The
Trustee shall forward all mail to the addressee whether or not opened.

 

(e)                                  The Trustee shall furnish to the Grantor
and the Beneficiaries a statement of all Assets in the Trust Account upon the
inception of the Trust Account and within 15 days of the end of each calendar
month thereafter.

 

(f)                                    The Trustee shall keep full and complete
records of the administration of the Trust Account.  Upon the reasonable request
of the Grantor or a Beneficiary, the Trustee shall promptly permit the Grantor,
a Beneficiary or their respective agents, employees or independent auditors to
examine, audit, excerpt, transcribe and copy[, at a location in New York, New
York,] at their own expense, during the Trustee’s normal business hours any
books, documents, papers and records relating to the Trust Account or the
Assets.

 

(g)                                 The Trustee is authorized to follow and rely
upon all Communications (including, without limitation, Investment Orders,
Withdrawal Notices and Termination Notices), given by officers, agents and/or
employees named in letters and incumbency certificates furnished to the Trustee
from time to time by the Grantor, a Beneficiary or the Investment Manager,
respectively, and by attorneys-in-fact acting under written authority furnished
to the Trustee by the Grantor, a Beneficiary or the Investment Manager
(collectively “Instructions”) including, without limitation, Instructions given
by letter, facsimile transmission or electronic media, if the Trustee reasonably
believes such Instructions to be genuine and to have been signed, sent or
presented by the proper party or parties.  The Trustee shall not incur any
liability to anyone resulting from actions taken by the Trustee in reliance in
good faith on such Instructions.  The Trustee shall not incur any liability in
executing Instructions prior to receipt by it of (i) notice of the revocation of
the written authority of the individual(s) named therein, or (ii) notice from
any officer, agent or employee of the Grantor, a Beneficiary or the Investment
Manager named in a letter or incumbency certificate delivered hereunder prior to
receipt by it of a more current certificate.

 

7

--------------------------------------------------------------------------------

 

(h)                                 The duties and obligations of the Trustee
shall only be such as are specifically set forth in this Agreement, as it may
from time to time be amended in accordance with the terms hereof, and no implied
duties or obligations shall be read into this Agreement against the Trustee. 
The Trustee shall be liable only for its own negligence, willful misconduct or
lack of good faith.

 

(i)                                     No provision of this Agreement shall
require the Trustee to take any action which, in the Trustee’s reasonable
judgment, would result in any violation of this Agreement or any provision of
applicable law.

 

(j)                                     In relation to matters arising under
this Agreement, the Trustee may confer with reputable counsel, experienced in
the type of transactions contemplated by this Agreement and selected by it after
consultation with the Grantor and the Beneficiaries.  The opinion of such
counsel shall be full and complete authority and protection for the Trustee with
respect to any action taken, suffered or omitted by it in good faith without
negligence or willful misconduct and in accordance with the opinion of such
counsel, other than with respect to the withdrawal of Assets by a Beneficiary.

 

(k)                                  Whenever, in the administration of the
Trust Account created by this Agreement, the Trustee shall reasonably deem it
necessary or desirable that a matter be proved or established prior to taking,
suffering or omitting any action thereunder, subject to the requirement of
reasonableness, good faith and lack of negligence and willful misconduct, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
statement or certificate signed by or on behalf of the Grantor and/or the
Beneficiaries and delivered to the Trustee and such certificate shall be full
warrant to the Trustee for any action taken, suffered or omitted by it on
reliance thereon, subject to this paragraph, but in its discretion exercised in
a reasonable manner, the Trustee may in lieu thereof accept other evidence of
the fact or matter or may require such other or additional evidence as it may
deem reasonable.

 

(l)                                     Notwithstanding anything to the contrary
provided herein, the Trustee is not responsible for any Losses resulting from
reasons or causes beyond its control, including, without limitation,
nationalization, expropriation, currency restrictions, acts of war, terrorism,
insurrection, revolution, civil unrest, riots or strikes, nuclear fusion or
fission or acts of God.

 

(m)                               The Parties acknowledge that nothing in this
Agreement shall obligate the Trustee to extend credit, grant financial
accommodation or otherwise advance moneys for the purpose of making any payments
or part thereof or otherwise carrying out any Instructions, including, without
limitation, any Investment Order.

 

(n)                                 The Trustee hereby indemnifies the Grantor
and the Beneficiaries for, and holds them harmless against, any Losses
(including reasonable attorneys’ fees and expenses and reasonable consulting and
accountants’ fees and expenses) incurred or paid, arising out of or in
connection with the Trustee’s negligence, willful misconduct or lack of good
faith in the

 

8

--------------------------------------------------------------------------------

 

performance of its duties and obligations under this Agreement, including,
without limitation, any Loss arising out of or in connection with the status of
the Trustee as the holder of record of any or all of the Assets.  The Trustee
hereby acknowledges that the foregoing indemnities shall survive the resignation
of the Trustee and the termination of this Agreement.

 

Section 8.                                          The Trustee’s Compensation,
Expenses and Indemnification.

 

(a)                                  The Grantor, upon receipt of an invoice
from the Trustee, (i) shall pay the Trustee, as compensation for its services
under this Agreement, a fee computed at rates determined by the Trustee from
time to time and communicated in writing to the Grantor and (ii) shall pay or
reimburse the Trustee for all of the Trustee’s expenses and disbursements in
connection with its duties under this Agreement (including reasonable attorneys’
fees and expenses and reasonable accounting and consulting fees and expenses),
except any such expense or disbursement as may arise from the Trustee’s
negligence, willful misconduct or lack of good faith.

 

(b)                                 The Grantor hereby indemnifies the Trustee
for, and holds it harmless against, any Losses (including reasonable attorneys’
fees and expenses and reasonable consulting and accountants’ fees and expenses)
incurred or paid (other than as a result of Trustee’s negligence, willful
misconduct or lack of good faith), arising out of or in connection with the
performance of its duties and obligations under this Agreement, including,
without limitation, any Loss arising out of or in connection with the status of
the Trustee as the holder of record of any or all of the Assets, except where
the Trustee’s performance is at the instruction or direction of a Beneficiary
under Section 2(a) hereof.  The Grantor hereby acknowledges that the foregoing
indemnities shall survive the resignation of the Trustee or the termination of
this Agreement and hereby grants the Trustee a lien, right of set-off and
security interest in the funds in the Income Account for the payment of any
claim for indemnity hereunder.

 

(c)                                  The Beneficiaries hereby indemnify the
Trustee for, and holds it harmless against, any Losses (including reasonable
attorneys’ fees and expenses and reasonable consulting and accountants’ fees and
expenses) incurred or paid (other than as a result of Trustee’s negligence,
willful misconduct or lack of good faith), arising out of or in connection with
the performance of its duties and obligations under this Agreement at the
instruction or direction of a Beneficiary under Section 2(a).  The Beneficiaries
hereby acknowledge that the foregoing indemnities shall survive the resignation
of the Trustee or the termination of this Agreement.

 

(d)                                 No Assets shall be withdrawn from the Trust
Account or used in any manner for paying compensation to, or reimbursement or
indemnification of, the Trustee.

 

9

--------------------------------------------------------------------------------

 

Section 9.                                          Resignation or Removal of
the Trustee.

 

(a)                                  The Trustee may resign at any time by
giving not less than 90 days’ written notice thereof to the Beneficiaries and to
the Grantor. The Grantor may also remove the Trustee at any time, without
assigning any reason therefore, on 90 days’ prior written notice thereof to the
Trustee and with the consent of the Beneficiaries.  Any such resignation or
removal shall become effective on the acceptance of appointment by a successor
trustee and the transfer to such successor trustee of all Assets in the Trust
Account in accordance with paragraph (b) of this Section 9.

 

(b)                                 Upon receipt of the Trustee’s notice of
resignation, the Grantor and the Beneficiaries shall promptly appoint a
successor trustee.  Upon receipt by the Trustee of the notice of removal, the
Trustee shall forward a copy of such notice to the Grantor and the
Beneficiaries; and the Grantor and the Beneficiaries shall promptly appoint a
successor trustee.  Any successor trustee shall be a Qualified Fiduciary United
States Financial Institution.  Upon the acceptance of the appointment as trustee
hereunder by a successor trustee, such successor trustee shall succeed to and
become vested with all the rights, powers, privileges and duties of the Trustee,
and the Trustee shall be discharged from any future duties and obligations under
this Agreement (other than the indemnification contained in Section 7(n)), but
the Trustee shall continue after its resignation to be entitled to the benefits
of the indemnities provided herein for a Trustee.

 

Section 10.                                   Taxes.

 

Grantor will include all income and gain, including any accrued income or gain,
to the extent any such income or gain is required to be taken into account for
tax purposes pursuant to applicable tax law, on or with respect to the Assets
held in the Income Account and the Trust Account including all gains, dividends,
interest, proceeds, returns and other amounts (such amounts, the “Includible
Amounts”) in Grantor’s gross income for federal, state, local and other Tax
purposes, whether or not the Includible Amounts have been distributed, and the
Includible Amounts shall be reported, as and to the extent required by law, by
the Trustee to the Internal Revenue Service (“IRS”), or any other relevant tax
authority, on IRS Form 1099 or 1042S (or other appropriate form) as income and
gain earned by the Grantor, and Grantor shall duly pay any Taxes resulting
therefrom.  Any other tax returns required to be filed will be prepared and
filed by Grantor with the IRS and any other relevant tax authority as required
by law.

 

Section 11.                                   Termination of the Trust Account.

 

(a)                                  The Trust Account and this Agreement,
except for the indemnities provided herein, which shall survive termination, may
be terminated only after (i) the Grantor has given the Trustee written notice of
its intention to terminate the Trust Account (the “Notice of Intention”), and
(ii) the Trustee has given the Grantor and the Beneficiaries the written notice
specified in paragraph (b) of this Section 10.  The Notice of Intention shall
specify the date on which the Grantor intends the Trust Account to terminate
(the “Proposed Date”).

 

10

--------------------------------------------------------------------------------

 

(b)                                 Within ten Business Days following receipt
by the Trustee of the Notice of Intention, the Trustee shall give written
notification (the “Termination Notice”) to the Beneficiaries and the Grantor of
the date (the “Termination Date”) on which the Trust Account shall terminate. 
The Termination Date shall be (i) the Proposed Date (or if not a Business Day,
the next Business Day thereafter), if the Proposed Date is at least 30 days but
no more than 45 days subsequent to the date the Termination Notice is given;
(ii) 30 days subsequent to the date the Termination Notice is given (or if not a
Business Day, the next Business Day thereafter), if the Proposed Date is less
than 30 days subsequent to the date the Termination Notice is given; or (iii) 45
days subsequent to the date the Termination Notice is given (or if not a
Business Day, the next Business Day thereafter), if the Proposed Date is more
than 45 days subsequent to the date the Termination Notice is given.

 

(c)                                  On the Termination Date, upon receipt of
written approval of the Beneficiaries, the Trustee shall transfer to the Grantor
any Assets remaining in the Trust Account, at which time all duties and
obligations of the Trustee with respect to such Assets shall cease.

 

(d)                                 The Grantor shall not terminate the Trust
Account or this Agreement on the basis of the insolvency of a Beneficiary.

 

(e)                                  Upon the termination of the Grantor’s
obligations under the Reinsurance Agreements, the Beneficiaries shall cooperate
and take all actions necessary to terminate the Trust Agreement and release all
assets in the Trust Account to the Grantor.

 

Section 12.                                   Qualified Fiduciary United States
Financial Institution.

 

The Trustee represents and warrants to the Grantor and the Beneficiaries that it
is a Qualified Fiduciary United States Financial Institution.

 

Section 13.                                   Beneficiaries Agent.

 

EICNJ hereby appoints EIC to act as its agent for any and all purposes under
this Agreement, including but not limited to receiving any notice, consenting to
any action, issuing any Withdrawal Notice, or accepting delivery of any Assets
upon a withdrawal.  EICNJ and EIC hereby jointly and severally indemnify the
Grantor and the Trustee for, and hold them harmless against, any Losses
(including reasonable attorneys’ fees and expenses) arising out of the foregoing
grant of authority.  For the avoidance of doubt, the Grantor or the Trustee may
exercise any right or remedy relating to Assets withdrawn from the Trust Account
(including the obligations of a Beneficiary under Section 3(b) to return excess
funds withdrawn from the Trust Account) against either or both Beneficiaries,
regardless of whether any withdrawn funds are actually paid by a Beneficiary to
the other Beneficiary.

 

Section 14.                                   Definitions.

 

Except as the context shall otherwise require, the following terms shall have
the following meanings for all purposes of this Agreement (the definitions to be
applicable to both

 

11

--------------------------------------------------------------------------------

 

the singular and the plural forms of each term defined if both such forms of
such term are used in this Agreement):

 

The term “Affiliate” of a Person means any other Person who controls, is
controlled by, or is under common control with, the first Person.  A corporation
is an affiliate of another corporation, regardless of ownership, if
substantially the same group of Persons manage the two corporations.

 

The term “Business Day” shall mean any day on which the office of the Trustee
[in New York, New York] is open for business.

 

The term “control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, by common
management or otherwise.  A Person having a contract or arrangement giving that
Person control is deemed to be in control despite any limitations placed by law
on the validity of the contract or arrangement.  There is a rebuttable
presumption of control if a Person directly or indirectly owns, holds with the
power to vote or holds proxies to vote more than 10% of the voting securities of
another Person, except that no Person shall be presumed to control another
person solely by reason of holding an official position with that person. 
“Control” has the same meaning in the terms “controlling,” “controlled by” and
“under common control with.”

 

The term “Eligible Trust Assets” shall mean shall mean (i) cash (United States
legal tender); (ii) certificates of deposit issued by a Qualified Fiduciary
United States Financial Institution and payable in United States legal tender,
including those issued by the Trustee; and (iii) securities representing
investments of the type specified in Section 620.22(1) of the Wisconsin
Insurance Law that are rated investment grade by at least one nationally
recognized statistical rating organization and whose issuers (other than the
United States government), together with Affiliates, represent no more than 10%
in market value of the Assets in the Trust Account; provided, however, that no
such securities shall have been issued by a Parent, a Subsidiary or an Affiliate
of any of the Grantor or the Beneficiaries.

 

The term “Obligations” shall mean, with respect to the Reinsurance Agreements,
the Grantor’s share of: (a) reinsured losses and allocated loss expenses paid by
a Beneficiary, but not recovered from the Grantor; (b) reserves for reinsured
losses reported and outstanding; (c) reserves for reinsured losses incurred but
not reported; (d) reserves for reinsured allocated loss expenses; and
(e) reserves for unearned premiums, if applicable, in each case as determined in
accordance with statutory accounting principles prescribed or permitted by the
Wisconsin Insurance Department.

 

The term “Parent” shall mean a Person that controls, directly or indirectly,
another Person.

 

12

--------------------------------------------------------------------------------

 

The term “Person” shall mean and include an individual, a corporation, a limited
liability company, a partnership, an association, a joint stock company, a
trust, an unincorporated organization, or any similar entity or any combination
of the foregoing acting in concert.

 

The term “Qualified Fiduciary United States Financial Institution” shall mean an
institution that is (a) is organized or, in the case of a United States branch
or agency office of a foreign banking corporation, licensed, under the laws of
the United States or any state; (b) is regulated, supervised and examined by
United States federal or state authorities having regulatory authority over
banks and trust companies; (c) has total assets of at least $500 million and a
short-term deposit rating of at least P-1 (Moody’s) or A-1 (Standard & Poor’s);
and (d) is not a Parent, a Subsidiary or an Affiliate of any of the Grantor or
the Beneficiaries.

 

The term “Subsidiary” shall mean a Person that is controlled, directly or
indirectly, by another Person.

 

The term “Third Party Appraiser” shall mean a nationally recognized independent
appraisal firm which is mutually acceptable to the Grantor and the Beneficiaries
or, if the Grantor and the Beneficiaries are unable to agree on such an
appraisal firm, an independent appraisal firm selected by mutual agreement of
Grantor’s and Beneficiaries’ independent accountants.

 

Section 15.                                   Governing Law; Compliance with
Regulations; Venue.

 

This Agreement shall be governed by and construed in accordance with the laws of
the [State of New York].  Each Party agrees, for the benefit of the other
Parties (including, without limitation, any liquidator, rehabilitator, receiver
or conservator and any successor, merged or consolidated entity), that the
federal and state courts located in the [State of New York, New York County,]
shall have exclusive jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in connection
with this Agreement.

 

Section 16.                                   Successors and Assigns.

 

No Party may assign this Agreement or any of its obligations hereunder without
the prior written consent of the other Parties; provided, however, that this
Agreement shall inure to the benefit of and bind those who, by operation of law,
become successors to the Parties, including, without limitation, any liquidator,
rehabilitator, receiver or conservator and any successor, merged or consolidated
entity, and provided, further, that, in the case of the Trustee, the successor
trustee is eligible to be a trustee under the terms hereof.

 

Section 17.                                   Severability.

 

In the event that any provision of this  Agreement shall be declared invalid or
unenforceable by a court having jurisdiction, such invalidity or
unenforceability shall not effect the validity or enforceability of the
remaining portions of this Agreement.

 

13

--------------------------------------------------------------------------------

 

Section 18.                                   Entire Agreement.

 

This Agreement constitutes the entire agreement among the Parties with respect
to the subject matter hereof, and there are no understandings or agreements,
conditions or qualifications relative to this Agreement which are not fully
expressed in this Agreement.

 

Section 19.                                   Amendment; Consent.

 

This Agreement may be modified or otherwise amended, and the observance of any
term of this Agreement may be waived, only if such modification, amendment or
waiver is in writing and signed by all of the Parties.  Whenever a Party shall
have the right to consent to the taking of any action by another Party under
this Agreement, such first Party agrees that its consent shall not be
unreasonably withheld, conditioned or delayed.

 

Section 20.                                   Notices, etc.

 

Unless otherwise provided in this Agreement, all Communications (including,
without limitation, any Investment Orders or Instructions) required or permitted
to be given or made under the terms hereof shall be in writing and shall be
deemed to have been duly given or made (a) (i) when delivered personally,
(ii) when made or given by facsimile or electronic mail, or (iii) in the case of
a nationally recognized overnight courier, upon the expiration of three days
after any Communication shall have been deposited with such overnight courier
for transmission or upon receipt thereof, whichever shall first occur and
(b) when addressed as follows:

 

If to the Grantor:

 

[                                        ]

[                                        ]

Attention:  [                      ]

Fax:  [                                ]

E-mail:  [                            ]

 

If to the Beneficiaries:

 

[                                        ]

[                                        ]

Attention:  [                      ]

Fax:  [                                ]

E-mail:  [                            ]

 

With a copy to (for all Communications other than Investment Orders and
Instructions):

 

[                                        ]

[                                        ]

Attention:  [                      ]

 

14

--------------------------------------------------------------------------------

 

Fax:  [                                ]

E-mail:  [                            ]

 

If to the Trustee:

 

[                                        ]

[                                        ]

Attention:  [                      ]

Fax:  [                                ]

E-mail:  [                            ]

 

Each Party may from time to time designate a different address for
Communications (including, without limitation, Investment Orders) by giving
written notice of such change to the other Parties; provided, however, that each
Party shall at all times be entitled to give all Communications to the Trustee
at its principal office in the United States.  All Communications relating to
the withdrawal, redemption, investment, reinvestment or substitution of Assets
and to the termination of the Trust Account shall be in writing.

 

Section 21.                                   Certain Covenants.

 

The Grantor hereby covenants and agrees that it shall continue to (i) provide
all policyholder service and handle all claims relating to the insurance
business subject to the Reinsurance Agreements, and (ii) provide the
Beneficiaries with all information with respect to the Obligations, in no less
detail than consistent with past practice, necessary for them to prepare their
respective statutory filings and financial statements on a timely basis.  The
Grantor hereby further agrees that the foregoing covenants shall survive the
termination of this Agreement.

 

Section 22.                                   Headings.

 

The headings of the sections and the Table of Contents have been inserted for
convenience of reference only, and shall not be deemed to constitute a part of
this Agreement.

 

Section 23.                                   Counterparts.

 

This Agreement may be executed in any number of counterparts, each of which when
so executed and delivered shall constitute an original, but such counterparts
together shall constitute one and the same Agreement.

 

[SIGNATURE PAGES FOLLOW]

 

15

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.

 

 

ONEBEACON INSURANCE COMPANY

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

ESURANCE INSURANCE COMPANY

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

ESURANCE INSURANCE COMPANY OF NEW JERSEY

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

[     BANK, N.A.]

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

--------------------------------------------------------------------------------

 

EXHIBIT A

(To Form Trust Agreement)

 

REINSURANCE AGREEMENTS

 

Amended and Restated Transfer and Assumption Agreement, originally effective
January 1, 2003, by and between Esurance Insurance Company and OneBeacon
Insurance Company

 

Instrument of Transfer and Assumption Agreement, dated June 30, 2005, by and
between Homeland Central Insurance Company (now known as Esurance Insurance
Company of New Jersey) and OneBeacon Insurance Company

 

--------------------------------------------------------------------------------

 

EXHIBIT B

(To Form Trust Agreement)

 

ASSETS DEPOSITED TO THE TRUST ACCOUNT

 

[Note: Exhibit shall contain a list of Eligible Trust Assets having an aggregate
market value as of the end of the calendar month ending immediately prior to the
Closing Date equal to the Required Balance as of the end of the calendar quarter
ending immediately prior to the Closing Date.]

 

--------------------------------------------------------------------------------

 

EXHIBIT C

(To Form Trust Agreement)

 

FORM OF WITHDRAWAL NOTICE

 

[Date]

 

[     Bank, N.A.]

[                                        ]

[                                        ]

 

cc:               OneBeacon Insurance Company

[                                        ]

[                                        ]

 

Re:             Withdrawal Notice Under Trust Agreement (the “Trust Agreement”),
dated as of [                    ], 2011, by and among OneBeacon Insurance
Company, as Grantor, Esurance Insurance Company and Esurance Insurance Company
of New Jersey, as Beneficiaries, and [    ] Bank, N.A., as Trustee

 

Ladies and Gentlemen:

 

We refer to Section 2(a) of the Trust Agreement, and hereby give you notice of
our election to withdraw the following Assets from the Trust Account:

 

[Specify Assets]

 

Please deliver such assets to or for the account of the person or entity named
below at the address specified below:

 

[Specify Designee and Address]

 

Very truly yours,

 

[Esurance Insurance Company]/[Esurance Insurance Company of New Jersey]

 

By:

 

 

 

Name:

 

 

Title:

 

 

--------------------------------------------------------------------------------