Exhibit 10.1

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

NATIONAL GENERAL HOLDINGS CORP.,

BLUEBIRD ACQUISITION CORP.,

ELARA HOLDINGS, INC.

and

SHAREHOLDER REPRESENTATIVE SERVICES LLC

solely in its capacity as Company Holders’ Representative hereunder

Dated as of June 24, 2016

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TABLE OF CONTENTS

 

Article I    DEFINITIONS, TERMS AND INTERPRETIVE MATTERS   

Section 1.01

 

Certain Definitions

     1   

Section 1.02

 

Other Definitional Provisions

     18   

Section 1.03

 

Interpretive Matters

     19    Article II    THE MERGER   

Section 2.01

 

Merger

     20   

Section 2.02

 

The Closing

     20   

Section 2.03

 

Effective Time

     21   

Section 2.04

 

Effects of the Merger

     21   

Section 2.05

 

Certificate of Incorporation and Bylaws

     21   

Section 2.06

 

Directors and Officers

     21    Article III   

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT

CORPORATIONS; EXCHANGE OF SHARES

  

  

Section 3.01

 

Effect on Capital Stock

     22   

Section 3.02

 

[Reserved]

     22   

Section 3.03

 

Company Options

     22   

Section 3.04

 

Company Restricted Stock

     23   

Section 3.05

 

Estimated Closing Statement; Company Holder Payment Schedule; Specified
Percentage

     23   

Section 3.06

 

Transactions at the Closing

     24   

Section 3.07

 

Stockholders of the Company

     26   

Section 3.08

 

Intentionally Omitted

     27   

Section 3.09

 

Withholding Tax

     27   

Section 3.10

 

No Liability for Abandoned Property

     27   

Section 3.11

 

Forfeiture.

     27   

Section 3.12

 

Rights of Former Stockholders

     27   

Section 3.13

 

Post-Closing Adjustment

     28    Article IV    REPRESENTATIONS AND WARRANTIES OF THE COMPANY   

Section 4.01

 

Organization, Standing and Power

     32   

Section 4.02

 

Authorization

     32   

 

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Section 4.03

 

Noncontravention

     33   

Section 4.04

 

Financial and Statutory Statements; No Undisclosed Liabilities

     33   

Section 4.05

 

Absence of Certain Changes

     34   

Section 4.06

 

Capitalization

     35   

Section 4.07

 

Subsidiaries

     35   

Section 4.08

 

Governmental Approvals

     36   

Section 4.09

 

Legal Proceedings; Orders

     36   

Section 4.10

 

Compliance with Laws; Permits

     37   

Section 4.11

 

Insurance Matters

     38   

Section 4.12

 

Employee Benefit Plans/ERISA

     38   

Section 4.13

 

Material Contracts

     40   

Section 4.14

 

Environmental Matters

     42   

Section 4.15

 

Real Property

     42   

Section 4.16

 

Labor Matters

     43   

Section 4.17

 

Insurance Coverage

     44   

Section 4.18

 

Intellectual Property

     44   

Section 4.19

 

Taxes

     46   

Section 4.20

 

Affiliate Transactions

     47   

Section 4.21

 

Title to Assets

     48   

Section 4.22

 

Brokers

     48   

Section 4.23

 

Reinsurance

     48    Article V    REPRESENTATIONS AND WARRANTIES OF    PARENT AND MERGER
SUB   

Section 5.01

 

Organization, Standing and Power

     49   

Section 5.02

 

Authorization

     49   

Section 5.03

 

Noncontravention

     49   

Section 5.04

 

Governmental Approvals

     50   

Section 5.05

 

Available Funds

     50   

Section 5.06

 

Parent Impediments

     50   

Section 5.07

 

Compliance with Laws

     50   

Section 5.08

 

Investment Representation

     50   

Section 5.09

 

Brokers

     51   

Section 5.10

 

Ownership; No Prior Activities and Agreements

     51   

Section 5.11

 

Policy

     51    Article VI    COVENANTS   

Section 6.01

 

Conduct of Business

     51   

Section 6.02

 

Reasonable Best Efforts to Consummate Merger/Notification

     54   

Section 6.03

 

Exclusivity

     58   

Section 6.04

 

Preservation of Records

     58   

 

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Section 6.05

 

Access to Information

     59   

Section 6.06

 

Public Statements; Confidentiality

     60   

Section 6.07

 

Indemnification of Directors and Officers

     61   

Section 6.08

 

Employee Benefits

     63   

3ection 6.09

 

Subsequent Financial Statements

     64   

Section 6.10

 

Resignation of Company Directors

     65   

Section 6.11

 

[Intentionally Omitted].

     65   

Section 6.12

 

Pre-Closing Exercise of Company Options

     65    Article VII    CONDITIONS TO CLOSING   

Section 7.01

 

Conditions Precedent to the Obligations of the Company, Parent and Merger Sub

     65   

Section 7.02

 

Conditions Precedent to the Obligations of Parent and Merger Sub

     65   

Section 7.03

 

Conditions Precedent to the Obligations of the Company

     66   

Section 7.04

 

Waiver of Conditions

     67    Article VIII    TERMINATION   

Section 8.01

 

Termination of Agreement

     67   

Section 8.02

 

Procedure on Termination

     68   

Section 8.03

 

Effect of Termination

     68    Article IX    INDEMNIFICATION   

Section 9.01

 

Indemnification by Company Holders

     68   

Section 9.02

 

Indemnification by Parent

     68   

Section 9.03

 

Indemnification Process

     69   

Section 9.04

 

Limitations on Indemnification

     71   

Section 9.05

 

Survival

     73   

Section 9.06

 

Treatment of Indemnification Payments

     73   

Section 9.07

 

Sole Remedy

     74   

Section 9.08

 

No Claim Against the Surviving Corporation

     74   

Section 9.09

 

Procedures Related to Tax Contests

     74   

Section 9.10

 

Release of Indemnity Escrow Account

     75    Article X    MISCELLANEOUS   

Section 10.01

 

Notices

     75   

Section 10.02

 

Amendment/Waiver

     77   

 

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Section 10.03

 

Assignment

     77   

Section 10.04

 

Entire Agreement

     77   

Section 10.05

 

Fulfillment of Obligations

     77   

Section 10.06

 

Parties in Interest

     77   

Section 10.07

 

Expenses

     78   

Section 10.08

 

Governing Law/Jurisdiction/Waiver of Jury Trial

     78   

Section 10.09

 

Counterparts

     79   

Section 10.10

 

Severability

     79   

Section 10.11

 

Further Assurances

     79   

Section 10.12

 

Remedies

     79   

Section 10.13

 

Non-Recourse

     80   

Section 10.14

 

Waiver of Conflicts

     80   

Section 10.15

 

Acknowledgments and Disclaimers

     82   

Section 10.16

 

Company Holders’ Representative

     84   

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, is dated as of June 24, 2016, by and among
National General Holdings Corp., a Delaware corporation (“Parent”), Bluebird
Acquisition Corp., a Delaware corporation (“Merger Sub”), Elara Holdings, Inc.,
a Delaware corporation (the “Company”) and Shareholder Representative Services
LLC, a Colorado limited liability company, solely in its capacity as the Company
Holders’ Representative (as defined below). Parent, Merger Sub, the Company and
the Company Holders’ Representative shall each be referred to herein from time
to time as a “Party” and collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Company and its Subsidiaries are engaged in the business of writing
personal lines insurance and providing customers with related financial
services, which include auto and life insurance, prepaid debit cards and
roadside assistance (the “Business”);

WHEREAS, Parent desires to acquire, directly or indirectly, one hundred percent
(100%) of the issued and outstanding capital stock of the Company in a reverse
subsidiary merger transaction on the terms and subject to the conditions set
forth herein;

WHEREAS, each of (a) Parent, as the sole stockholder of Merger Sub, (b) the
board of directors of Merger Sub and (c) the board of directors of the Company
has approved and declared advisable this Agreement and the merger of Merger Sub
with and into the Company, with the Company surviving such merger, upon the
terms and subject to the conditions set forth in this Agreement, and the board
of directors of the Company has declared it advisable and in the best interests
of the stockholders of the Company that this Agreement be adopted by, and the
merger of Merger Sub with and into the Company, with the Company surviving such
merger, be approved by, the stockholders of the Company; and

WHEREAS, concurrent with the execution of this Agreement, (a) the Identified
Company Stockholders have executed and delivered to the Company and Parent the
Stockholder Written Consents, (b) Parent, in its capacity as the sole
stockholder of Merger Sub, has executed and delivered to the Company an action
by written consent evidencing the adoption of this Agreement, and (c) the
Identified Company Stockholders have executed and delivered to Parent the
Stockholder Commitment Letter.

NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:

DEFINITIONS, TERMS AND INTERPRETIVE MATTERS

Certain Definitions. As used in this Agreement, the following terms shall have
the meanings set forth or as referenced below:

“Accounting Methodologies” means GAAP applied in accordance with the
methodologies set forth in Section 1.01(a)(1) of the Company Disclosure
Schedule.

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“Acquisition Proposal” shall have the meaning set forth in Section 6.03 hereof.

“Action” shall mean any judicial, administrative or arbitral action, claim,
suit, arbitration, investigation or proceeding (public or private) by or before
a Governmental Authority.

“Adjustment Escrow Account” shall mean the escrow account established pursuant
to the Escrow Agreement in respect of the Adjustment Escrow Amount.

“Adjustment Escrow Amount” shall mean one million five hundred thousand dollars
($1,500,000).

“Affiliate” shall mean, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such Person, and the term
“control” (including the terms “controlled by” and “under common control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise; provided that, in no
event shall the Company or any of the Company’s Subsidiaries be considered an
Affiliate of any portfolio company (other than the Company and its Subsidiaries)
of any investment fund affiliated with TPG or Calera and no portfolio company
(other than the Company and its Subsidiaries) of any investment fund affiliated
with TPG or Calera shall be considered to be an Affiliate of the Company or any
of the Company’s Subsidiaries.

“Aggregate Closing Consideration” shall be an amount equal to (i) the Premium,
plus (ii) the Estimated Closing Net Worth, plus (iii) the Estimated Tax Benefit
Amount, plus (iv) the Upward Estimated DTA Adjustment (if any), minus (v) the
Downward Estimated DTA Adjustment (if any), minus (vi) the Escrow Amount, minus
(vii) the Expense Fund Amount.

“Aggregate Common Stock Payments” shall have the meaning set forth in
Section 3.01(b) hereof.

“Aggregate Option Payments” shall have the meaning set forth in Section 3.03
hereof.

“Aggregate Restricted Stock Payments” shall have the meaning set forth in
Section 3.04 hereof.

“Aggregate Settlement Payments” shall mean, collectively, the Common Stock
Settlement Payments, the Option Settlement Payments and the Restricted Stock
Settlement Payments.

“Agreement” shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.

“Annual Financial Statements” shall have the meaning set forth in
Section 4.04(a) hereof.

“Applicable Closing Net Worth” shall have the meaning set forth in
Section 3.13(a) hereof.

 

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“Applicable DTA” shall have the meaning set forth in Section 3.13(a) hereof.

“Balance Sheet Date” shall have the meaning set forth in Section 4.04(a) hereof.

“Bankruptcy and Equity Exception” shall have the meaning set forth in
Section 4.02 hereof.

“Burdensome Condition” shall have the meaning set forth in Section 6.02(j)
hereof.

“Business” shall have the meaning set forth in the Recitals hereto.

“Business Day” shall mean any day other than a Saturday, a Sunday or a day on
which banks in the City of New York are authorized or obligated by Law or
executive order to close.

“Calculation Time” shall have the meaning set forth in Section 3.05(b).

“Calera” shall mean Calera Capital Partners III, L.P., Calera X, LLC, Calera
Capital Partners III Side-By-Side L.P. and Calera Capital Advisors, L.P., and
their respective Affiliates and successors.

“Certificate of Merger” shall have the meaning set forth in Section 2.03 hereof.

“Closing” shall have the meaning set forth in Section 2.02 hereof.

“Closing Balance Sheet” shall have the meaning set forth in Section 3.13(a)
hereof.

“Closing Date” shall have the meaning set forth in Section 2.02 hereof.

“Closing Net Worth” shall mean an amount equal to the difference of (i) the
Total Assets as of the Calculation Time, minus (ii) the Total Liabilities as of
the Calculation Time; provided that, the Closing Net Worth shall be calculated
without regard to the impact of any acquisition of any business by the Company
or any of its Subsidiaries consented to by Parent in accordance with
Section 6.01(a).

“Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.

“Commercially Available Software” shall mean any computer software used by the
Company or any of the Subsidiaries, including pursuant to a Third Party
Intellectual Property License, which is generally commercially available and
either (a) is available on standard and non-negotiated terms or (b) was licensed
for a license fee of less than one hundred thousand dollars ($100,000) per annum
(or three hundred thousand dollars ($300,000) over the term of the license
agreement if license fees are not determined on an annual basis).

“Common Stock” shall mean the common stock, par value $0.01 per share, of the
Company.

“Common Stock Settlement Payments” shall have the meaning set forth in
Section 3.01(b) hereof.

“Company” shall have the meaning set forth in the Preamble hereto.

 

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“Company Affiliate Arrangement” shall have the meaning set forth in Section 4.20
hereof.

“Company Disclosure Schedule” shall have the meaning set forth in Article IV.

“Company Fundamental Representations” shall mean, collectively, the first
sentence of Section 4.01(a) and the first sentence of Section 4.01(b)
(Organization, Standing and Power), Section 4.02 (Authorization),
Section 4.03(a)(i) and 4.03(b) (Noncontravention), Section 4.06
(Capitalization), Section 4.07 (Subsidiaries), Section 4.19 (Taxes), and
Section 4.22 (Brokers).

“Company Holders” shall mean, collectively, (a) each Stockholder, (b) each
holder of shares of Company Restricted Stock and (c) each Optionholder, in each
case, as of immediately prior to the Effective Time.

“Company Holder Indemnified Parties” shall mean the Company Holders and their
respective Affiliates, and their respective directors, officers, shareholders,
members, managers, partners and employees.

“Company Holder Payment Schedule” shall have the meaning set forth in
Section 3.05(c) hereof.

“Company Holders’ Representative” shall mean the representative of the Company
Holders having the duties, rights and obligations set forth in this Agreement.

“Company Intellectual Property” shall mean all Owned Company Intellectual
Property and Licensed Company Intellectual Property.

“Company Material Adverse Effect” shall mean an effect, event, change,
development, occurrence or circumstance that individually or in the aggregate,
is or would reasonably be expected to be materially adverse to the business,
results of operations, condition (financial or otherwise), assets, Liabilities
or properties of the Company and the Company’s Subsidiaries, taken as a whole;
provided, however, that no effect, event, change, development, occurrence or
circumstance arising or resulting from any of the following, either alone or in
combination, shall constitute or be taken into account in determining whether
there has been a Company Material Adverse Effect: (a) any conditions affecting
the property and casualty insurance industries in which the Company or its
Subsidiaries operate generally; (b) general economic conditions, including
changes in the credit, debt, financial, currency or capital markets (including
changes in interest or exchange rates), in each case, in the United States of
America (“U.S.”) or anywhere else in the world; (c) earthquakes, floods, fires,
hurricanes, tropical storms, tornadoes, volcanic eruptions, pandemics, natural
disasters or other acts of nature; (d) global, national or regional political
conditions, including hostilities, acts of war, sabotage or terrorism or
military actions or any escalation, worsening of any such hostilities, acts of
war, sabotage or terrorism or military actions existing or underway as of the
date hereof; (e) the announcement or pendency or consummation of the
transactions contemplated by this Agreement (including the identity of Parent),
including the impact thereof on relationships, contractual or otherwise, with,
or actual or potential loss or impairment of, and any other negative development
(or potential negative development) of the Company or any Subsidiary of the
Company with any clients, customers, suppliers, distributors, partners,
financing sources, directors, officers or other employees and/or consultants
and/or on revenue, profitability and cash flows; (f) any change after the date
hereof in Laws or GAAP or SAP or the interpretation thereof; (g) any failure (in
and of itself) by the Company or any Subsidiary of the Company to meet any
revenue, earnings or other financial

 

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projections or forecasts (but not the facts or circumstances giving rise to such
failure unless otherwise excluded from the definition of Company Material
Adverse Effect); (h) any change or announcement of a potential change, in and of
itself, in the credit, financial strength or claims paying ratings of the
Company or any of the Company’s Subsidiaries (but not the underlying cause
thereof unless otherwise excluded from the definition of Company Material
Adverse Effect); and (i) the effects of any breach, violation or non-performance
of any provision of this Agreement by Parent, Merger Sub or any of their
respective Affiliates, except in the case of subclauses (a), (b), (c) and (d),
to the extent that the same is disproportionately adverse to the Company and its
Subsidiaries, taken as a whole, as compared to other participants in the
industries in which the Company and its Subsidiaries operate.

“Company Option” shall mean any option to purchase shares of Common Stock
granted under the Equity Plan.

“Company Restricted Stock” shall mean any award of Common Stock, granted under
the Equity Plan, that remains subject to a substantial risk of forfeiture.

“Confidentiality Agreement” shall mean the Confidentiality Agreement, dated
February 9, 2016 between Parent and the Company.

“Contract” shall mean, with respect to any Person, any written or oral
agreement, contract, lease, sublease, license, instrument, commitment or other
legally binding obligation to which such Person is a party or is otherwise
subject or bound.

“Credit Agreement” shall mean the Amended and Restated Loan Agreement, dated as
of April 6, 2015, by and among the Company, Direct General Corporation, a
Tennessee corporation, the lenders party thereto, Fifth Third Bank, as
collateral agent and as co-administrative agent, and First Tennessee Bank
National Association, as co-administrative agent, as amended, restated,
supplemented or otherwise modified.

“D&O Indemnitees” shall have the meaning set forth in Section 6.07(a) hereof.

“D&O Policy” shall have the meaning set forth in Section 6.07(d) hereof.

“Damages” shall have the meaning set forth in Section 9.01 hereof.

“De Minimis Limitation” shall have the meaning set forth in Section 9.04(a)
hereof.

“Deductible” shall mean one million two hundred seventy-five thousand dollars
($1,275,000).

“Deferred Tax Asset Amount” shall mean the sum of (i) the excess of the federal
deferred tax assets of the Company over the federal deferred tax liabilities of
the Company, in each case as of the Calculation Time and computed in accordance
with the Accounting Methodologies but without regard to net operating losses and
without regard to any valuation allowance and (ii) the product of (a) 80% and
(b) the federal deferred tax assets of the Company attributable to the amount of
federal income tax net operating losses of the Company which such federal income
tax net operating losses are not in excess of fifty-two million six hundred
thousand dollars ($52,600,000),

 

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computed in accordance with the Accounting Methodologies but without regard to
any valuation allowance, and (iii) the product of 11.375% multiplied by the
lesser of (x) the amount of the federal income tax net operating losses of the
Company in excess of fifty-two million six hundred thousand dollars
($52,600,000), if any, and (y) the Section 382 Cap less (for purposes of this
clause (y)) the deductible portion for federal income tax purposes of the
Transaction Expenses determined in accordance with Section 1.01(b) of the
Company Disclosure Schedule.

“Delaware Courts” shall have the meaning set forth in Section 10.08(b).

“DGCL” shall mean the General Corporation Law of the State of Delaware.

“Disputed Items” shall have the meaning set forth in Section 3.13(c)(i) hereof.

“Downward Estimated DTA Adjustment” means the amount (if any) by which the
Target DTA is in excess of the Estimated DTA.

“Effective Time” shall have the meaning set forth in Section 2.03 hereof.

“Electronic Data Room” shall mean the electronic data room established by or on
behalf of the Company, as the same exists as of the date of this Agreement.

“Environmental Laws” shall mean all Laws relating to pollution or protection of
the environment, human health or safety or natural resources, including Release
of or exposure to any Hazardous Materials.

“Equity Plan” shall mean the Elara Holdings, Inc. 2007 Long-Term Equity
Incentive Plan, as amended.

“ERISA” shall mean the U.S. Employee Retirement Income Security Act of 1974, as
amended.

“ERISA Affiliate” shall mean each trade or business (whether or not
incorporated) that together with the Company would be deemed to be a “single
employer” within the meaning of Section 4001(b) of ERISA or Section 414 of the
Code.

“Escrow Agent” shall mean JPMorgan Chase Bank, N.A.

“Escrow Agreement” shall mean an agreement in substantially the form attached to
Section 1.01(c) of the Company Disclosure Schedule.

“Escrow Amount” shall mean the sum of the Adjustment Escrow Amount plus the
Indemnity Escrow Amount.

“Estimated Closing Balance Sheet” shall have the meaning set forth in
Section 3.05(a) hereof.

“Estimated Closing Net Worth” shall have the meaning set forth in
Section 3.05(a) hereof.

“Estimated Closing Statement” shall have the meaning set forth in
Section 3.05(a) hereof.

 

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“Estimated DTA” shall have the meaning set forth in Section 3.05(a) hereof.

“Estimated Tax Benefit Amount” shall have the meaning set forth in
Section 3.05(a) hereof.

“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended,
and the applicable rules and regulations thereunder.

“Excluded Shares” shall have the meaning set forth in Section 3.01(c) hereof.

“Expense Fund” shall mean the fund established by the Company Holders’
Representative to hold the Expense Fund Amount.

“Expense Fund Amount” shall have the meaning set forth in Section 10.16(f)
hereof.

“Final Closing Balance Sheet” shall have the meaning set forth in
Section 3.13(c)(v) hereof.

“Final Closing Net Worth” shall have the meaning set forth in Section 3.13(c)(v)
hereof.

“Final Closing Statement” shall have the meaning set forth in Section 3.13(c)(v)
hereof.

“Final DTA” shall have the meaning set forth in Section 3.13(c)(v) hereof.

“Final Tax Benefit Amount” shall have the meaning set forth in
Section 3.13(c)(v) hereof.

“Financial Statements” shall have the meaning set forth in Section 4.04(a)
hereof.

“FIRPTA Certificate” shall mean a non-U.S. real property interest certificate
described under Treasury Regulation section 1.1445-2(c)(3) that (i) includes the
information described in Treasury Regulation section 1.897-2(h)(2), (ii) states
that the Company is not a “United States Real Property Holding Company” as
defined in Section 897(c)(2) of the Code and Treasury Regulation section
1.897-2, (iii) is signed by a duly authorized officer of the Company, and
(iv) is dated no more than thirty (30) days before the Effective Time.

“Form Agent Contract” shall have the meaning set forth in Section 4.12(a)
hereof.

“Fraud” means with respect to any Party, the knowing and intentional
misrepresentation of material facts which constitute common law fraud under the
laws of the State of Delaware.

“Fully Diluted Common Shares” shall mean, as of any date, (a) the aggregate
number of shares of Common Stock issued and outstanding (which, for the
avoidance of doubt, includes the aggregate number of shares of Company
Restricted Stock, but shall not include Excluded Shares) immediately prior to
the Effective Time plus (b) the aggregate number of In-the-Money Company Options
determined as of such date.

“GAAP” shall mean generally accepted accounting principles in the U.S.,
consistently applied.

“Governmental Authority” shall mean any government or governmental or regulatory
body thereof, or political subdivision thereof, whether foreign, European Union,
multinational or

 

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other supranational, national, federal, regional or state or any agency,
instrumentality, authority, department, commission, board or bureau thereof, or
any court, arbitrator, arbitration panel or similar judicial body.

“Hazardous Materials” shall mean any pollutant, contaminant, waste, petroleum or
any fraction thereof, asbestos or asbestos-containing material, polychlorinated
biphenyls, and toxic, radioactive, infectious, disease-causing, medical or
hazardous wastes, substances, materials or agents, including all substances
defined or regulated as “Hazardous Substances,” “Toxic Substances,”
“Pollutants,” or “Contaminants” or words of similar meaning or effect pursuant
to any Environmental Law.

“HSR Act” shall mean the U.S. Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

“Identified Company Stockholders” shall mean the Stockholders listed in
Section 1.01(d) of the Company Disclosure Schedule.

“Indebtedness” shall mean, as applied to any Person as of any time, without
duplication: (a) the unpaid principal amount, and accrued interest, required
premiums, penalties and other required fees, expenses (if any) and other payment
obligations or amounts due, in each case, in respect of (i) indebtedness for
borrowed money of such Person or its Subsidiaries, (ii) indebtedness evidenced
by bonds, debentures, notes or other similar instruments to the extent drawn and
(iii) obligations with respect to currency or interest-rate hedging, swaps or
similar financial arrangements (valued at the termination value thereof and net
of all payments owed to the Company and its Subsidiaries thereunder); (b) all
obligations under capitalized leases with respect to which the Company or any of
its Subsidiaries is liable; (c) any amounts for the deferred purchase price of
goods and services (other than trade accounts payable of not more than sixty
(60) days), including any earn out Liabilities associated with past
acquisitions; and (d) all obligations of the type referred to in clauses
(a) through (c) of other Persons for which the Company or any of its
Subsidiaries is responsible or liable, as obligor, guarantor, surety or
otherwise, including any guarantee of such obligations or any agreement to keep
well. For the avoidance of doubt, “Indebtedness” shall not include the
Transaction Expenses.

“Indemnified Party” shall have the meaning set forth in Section 9.03(a) hereof.

“Indemnifying Party” shall have the meaning set forth in Section 9.03(a) hereof.

“Indemnity Escrow Account” shall mean the escrow account established pursuant to
the Escrow Agreement in respect of the Indemnity Escrow Amount.

“Indemnity Escrow Amount” shall mean one million two hundred seventy-five
thousand dollars ($1,275,000).

“Independent Expert” shall have the meaning set forth in Section 3.13(c)(iii)
hereof.

“Insurance Cap” shall have the meaning set forth in Section 6.07(d) hereof.

 

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“Insurance Company Subsidiaries” shall mean, collectively: (a) Direct National
Insurance Company, an Arkansas insurance company, (b) Direct General Insurance
Company, an Indiana insurance company, (c) Direct General Insurance Company of
Louisiana, a Louisiana insurance company, (d) Direct General Insurance Company
of Mississippi, a Mississippi insurance company, (e) Direct General Life
Insurance Company, a South Carolina insurance company and (f) Direct Insurance
Company, a Tennessee insurance company.

“Insurance Contract” shall have the meaning set forth in Section 4.11(a) hereof.

“Intellectual Property” shall mean all intellectual property and equivalent
rights in any jurisdiction throughout the world, whether registered or
unregistered, including all U.S. and foreign (i) Patents, (ii) Trademarks,
(iii) copyrights and copyrightable subject matter, (iv) rights in software (in
both source code and object code), databases and other compilations of
information, and all software and content constituting or contained on Internet
sites, (v) domain names and social media identifiers, and (vi) Trade Secrets.

“Interim Balance Sheets” shall have the meaning set forth in Section 6.09
hereof.

“Interim Financial Statements” shall have the meaning set forth in
Section 4.04(a) hereof.

“In-the-Money Company Option” shall mean a Company Option with a per share
exercise price that is less than (i) for purposes of determining the Option
Settlement Payments, the Per Share Merger Closing Consideration or (ii) for all
other purposes (including clause (y) of Section 3.03, Section 3.13(e) and
Section 9.10), the sum of (a) the Per Share Merger Closing Consideration,
(b) the amount paid by Parent pursuant to Section 3.13(e)(i) on a per Fully
Diluted Share basis and (c) the amount released pursuant to Section 9.10 on a
per Fully Diluted Share basis.

“IRS” shall have the meaning set forth in Section 4.12(a) hereof.

“Knowledge” of a Person shall mean: (a) with respect to the Company, the
knowledge of the natural Persons listed in Section 1.01(e) of the Company
Disclosure Schedule after reasonable inquiry; and (b) with respect to Parent,
the knowledge of the natural Persons listed in Section 1.01(a) of the Parent
Disclosure Schedule after reasonable inquiry.

“Law” shall mean any national, regional or local law (common, statutory, civil
and criminal), statute, ordinance, rule, regulation, code, order, judgment,
decree, injunction or other legally binding obligation imposed by or on behalf
of a Governmental Authority.

“Leased Real Property” shall have the meaning set forth in Section 4.15(b)
hereof.

“Legal Request” shall have the meaning set forth in Section 10.14(c).

“Lender” shall mean any lender, or if applicable, lessor or other party owed any
amounts with respect to Outstanding Company Indebtedness, other than the lenders
and lessors set forth in Section 1.01(f) of the Company Disclosure Schedule.

 

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“Letter Agreement” shall mean that certain letter agreement, dated as of the
date hereof, entered into among Parent, Merger Sub, the Company and certain
Identified Company Stockholders.

“Letter of Transmittal” shall mean the letter of transmittal in substantially
the form attached to Section 1.01(g) of the Company Disclosure Schedule.

“Liabilities” shall mean all indebtedness, obligations and other liabilities of
any nature.

“Licensed Company Intellectual Property” shall mean the material Intellectual
Property used by the Company and each of its Subsidiaries in the Business
pursuant to any Third Party Intellectual Property License.

“Liens” shall mean any lien, pledge, mortgage, hypothecation, deed of trust,
security interest, easement, servitude, preemptive right, right of first
refusal, option, transfer restriction, or other encumbrance.

“Litigation Side Letter” shall mean that certain letter agreement, dated as of
the date hereof, among the parties hereto in respect of certain post-Closing
matters.

“Lost Certificate Affidavit” shall have the meaning set forth in Section 3.07(b)
hereof.

“Material Contracts” shall have the meaning set forth in Section 4.13(a) hereof.

“Merger” shall have the meaning set forth in Section 2.01 hereof.

“Merger Consideration” shall mean the aggregate of the Aggregate Common Stock
Payments, the Aggregate Option Payments, and the Aggregate Restricted Stock
Payments, as may be adjusted by the Post-Closing Adjustment in accordance with
Section 3.13 hereof.

“Merger Sub” shall have the meaning set forth in the Preamble hereto.

“Non-Disputed Item” shall have the meaning set forth in Section 3.13(c)(i)
hereof.

“Non-Recourse Parties” shall have the meaning set forth in Section 10.13 hereof.

“Notice of Disagreement” shall have the meaning set forth in Section 3.13(c)(i)
hereof.

“Option Additional Payments” shall have the meaning set forth in Section 3.03.

“Option Settlement Payments” shall have the meaning set forth in Section 3.03
hereof.

“Optionholder” shall mean a holder of a Company Option.

“Optionholder Commitment Letter” shall mean the consent to be executed by
Optionholders prior to the Closing, substantially in the form of the Stockholder
Commitment Letter.

 

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“Order” shall mean any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award of a Governmental Authority of competent
jurisdiction or any assessment, determination, stipulation or writ issued by or
agreement entered into with any Governmental Authority.

“Ordinary Course of Business” shall mean, with respect to a Person, the ordinary
course of business of such Person, prior to the date of this Agreement,
consistent with past practice.

“Organizational Documents” shall mean any corporate, partnership or limited
liability organizational documents, including certificates or articles of
incorporation, bylaws, certificates of formation, operating agreements, limited
liability company agreements, certificates of limited partnership, partnership
agreements, shareholder agreements and certificates of existence, as applicable.

“Outstanding Claims” shall have the meaning set forth in Section 9.10 hereof.

“Outstanding Company Indebtedness” shall mean the total amount of outstanding
Indebtedness of the Company and its Subsidiaries as of the Calculation Time.

“Owned Company Intellectual Property” shall have the meaning set forth in
Section 4.18(a) hereof.

“Owned Real Property” shall have the meaning set forth in Section 4.15(a)
hereof.

“Parent” shall have the meaning set forth in the Preamble hereto.

“Parent Disclosure Schedule” shall have the meaning set forth in Article V
hereof.

“Parent Fundamental Representations” shall mean, collectively, the first
sentence of Section 5.01(a) (Organization, Standing and Power), Section 5.02
(Authorization), Section 5.03(a)(i) and 5.03(b) (Noncontravention) and
Section 5.09 (Brokers).

“Parent Indemnified Parties” shall mean Parent, the Surviving Corporation and
their respective Affiliates, and their respective directors, officers,
shareholders, members, managers, partners and employees.

“Parent Material Adverse Effect” shall mean the prohibition, or a material
impairment or delay, of the ability of Parent or Merger Sub to perform their
respective obligations under this Agreement.

“Parent Plans” shall have the meaning set forth in Section 6.08(b) hereof.

“Party” or “Parties” shall have the meaning set forth in the Preamble hereof.

“Patents” shall mean all issued patents, including design patents and utility
patents, pending patent applications, and any and all reissues, divisions,
continuations, continuations-in-part, continuing patent applications,
reexaminations and extensions thereof, and any counterparts claiming priority
therefrom.

 

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“Pay-Off Letter” shall mean a document provided by each Lender, setting forth
the aggregate amount required to be paid to such Lender on the Closing Date in
order to fully discharge the Outstanding Company Indebtedness owing to such
Lender under the Credit Agreement (such amount, the “Pay-Off Company
Indebtedness”) and confirming that promptly upon receipt of such payment such
Lender will release all liens for such Pay-Off Company Indebtedness, in each
case, in form and substance customary for a pay-off of such type.

“Paying Agent” shall have the meaning set forth in Section 3.07(a) hereof.

“Paying Agent Agreement” shall have the meaning set forth in Section 3.07(a)
hereof.

“Payment Fund” shall have the meaning set forth in Section 3.07(a) hereof.

“Per Share Merger Closing Consideration” shall mean an amount equal to the
quotient of (i) the sum of (A) Aggregate Closing Consideration and (B) the
aggregate exercise price of In-the-Money Company Options that are deemed to be
exercised pursuant to Section 3.03, divided by (ii) the number of Fully Diluted
Common Shares.

“Permits” shall mean any license, franchise, permit, certificate, consent,
registration, approval or similar authorizations from any Governmental
Authority.

“Permitted Liens” shall mean (a) all defects, exceptions, restrictions,
easements, rights of way, covenants, conditions, exclusions, encumbrances and
other similar matters, in each case with respect to real property, disclosed in
policies of title insurance set forth in Section 1.01(i)(1) of the Company
Disclosure Schedule and delivered or made available to Parent prior to the date
hereof, (b) statutory liens for current Taxes, assessments or other governmental
charges not yet delinquent or the amount or validity of which is being contested
in good faith and for which adequate reserves have been established in the
Interim Financial Statements in accordance with GAAP and will be reflected in
the Estimated Closing Balance Sheet, (c) mechanics’, carriers’, workers’,
repairers’, construction contractors’, landlords’ and similar Liens arising or
incurred in the Ordinary Course of Business that are not yet delinquent or the
amount or validity of which is being contested in good faith and for which
adequate reserves have been established in the Interim Financial Statements in
accordance with GAAP and will be reflected in the Estimated Closing Balance
Sheet, (d) zoning, building codes, entitlement and other land use and
environmental regulations by any Governmental Authority, none of which
materially impact the current use of the affected property, (e) Liens securing
Indebtedness which are set forth in Section 1.01(i)(2) of the Company Disclosure
Schedule, which Liens will be released at the Closing pursuant to Pay-Off
Letters delivered in accordance with Section 3.06(a)(iii), (f) Liens arising
under workers’ compensation, unemployment insurance or other types of social
security, retirement and similar legislation for which adequate reserves have
been established in the Interim Financial Statements in accordance with GAAP and
will be reflected in the Estimated Closing Balance Sheet and (g) restrictions on
transfers of securities under applicable securities Law.

“Person” shall mean any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Authority or other entity.

“Personal Information” shall have the meaning set forth in Section 4.18(f)
hereof.

 

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“Plans” shall mean, collectively, each employment, consulting, executive
compensation, bonus, deferred compensation, incentive compensation, stock
purchase, stock option or other equity-based, retention, change-in-control,
severance or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program, agreement or arrangement, and each other fringe or
other employee benefit plan, program, agreement or arrangement (including any
“employee benefit plan,” within the meaning of Section 3(3) of ERISA, whether or
not subject to ERISA), sponsored, maintained or contributed to or required to be
contributed to by the Company or any Subsidiary or by any ERISA Affiliate for
the benefit of any employee or former employee of the Company or any Subsidiary.

“Policy” shall mean the representation and warranty insurance policy provided by
the Policy Insurer to Parent in respect of the transactions contemplated by this
Agreement and the Related Agreements.

“Policy Insurer” shall mean National Fire and Marine Insurance Company.

“Post-Closing Adjustment” shall mean an aggregate amount equal to the sum of
(i) the difference of the Final Closing Net Worth minus the Estimated Closing
Net Worth, plus (ii) the difference of the Final Tax Benefit Amount minus the
Estimated Tax Benefit Amount, plus (iii) the difference of the Final DTA minus
the Estimated DTA.

“Post-Closing Statement” shall have the meaning set forth in Section 3.13(a)
hereof.

“Premium” shall mean sixty-two million seven hundred thousand dollars
($62,700,000).

“Privileged Deal Communications” shall have the meaning set forth in
Section 10.14(a).

“Reference Balance Sheet” shall mean the audited consolidated balance sheet of
the Company and its Subsidiaries as of December 31, 2015, prepared in accordance
with the Accounting Methodologies, and attached hereto as Section 1.01(a)(2) of
the Company Disclosure Schedule.

“Reference Closing Statement” shall mean the illustrative closing statement
setting forth a calculation of Closing Net Worth (including Outstanding Company
Indebtedness and Transaction Expenses), the Tax Benefit Amount and the Deferred
Tax Asset Amount as if the Closing had occurred on December 31, 2015, prepared
in accordance with the Accounting Methodologies, and attached hereto as
Section 1.01(a)(3) of the Company Disclosure Schedule.

“Registered Company Intellectual Property” shall have the meaning set forth in
Section 4.18(a) hereof.

“Reinsurance Contract” shall have the meaning set forth in Section 4.23 hereof.

“Related Agreements” shall mean any agreement, certificate or instrument that is
to be entered into or delivered pursuant to this Agreement, including the
Certificate of Merger, the Escrow Agreement, the Paying Agent Agreement, the
Letter Agreement, the SRS Letter Agreement, the Litigation Side Letter, each
Letter of Transmittal, each Stockholder Commitment Letter and each Optionholder
Commitment Letter.

 

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“Release” shall mean any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous
Materials into the environment.

“Release Date” shall have the meaning set forth in Section 9.10 hereof.

“Representative Losses” shall have the meaning set forth in Section 10.16(g)
hereof.

“Restricted Stock Settlement Payments” shall have the meaning set forth in
Section 3.04 hereof.

“SAP” shall mean, as to any insurance or reinsurance company, the statutory
accounting practices prescribed or permitted by applicable insurance Laws and
the insurance regulatory authorities, in each case, of the jurisdiction in which
such company is domiciled, including any permitted practices applicable
specifically to any such company.

“SAP Statements” shall have the meaning set forth in Section 4.04(b) hereof.

“Section 382 Cap” shall mean the excess of (i) twenty (20) times the product of
(a) the Merger Consideration and (b) the long term tax-exempt rate published by
the Internal Revenue Service applicable to ownership changes under Code
Section 382 for the month in which the Closing Date occurs over (ii) fifty-two
million six hundred thousand dollars ($52,600,000).

“Securities Act” shall mean the U.S. Securities Act of 1933, as amended, and the
applicable rules and regulations thereunder.

“Skadden” shall mean Skadden, Arps, Slate, Meagher & Flom LLP.

“Specified Percentage” shall mean, as of any date, with respect to each Company
Holder, a fraction having a numerator equal to (i) the number of shares of
Common Stock (including the aggregate number of shares of Company Restricted
Stock) held by such Company Holder immediately prior to the Effective Time, plus
(ii) the number of Company Options held by such Company Holder immediately prior
to the Effective Time that are In-the-Money Company Options as of such date and
having a denominator equal to the Fully Diluted Common Shares determined as of
such date. The Specified Percentage shall be re-calculated following the Closing
in accordance with Section 3.05(d).

“SRS Letter Agreement” shall mean that certain letter agreement, dated as of
June 24, 2016, entered into among the Company, the Company Holders’
Representative and certain Identified Company Stockholders.

“Stock Certificate” shall have the meaning set forth in Section 3.07(b) hereof.

“Stockholder” shall mean a holder of shares of Common Stock.

“Stockholder Approval” shall have the meaning set forth in Section 4.03(b)
hereof.

 

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“Stockholder Commitment Letter” shall mean that certain Letter Agreement, dated
as of the date hereof, among the Company, Parent and each Identified Company
Stockholder reflecting certain agreements of the parties thereto in connection
with the transactions contemplated by this Agreement.

“Stockholder Written Consents” shall have the meaning set forth in
Section 4.03(c) hereof.

“Stockholders Agreements” shall mean (i) the Management Stockholders’ Agreement
of the Company, dated as of December 4, 2006, as amended, by and among the
Company, Calera Capital Partners III, L.P., Fremont Partners III Side-By-Side,
L.P., Calera X LLC, TPG Partners V, L.P., TPG FOF V-A, L.P., TPG FOF V-B, L.P.,
and the management stockholders named on the signature pages thereto under the
caption “Management Stockholder”, (ii) the Management Stockholders’ Agreement of
the Company, dated as of December 4, 2006, as amended, by and among the Company,
Calera Capital Partners III, L.P., Fremont Partners III Side-By-Side, L.P.,
Calera X LLC, TPG Partners V, L.P., TPG FOF V-A, L.P., TPG FOF V-B, L.P., and
the management stockholders named on the signature pages thereto under the
caption “Management Stockholder” and (iii) the Director Stockholders’ Agreement,
dated May 13, 2010, as amended, by and among the Company, Calera Capital
Partners III, L.P., Fremont Partners III Side-By-Side, L.P., Calera X LLC, TPG
Partners V, L.P., TPG FOF V-A, L.P., TPG FOF V-B, L.P., and the director
stockholders named on the signature pages thereto under the caption “Director
Stockholder.”

“Subsidiary” shall mean, with respect to any Person, any corporation, limited
liability company, partnership, association, or other business entity of which
(a) if a company or corporation, a majority of the total voting power of shares
of stock entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of such Person or a combination thereof or (b) if a limited
liability company, partnership, association, or other business entity (other
than a corporation), a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more Subsidiaries of such Person or a combination thereof
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity’s gains or losses or shall
be a, or control any, managing director or general partner of such business
entity (other than a corporation). The term “Subsidiary” shall include all
Subsidiaries of such Subsidiary.

“Survival Period” shall have the meaning set forth in Section 9.05 hereof.

“Surviving Corporation” shall have the meaning set forth in Section 2.01 hereof.

“Target DTA” shall mean forty-four million eight hundred fifteen thousand
dollars ($44,815,000).

“Tax Benefit Amount” shall mean the product of (i) 11.375% and (ii) the lesser
of (x) the deductible portion for federal income tax purposes of the Transaction
Expenses determined in accordance with Section 1.01(b) of the Company Disclosure
Schedule and (y) the Section 382 Cap.

 

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“Tax Contest” shall have the meaning set forth in Section 9.09 hereof.

“Tax Law” shall mean any Law relating to Taxes.

“Tax Return” shall mean any return, report, information return or other document
(including schedules or any related or supporting information) filed or required
to be filed with any Governmental Authority or other authority in connection
with the determination, assessment or collection of any Tax or the
administration of any Law or administrative requirements relating to any Tax.

“Taxes” shall mean (i) all taxes, charges, fees, duties, levies or other similar
assessments imposed by any federal, state, local or foreign Governmental
Authority, including income, gross receipts, excise, property, sales, gain, use,
license, capital stock, transfer, franchise, payroll, withholding, social
security, value added or other taxes, including any interest, penalties or
additions attributable thereto and (ii) Liability for the payment of any amounts
of the type described in clause (i) as a result of any express or implied
obligation to indemnify or otherwise assume or succeed to the Tax Liability of
any other Person payable by reason of contract, assumption, transferee
Liability, operation of law, Treasury Regulation section 1.1502-6 (or any
predecessor or successor thereof or any analogous or similar provision under
state, local or foreign Tax Law) or otherwise.

“Termination Date” shall have the meaning set forth in Section 8.01(b) hereof.

“Third Party Approval” shall have the meaning set forth in Section 6.02(d).

“Third Party Claim” shall have the meaning specified in Section 9.03(b)(i)
hereof.

“Third Party Claim Notice” shall have the meaning specified in Section 9.03(a)
hereof.

“Third Party Intellectual Property Licenses” shall mean agreements under which
Intellectual Property owned in whole or in part by Persons other than the
Company or the Subsidiaries is licensed for use by the Company or the
Subsidiaries, other than agreements for Commercially Available Software.

“Total Assets” shall mean, as of any date of calculation, the tangible book
value amount of the total assets of the Company and its Subsidiaries on a
consolidated basis calculated in accordance with the Accounting Methodologies,
but which shall not include prepaid expenses in respect of the Credit Agreement,
federal deferred tax assets and any intangible assets, including goodwill,
customer lists and distribution rights.

“Total Liabilities” shall mean, as of any date of calculation, the amount of the
Liabilities of the Company and its Subsidiaries required under GAAP (as applied
in accordance with the Accounting Methodologies) to be accrued on the financial
statements of the Company and its Subsidiaries on a consolidated basis
calculated in accordance with the Accounting Methodologies, but which shall not
include any federal deferred tax liabilities, and which shall

 

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include, for the avoidance of doubt and without duplication, Outstanding Company
Indebtedness and Transaction Expenses. For the avoidance of doubt, the amount of
any invoice received by the Surviving Corporation from TPG, Calera or their
Affiliates within thirty (30) days of the Closing Date as contemplated in the
Letter Agreement shall be included as a Total Liability for purposes of the
Post-Closing Statement and Final Closing Statement (it being understood that any
invoice not so received by the Surviving Corporation from TPG, Calera or their
Affiliates within thirty (30) days of the Closing Date as contemplated by the
Letter Agreement shall not be paid by the Surviving Corporation, Parent or their
Affiliates).

“TPG” shall mean TPG Partners V, L.P., together with any successors.

“Trade Secrets” shall mean all trade secrets (including those trade secrets
defined in the Uniform Trade Secrets Act and under corresponding foreign
statutory and common Law) and other confidential or business or technical
information if such information derives independent economic value from not
being generally known to, and not being readily ascertainable through proper
means by, the public, including ideas, formulas, compositions, inventions,
discoveries, plans, designs, methodologies, processes and/or procedures,
specifications, financial, marketing and business data, pricing and cost
information, business and marketing plans, customer and supplier lists and
information and all other know-how, whether or not protected by patent or
copyright Law.

“Trademarks” shall mean all trademarks, service marks, logos, brand names,
certification marks, collective marks, d/b/a’s, trade dress, trade names and
other indications of origin, all applications and registration of the foregoing,
and the goodwill associated therewith and symbolized thereby, including all
renewals thereof.

“Transaction Expenses” shall mean all out-of-pocket fees, costs and expenses
related to the Merger, this Agreement and the transactions contemplated by this
Agreement actually incurred by the Company or any of its Subsidiaries prior to
or as of the Closing that remain unpaid as of the Closing, including (a) all
change-in-control or similar payments, bonus payments and severance payments or
termination costs payable solely as a result of the Closing (without taking into
account the actions or inactions of Parent or its Affiliates following the
Closing) to any employee of the Company or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement, including the payments to
directors and officers of the Company listed in Section 1.01(j) of the Company
Disclosure Schedule, and the employer portion of any employment Taxes incurred
or to be incurred by the Company or any of its Subsidiaries under applicable
federal, state, local or foreign withholding Law in connection with the payment
of any of the foregoing, (b) any fees and disbursements of attorneys, brokers,
accountants and other advisors and service providers, including the fees and
disbursements of the brokers set forth in Section 4.22 of the Company Disclosure
Schedule, (c) any fees for the retention of the Company Holders’ Representative
in connection with the Closing, (d) fifty percent (50%) of all Transfer Taxes
except to the extent such Taxes are governed by Section 3.07(b), (e) fifty
percent (50%) of the aggregate cost of the “run off” coverage or “tail”
insurance policy obtained pursuant to Section 6.07(d), (f) fifty percent
(50%) of the Escrow Agent’s fees under the Escrow Agreement due in connection
with the Closing (it being understood that all other fees of the Escrow Agent
shall be paid fifty percent (50%) by Parent, fifty percent (50%) by the Company
Holders’ Representative (solely on behalf of the Company Holders from the
Expense Fund), pursuant to the Escrow Agreement), (g)

 

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fifty percent (50%) of the Paying Agent’s fees under the Paying Agent Agreement
due in connection with the Closing (it being understood that all other fees of
the Paying Agent shall be paid fifty percent (50%) by Parent, fifty percent
(50%) by the Company Holders’ Representative (solely on behalf of the Company
Holders from the Expense Fund), pursuant to the Paying Agent Agreement) and
(h) fifty percent (50%) of the total cost of the Policy (as may be subject to
increase prior to the Closing pursuant to the terms of the Policy up to an
aggregate amount of three hundred seven thousand five hundred dollars
($307,500)). For the avoidance of doubt, any amounts paid or to be paid directly
by any Person other than the Company or any of its Subsidiaries or that any
Person other than the Company or any of its Subsidiaries pays or reimburses or
is otherwise legally obligated to pay or reimburse (including any such fees and
expenses incurred by or on behalf of Parent) in connection with the transactions
contemplated by this Agreement, shall not constitute a “Transaction Expense” so
long as not a Liability of the Company or its Subsidiaries and not paid by the
Company or its Subsidiaries.

“Transfer Taxes” shall mean all transfer, documentary, sales, use, stamp,
registration and other similar Taxes and fees (including any associated
penalties and interest).

“Upward Estimated DTA Adjustment” shall mean the amount (if any) by which the
Estimated DTA is in excess of the Target DTA.

“WARN Act” shall mean the Federal Worker Adjustment Retraining and Notification
Act of 1988, as amended, and any regulations promulgated thereunder.

“Willful Breach” shall mean a material breach that is a consequence of (i) an
act or (ii) the failure to take an act required by the terms of this Agreement,
by the breaching party with knowledge that the taking of such act, or the
failure to take such required act, would, or would reasonably be expected to,
cause a breach of this Agreement.

Other Definitional Provisions. As used in this Agreement, references to the
following terms have the meanings indicated:

(a) To “hereof,” “herein,” “hereunder,” “hereby,” “herewith” and words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or clause of this Agreement, unless otherwise clearly indicated
to the contrary.

(b) To any Contract (including this Agreement) or “organizational document” are
to the Contract or organizational document as amended, modified, supplemented or
replaced from time to time.

(c) To any “statute” or “regulation” are to the statute or regulation as
amended, modified, supplemented or replaced from time to time (and, in the case
of statutes, include any rules and regulations promulgated under the statute)
and to any “section of any statute or regulation” include any successor to the
section.

(d) To any Governmental Authority include any successor to the Governmental
Authority and to any Affiliate include any successor to the Affiliate.

 

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(e) To any “copy” of any Contract or other document or instrument are to a true
and complete copy.

(f) To the Preamble or to the Recitals, Sections, Articles or Schedules are to
the Preamble or a Recital, Section or Article of, or an Exhibit or Schedule to,
this Agreement unless otherwise clearly indicated to the contrary.

(g) To the “date of this Agreement,” “the date hereof” and words of similar
import refer to the date first written above.

(h) To “this Agreement” includes this Agreement, and the Company Disclosure
Schedule and the Parent Disclosure Schedule.

Interpretive Matters.

(a) The Schedules to this Agreement (including the Company Disclosure Schedule
and the Parent Disclosure Schedule and the documents attached thereto) are
hereby incorporated and made a part hereof for all purposes and are an integral
part of this Agreement. The Company may, at its option, include in the Company
Disclosure Schedule and Parent may, at its option, include in the Parent
Disclosure Schedule items that are not material in order to avoid any
misunderstanding, and such inclusion, or any references to dollar amounts in
this Agreement or in the Company Disclosure Schedule or Parent Disclosure
Schedule, as applicable, shall not be deemed to be an acknowledgement or
representation that such items are material, to establish any standard of
materiality or to define further the meaning of such terms for purposes of this
Agreement or otherwise. Any matter set forth in any section of any Company
Disclosure Schedule or Parent Disclosure Schedule, as applicable, shall be
deemed to be referred to and incorporated in any section of the Company
Disclosure Schedule or Parent Disclosure Schedule, as the case may be, to which
it is specifically referenced or cross-referenced and also in all other sections
of the Company Disclosure Schedule or Parent Disclosure Schedule, as the case
may be, to which such matter’s application or relevance is reasonably apparent
on its face.

(b) The information contained in this Agreement and Schedules (including the
Parent Disclosure Schedule and the Company Disclosure Schedule) is disclosed
solely for the purposes of this Agreement, and no information contained herein
or therein will be deemed to be an admission by any party to any third party of
any matter whatsoever (including any violation of Law or breach of Contract).

(c) Whenever the words “include,” “includes” or “including” are used in this
Agreement, they will be deemed to be followed by the words “without limitation.”
Any singular term in this Agreement will be deemed to include the plural, and
any plural term the singular. All pronouns and variations of pronouns will be
deemed to refer to the feminine, masculine or neuter, singular or plural, as the
identity of the Person referred to may require. Where a word or phrase is
defined herein, each of its other grammatical forms shall have a corresponding
meaning.

(d) The Parties have participated jointly in the negotiation and drafting of
this Agreement; consequently, in the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as jointly drafted by
the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any provision of this
Agreement.

 

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(e) Whenever the last day for the exercise of any right or the discharge of any
duty under this Agreement falls on a day other than a Business Day, the Party
having such right or duty shall have until the next Business Day to exercise
such right or discharge such duty. Unless otherwise indicated, the word “day”
shall be interpreted as a calendar day.

(f) The table of contents and headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.

(g) References to “dollars” or “$” mean U.S. dollars, unless otherwise clearly
indicated to the contrary.

(h) No summary of this Agreement prepared by or on behalf of any Party shall
affect the meaning or interpretation of this Agreement.

(i) The word “or” is not exclusive, unless the context otherwise requires.

(j) All capitalized terms used without definition Schedules (including the
Company Disclosure Schedule and the Parent Disclosure Schedule) to this
Agreement shall have the meanings ascribed to such terms in this Agreement.

(k) Any documents and agreements that have been posted to the Electronic Data
Room and remain accessible in the Electronic Data Room on the date hereof shall
be deemed to have been “delivered,” “provided,” or “made available” (or any
phrase of similar import) to Parent by the Company.

THE MERGER

Merger. Upon the terms and subject to the conditions set forth in this Agreement
and in accordance with the DGCL, Merger Sub shall be merged with and into the
Company at the Effective Time (the “Merger”). Following the Effective Time, the
separate corporate existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation in the Merger (the “Surviving
Corporation”) and shall succeed to and assume all the rights and obligations of
Merger Sub in accordance with the DGCL.

The Closing. Subject to the satisfaction of the conditions set forth in Article
VII (or, to the extent permitted by applicable Law, the written waiver thereof
by the Party entitled to waive any such condition), the closing of the Merger
(the “Closing”) will take place at 9:00 a.m., New York City time, at the offices
of Skadden, Four Times Square, New York, NY 10036 on the first Business Day of
the month immediately following the month in which all of the conditions to the
Closing set forth in Article VII have been satisfied or waived (other than those
conditions that by their terms are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions) unless another time, date or
place is agreed to in writing by the Company and Parent. The date on

 

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which the Closing occurs is referred to in this Agreement as the “Closing Date.”
For all purposes other than the actions to take place at the Effective Time, the
Closing shall be deemed to have been consummated and become effective as of
12:01 a.m., New York City Time, on the first calendar day of month in which the
Closing occurs. Notwithstanding anything to the contrary contained herein, in
the event the Closing would otherwise occur on January 2, 2017 pursuant to this
Section 2.02, such Closing shall take place on December 30, 2016 with an
Effective Time for all purposes of this Agreement as of 12:01 a.m. New York City
time on January 1, 2017 and the Calculation Time shall be as of 11:59 p.m. New
York City time on December 31, 2016.

Effective Time. Subject to the provisions of this Agreement, as soon as
practicable at the Closing, the Parties shall cause the Merger to be consummated
by filing with the Secretary of State of the State of Delaware a certificate of
merger with respect to the Merger (the “Certificate of Merger”) executed in
accordance with the relevant provisions of the DGCL and, as soon as practicable
at the Closing, shall make all other filings or recordings required under the
DGCL with respect to the Merger. The Merger shall become effective at such time
as the Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware or at such other time as Parent and the Company shall agree
and shall specify in the Certificate of Merger (the time the Merger becomes
effective being the “Effective Time”).

Effects of the Merger. At the Effective Time, the effects of the Merger shall be
as provided in this Agreement, the DGCL and the Certificate of Merger.

Certificate of Incorporation and Bylaws. Effective upon the Effective Time, the
certificate of incorporation of the Company shall be amended and restated
substantially in the form attached hereto as Section 2.05 of the Company
Disclosure Schedule and as so amended shall be the certificate of incorporation
of the Surviving Corporation until amended in accordance with applicable Law.
Effective upon the Effective Time, the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable Law, except that the
name of the Surviving Corporation shall be “Elara Holdings, Inc.”

Directors and Officers. The directors of Merger Sub at the Effective Time shall
be the initial directors of the Surviving Corporation and shall hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal. The names and titles of
the initial officers of the Surviving Corporation at the Effective Time are set
forth in Section 2.06 of the Parent Disclosure Schedule and those officers shall
hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until their successors are duly elected or appointed
and qualified or until their earlier death, resignation or removal.

 

 

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EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT

CORPORATIONS; EXCHANGE OF SHARES

Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of the Company, Parent, Merger Sub, the Company
Holders or the holders of any securities of Merger Sub:

(a) Each share of common stock, par value $0.01 per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.

(b) Subject to Section 3.02, Section 3.03 and Section 3.04, each share of Common
Stock issued and outstanding immediately prior to the Effective Time (other than
any Excluded Shares and Company Restricted Stock (which shall be treated as
provided in Section 3.04)) shall be canceled, extinguished and automatically
converted into the right to receive an amount of cash (without interest) equal
to the Per Share Merger Closing Consideration (the “Common Stock Settlement
Payments”) and entitle the holder thereof to receive its Specified Percentage
(as may be adjusted following the Closing pursuant to Section 3.05(d)) of the
Escrow Amount and Expense Fund Amount (if any), without interest, as set forth
on the Company Holder Payment Schedule to the extent released to such holder
pursuant to Section 3.13(e), Section 9.10 and Section 10.16(f) (such payments,
together with the Common Stock Settlement Payments, the “Aggregate Common Stock
Payments”). All amounts payable to Stockholders pursuant to this Section 3.01(b)
shall be subject to and reduced by any applicable Tax withholding amounts as
provided in Section 3.09.

(c) Each share of Common Stock held by (i) the Company in the Company’s
treasury, (ii) any Subsidiary of the Company, or (iii) Parent or Merger Sub
immediately prior to the Effective Time (collectively, the “Excluded Shares”)
shall, (A) with respect to the Excluded Shares described in clauses (i) and
(iii) above, automatically be canceled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor and (B) with respect to
the Excluded Shares described in clause (ii) above, remain outstanding following
the Merger, and no consideration shall be delivered in exchange therefor.

[Reserved].

Company Options. At the Effective Time, each then outstanding Company Option
(whether vested or unvested) shall be canceled and extinguished and
(x) automatically converted into the right to receive an amount of cash (without
interest) equal to the product of (a) the aggregate number of shares of Common
Stock issuable upon exercise of such Company Option and (b) the excess, if any,
of the amount of the Per Share Merger Closing Consideration over the per share
exercise price of such Company Option (the “Option Settlement Payments”) and
(y) entitle the holder thereof to receive its Specified Percentage (as
re-calculated following the Closing pursuant to Section 3.05(d)) of the Escrow
Amount and Expense Fund Amount (if any), without interest, as set forth on the
Company Holder Payment Schedule to the extent released to such holder pursuant
to Section 3.13(e), Section 9.10 and Section 10.16(f) (such payments, the
“Option Additional Payments”); provided,

 

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however that the per share exercise price of such Company Option shall be
deducted from the Option Additional Payments to the extent such exercise price
has not been previously taken into account in determining either the Option
Settlement Payments or any previous Option Additional Payments (such Option
Additional Payments, together with the Option Settlement Payments, the
“Aggregate Option Payments”). The Surviving Corporation shall distribute all
Option Settlement Payments owing to an Optionholder pursuant to the Company
Holder Payment Schedule, without interest, at or promptly after the Effective
Time (but in no event later than four (4) Business Days after the Effective
Time) by check, direct deposit or wire transfer of immediately available funds.
All amounts payable to an Optionholder pursuant to this Section 3.03 shall be
subject to (i) delivery by such Optionholder of any Optionholder Commitment
Letter and (ii) reduction by any applicable Tax withholding amounts as provided
in Section 3.09.

Company Restricted Stock. At the Effective Time, each then outstanding share of
Company Restricted Stock shall be canceled and extinguished and
(x) automatically converted into the right to receive an amount of cash (without
interest) equal to the Per Share Merger Closing Consideration (the “Restricted
Stock Settlement Payments”) and (y) entitle the holder thereof to receive its
Specified Percentage (as re-calculated following the Closing pursuant to
Section 3.05(d)) of the Escrow Amount and Expense Fund Amount (if any), without
interest, as set forth on the Company Holder Payment Schedule to the extent
released to such holder pursuant to Section 3.13(e), Section 9.10 and
Section 10.16(f) (such payments, together with the Restricted Stock Settlement
Payments, the “Aggregate Restricted Stock Payments”). The Surviving Corporation
shall distribute all Restricted Stock Settlement Payments owing to a holder of
Company Restricted Stock pursuant to the Company Holder Payment Schedule,
without interest, at or promptly after the Effective Time (but in no event later
than four (4) Business Days after the Effective Time) by check, direct deposit
or wire transfer of immediately available funds. All amounts payable to holders
of shares of Company Restricted Stock pursuant to this Section 3.04 shall be
subject to and reduced by any applicable Tax withholding amounts as provided in
Section 3.09. Prior to the Closing, the Company shall provide to Parent copies
of any elections made by holders of Company Restricted Stock pursuant to
Section 83(b) of the Code.

Estimated Closing Statement; Company Holder Payment Schedule; Specified
Percentage.

(a) Not later than three (3) Business Days prior to the Closing Date, the
Company shall cause to be prepared and delivered to Parent, a statement (the
“Estimated Closing Statement”) that sets forth in reasonable detail its good
faith estimates of the following: (i) a consolidated balance sheet of the
Company and its Subsidiaries (without giving effect to the transactions
contemplated herein) (the “Estimated Closing Balance Sheet”); (ii) the Company’s
calculation of the Closing Net Worth, including the Company’s calculation of the
Outstanding Company Indebtedness, if any, and the Transaction Expenses (the
“Estimated Closing Net Worth”); (iii) the Company’s calculation of the Tax
Benefit Amount based on the Transaction Expenses as set forth in the Estimated
Closing Statement (the “Estimated Tax Benefit Amount”); and (iv) the Company’s
calculation of the Deferred Tax Asset Amount (“Estimated DTA”).

(b) The Estimated Closing Statement and the Estimated Closing Balance Sheet
contained therein (which Estimated Closing Statement shall include, for the
avoidance of doubt, the Estimated Closing Net Worth (including the Company’s
calculation of the Outstanding Company Indebtedness, if any, and the Transaction
Expenses), the Estimated Tax

 

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Benefit Amount and Estimated DTA) shall each be prepared, subject to the last
sentence of Section 2.02, as of 11:59 p.m., New York City time, on the calendar
day immediately preceding the Closing Date (the “Calculation Time”), in the same
format as the Reference Closing Statement and the Reference Balance Sheet,
respectively, and in accordance with the Accounting Methodologies.

(c) Not later than three (3) Business Days prior to the Closing, the Company
shall prepare and deliver to Parent a schedule (the “Company Holder Payment
Schedule”) which sets forth (i) a calculation of the Aggregate Closing
Consideration based on the Estimated Closing Statement, (ii) the aggregate
amount of the Common Stock Settlement Payments, the Option Settlement Payments
and the Restricted Stock Settlement Payments with an allocation of each such
amount by Company Holder in accordance with Section 3.01, Section 3.02,
Section 3.03 and Section 3.04, as applicable, (iii) the holder of, and the
number of shares of Common Stock (including the aggregate number of shares of
Company Restricted Stock) held by each Stockholder, as of immediately prior to
the Effective Time, (iv) the holder of, the exercise price per share of, and the
number of shares of Common Stock subject to, each Company Option outstanding
immediately prior to the Effective Time and (v) each Company Holder’s Specified
Percentage (as of the Closing Date) and corresponding portion of the Adjustment
Escrow Amount, Indemnity Escrow Amount and Expense Fund Amount; it being
understood and agreed that the Company Holder’s Representative, in accordance
with the terms of the SRS Letter Agreement, shall be solely responsible for
allocating any payments to the Company Holders hereunder and Parent shall be
entitled to rely exclusively on the Estimated Closing Statement and the Company
Holder Payment Schedule without investigation in paying the Merger Consideration
on and after the Closing Date. Section 3.05(c) of the Company Disclosure
Schedule sets forth a form of the Company Holder Payment Schedule.

(d) The Specified Percentage shall be re-calculated by the Company Holders’
Representative, based on the Company Holder Payment Schedule prepared by the
Company pursuant to Section 3.05(c), following the Closing to the extent
necessary in connection with any payment of the Post-Closing Adjustment to the
Company Holders pursuant to Section 3.13(d)(i), release of any portion of the
Escrow Amount and Expense Fund Amount to the Company Holders pursuant to
Section 3.13(e), Section 9.10 and Section 10.16(f) and in connection with any
indemnification payment by Parent pursuant to Article IX. The Company Holders’
Representative shall promptly notify Parent of each such calculation and Parent
shall thereafter be entitled to conclusively rely without investigation on any
such update to the Specified Percentage delivered by the Company Holders’
Representative as final and binding on all Company Holders for all purposes of
this Agreement.

Transactions at the Closing.

(a) At the Closing:

(i) the Company shall cause to be delivered to Parent the officer’s certificate
contemplated by Section 7.02(f);

(ii) the Company shall cause to be delivered to Parent the Optionholder
Commitment Letters it has received prior to the Closing, duly executed by each
Optionholder as of the Closing Date;

 

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(iii) the Company shall cause to be delivered to Parent duly executed Pay-Off
Letters;

(iv) the Company shall cause to be delivered to Parent the resignation letters,
duly executed by each director or manager of the Company and its Subsidiaries,
as contemplated by Section 6.10;

(v) the Company shall cause to be delivered to Parent a duly executed FIRPTA
Certificate;

(vi) Parent shall cause to be delivered to the Company the officer’s certificate
contemplated by Section 7.03(c);

(vii) Parent, the Company Holders’ Representative and the Escrow Agent shall
enter into the Escrow Agreement, pursuant to which the Escrow Amount shall be
deposited with the Escrow Agent and held in and disbursed in accordance with the
terms hereof and the Escrow Agreement (and to the extent there is any conflict
between this Agreement and the Escrow Agreement in respect of the mechanics for
distribution of the Escrow Amount, the terms of the Escrow Agreement will
control);

(viii) Parent, the Company Holders’ Representative and the Paying Agent shall
enter into the Paying Agent Agreement; and

(ix) in respect of the Merger, Parent shall make the following payments, which
payments will result in the funding of one hundred percent (100%) of the
Aggregate Closing Consideration:

(1) to the Paying Agent, pursuant to Section 3.07(a) and in accordance with the
terms of the Paying Agent Agreement, by wire transfer of immediately available
funds, an amount equal to the aggregate Common Stock Settlement Payments;

(2) to an account of the Company designated in writing by the Company at least
three (3) Business Days prior to the Closing, by wire transfer of immediately
available funds, an amount equal to the aggregate Option Settlement Payments and
the aggregate Restricted Stock Settlement Payments;

(3) to the Escrow Agent for deposit into (x) the Adjustment Escrow Account, the
Adjustment Escrow Amount in accordance with the wire transfer instructions as
set forth in the Escrow Agreement and (y) the Indemnity Escrow Account, the
Indemnity Escrow Amount in accordance with the wire transfer instructions as set
forth in the Escrow Agreement;

(4) to each Lender delivering a Pay-Off Letter, the Pay-off Company Indebtedness
to be repaid as set forth in such Pay-Off Letter; and

(5) to the Company Holders’ Representative pursuant to wire transfer
instructions delivered at least three (3) Business Days prior to the Closing,
the Expense Fund Amount.

 

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(b) Promptly following the Effective Time (in accordance with Section 3.03 and
Section 3.04), the Surviving Corporation shall distribute:

(i) to each Optionholder who has delivered to Parent an Optionholder Commitment
Letter, such Optionholder’s Option Settlement Payment payable hereunder (net of
any applicable Tax withholding amounts as provided in Section 3.09) in
accordance with the Company Holder Payment Schedule; and

(ii) to each holder of Company Restricted Stock who has delivered a duly
executed Letter of Transmittal and surrendered such holder’s Stock
Certificate(s) or delivered a Lost Certificate Affidavit and such other items as
required under Section 3.07(c) prior to such time, such holder’s Restricted
Stock Settlement Payment payable hereunder (net of any applicable Tax
withholding amounts as provided in Section 3.09) in accordance with the Company
Holder Payment Schedule.

Stockholders of the Company.

(a) On or prior to the Closing Date, Parent shall deposit (or cause to be
deposited) with JPMorgan Chase Bank, N.A. (the “Paying Agent”), pursuant to an
agreement in a form reasonably acceptable to Parent and the Company entered into
at or prior to the Closing (the “Paying Agent Agreement”), in trust for the
benefit of the Stockholders, a cash amount in immediately available funds
necessary for the Paying Agent to make the Common Stock Settlement Payments due
pursuant to Section 3.01(b) (such amount being hereinafter referred to as the
“Payment Fund”). Parent will cause the Paying Agent, pursuant to irrevocable
instructions, to make the payments provided for in the preceding sentence out of
the Payment Fund in accordance with the terms of the Paying Agent Agreement. The
Payment Fund shall not be used for any other purpose, except as provided in this
Agreement and the Paying Agent Agreement.

(b) Promptly following the Effective Time, Parent shall cause the Paying Agent
to mail to each Person who is a holder of record of certificates which evidence
the outstanding shares of Common Stock (each, a “Stock Certificate”) a Letter of
Transmittal, which sets forth the procedures by which Stockholders may receive
the Common Stock Settlement Payments. Upon a Stockholder complying with such
procedures (but in no event prior to the Effective Time), including the delivery
of a duly executed Letter of Transmittal and surrender of such Stockholder’s
Stock Certificate(s), subject to Section 3.07(c), the Paying Agent will
distribute to such Stockholder the Common Stock Settlement Payments, without
interest, in accordance with the Company Holder Payment Schedule and the Paying
Agent Agreement. All such Stock Certificates shall forthwith be canceled. If
payment is to be made to a Person other than the Person in whose name the Stock
Certificate surrendered is registered, it shall be a condition of payment that
the Stock Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the Person requesting such payment pay any
transfer or similar Taxes required by reason of the payment to a Person other
than the registered holder or establish to the reasonable satisfaction of the
Surviving Company that such Tax has been paid or is not applicable. From and
after the Effective Time and until surrendered in accordance with the provisions
of this Section 3.07(b), each Stock Certificate shall represent for all purposes
solely the right to receive, in accordance with the terms hereof, the Aggregate
Common Stock Payments in accordance with the Company Holder Payment Schedule,
without any interest thereon.

 

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(c) If any Stock Certificate shall have been lost, stolen, mislaid or destroyed,
upon receipt by the Company or the Surviving Corporation of (i) an executed
affidavit in the form attached to the Letter of Transmittal (“Lost Certificate
Affidavit”) of that fact from the holder claiming such Stock Certificate to be
lost, mislaid, stolen or destroyed (together with such holder’s duly executed
Letter of Transmittal), (ii) such customary contractual indemnity as Parent may
reasonably require, (iii) any other documents necessary to evidence and effect
the bona fide exchange thereof, the Paying Agent will deliver in exchange for
such lost, stolen, mislaid or destroyed Stock Certificates the Common Stock
Settlement Payments in accordance with the Company Holder Payment Schedule with
respect to the Common Stock formerly represented thereby.

(d) Any portion of the Payment Fund (including the proceeds of any investments
thereof) that remains unclaimed by the former stockholders of the Company for
one (1) year after the Effective Time shall be paid to the Surviving Company.
Any former holders of Common Stock who have not complied with Section 3.07(b)
prior to the end of such one (1) year period shall thereafter look only to the
Surviving Company (subject to abandoned property, escheat or other similar Laws)
for payment of their claim for the Common Stock Settlement Payments, without any
interest thereon.

Intentionally Omitted.

Withholding Tax. Each of Merger Sub, Surviving Corporation and Parent shall be
entitled to deduct or withhold from any consideration payable pursuant to
Article III of this Agreement only such amounts required to be deducted or
withheld with respect to such payment under applicable Tax Law and to collect
IRS Forms W-8 or W-9, as applicable, or similar information from the
Stockholders and any other recipients or payments hereunder prior to such
Stockholder being entitled to receive any such payments. To the extent such
amounts are so deducted or withheld and properly remitted to the appropriate
Governmental Authority, 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.

No Liability for Abandoned Property. Any other provision of this Agreement
notwithstanding, neither Parent, the Company nor the Surviving Corporation shall
be liable to any Company Holder for any amounts paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat or similar Law.

Forfeiture. If and to the extent any Stockholder fails to deliver a Letter of
Transmittal and the related Stock Certificate or Lost Certificate Affidavit and
such other items as required under Section 3.07(c) to the Paying Agent within
one (1) year of the Closing Date, then any Merger Consideration in respect
thereof shall, to the extent permitted by any applicable Law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto (other than the claims of the
applicable Stockholder and its heirs, assigns and transferees hereunder), and
such Stockholder shall look only to the Surviving Corporation for payment of
such amounts.

Rights of Former Stockholders. At the Effective Time, the stock transfer books
of the Company shall be closed, and no transfer of Common Stock or Company
Restricted Stock by

 

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any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 3.07, each Stock
Certificate theretofore representing a share of Common Stock (other than any
Excluded Share) shall from and after the Effective Time represent for all
purposes only the right to receive the Aggregate Common Stock Payments or
Aggregate Restricted Stock Payments, as applicable, in respect of a share of
Common Stock as set forth in this Article III. The Merger Consideration payable
in accordance with the terms of this Article III shall be deemed to have been
paid in full satisfaction of all rights pertaining to the Common Stock, Company
Restricted Stock and Company Options. If, after the Effective Time, Stock
Certificates or lost Stock Certificates pursuant to Section 3.07(b) are
presented to the Surviving Corporation for transfer or any other reason, they
shall be canceled and exchanged as provided in this Article III.

Post-Closing Adjustment.

(a) Post-Closing Statement. As soon as practicable, but in no event later than
seventy-five (75) days following the Closing Date, Parent shall cause to be
prepared and delivered to the Company Holders’ Representative a statement (the
“Post-Closing Statement”) that sets forth in reasonable detail: (i) a
consolidated balance sheet of the Company and its Subsidiaries (without giving
effect to the transactions contemplated herein) (the “Closing Balance Sheet”);
(ii) Parent’s calculation of the Closing Net Worth, including Parent’s
calculation of the Outstanding Company Indebtedness, if any, and the Transaction
Expenses (the “Applicable Closing Net Worth”); (iii) Parent’s calculation of the
Tax Benefit Amount based on the Transaction Expenses as set forth in the
Post-Closing Statement (the “Applicable Tax Benefit Amount”); (iv) Parent’s
calculation of the Deferred Tax Asset Amount (“Applicable DTA”); and
(v) Parent’s calculation of the Post-Closing Adjustment.

(b) The Post-Closing Statement and the Closing Balance Sheet contained therein
(which Post-Closing Statement shall include, for the avoidance of doubt, the
Applicable Closing Net Worth (including Parent’s calculation of the Outstanding
Company Indebtedness, if any, and the Transaction Expenses), the Applicable Tax
Benefit Amount and Applicable DTA) shall each be prepared as of the Calculation
Time, in the same format as the Reference Closing Statement and the Reference
Balance Sheet, respectively, and in accordance with the Accounting
Methodologies.

(c) Disputes.

(i) If the Company Holders’ Representative shall have any disagreement with
respect to the Post-Closing Statement, including the calculation of any of the
line items in the Closing Balance Sheet, the Applicable Closing Net Worth, the
Applicable Tax Benefit Amount, Applicable DTA or the Post-Closing Adjustment,
the Company Holders’ Representative will give written notice to Parent within
sixty (60) days following the delivery of the Post-Closing Statement to the
Company Holders’ Representative (the “Notice of Disagreement”). The Notice of
Disagreement shall specify, in reasonable detail, the amount of the proposed
adjustment for each line item in dispute (each, a “Disputed Item”), the
substance of any disagreement asserted, and the basis therefor. The failure by
the Company Holders’ Representative to deliver a Notice of Disagreement within
such sixty (60) day period will constitute the Company Holders’ Representative’s
acceptance of the Post-Closing Statement and the Post-Closing

 

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Adjustment as determined by Parent. If Parent and the Company Holders’
Representative agree on the Post-Closing Statement and the Post-Closing
Adjustment, they shall so signify in writing. Any item contained in the
Post-Closing Statement for which the Company Holders’ Representative has not
delivered to Parent a Notice of Disagreement within such sixty (60) day period
shall be deemed final and binding on the Parties.

(ii) If the Notice of Disagreement is timely delivered by the Company Holders’
Representative as provided herein, Parent, on the one hand, and the Company
Holders’ Representative, on the other hand, will, during the fifteen (15) days
following delivery of the Notice of Disagreement, use their reasonable efforts
to reach agreement on any Disputed Items set forth in the Notice of
Disagreement. For the purposes of complying with this Section 3.13(c), between
the date of delivery of the Post-Closing Statement and the date on which the
Post-Closing Statement becomes final and binding pursuant to this
Section 3.13(c), Parent shall provide the Company Holders’ Representative and
its representatives upon prior written request of the Company Holders’
Representative, reasonable access to the Company’s work papers and any work
papers of the Company’s independent accountants, in each case, to the extent
used in the preparation of the Post-Closing Statement or the Reference Balance
Sheet, and Parent shall make reasonably available to the Company Holders’
Representative and its representatives relevant Company personnel responsible
for the preparation of the Post-Closing Statement, in each case for the purpose
of assisting in the Company Holders’ Representative’s review of the Post-Closing
Statement; provided that, the independent accountants of the Company shall not
be obligated to make any work papers available to the Company Holders’
Representative unless and until the Company Holders’ Representative has signed a
customary agreement relating to access to work papers in form and substance
reasonably acceptable to such independent accountants. If the Company Holders’
Representative and Parent reach a written agreement with respect to all of the
Disputed Items, the Company Holders’ Representative and Parent shall mutually
revise the Post-Closing Statement to effect such agreement and the resulting
calculation of the Closing Balance Sheet, the Applicable Closing Net Worth, or
the Post-Closing Adjustment, as applicable in accordance therewith, and such
revised Post-Closing Statement shall be final and binding upon the Parties.

(iii) If Parent and the Company Holders’ Representative are unable to reach
agreement on the Disputed Items within fifteen (15) days after the Company
Holders’ Representative’s delivery of the Notice of Disagreement to Parent,
Parent and the Company Holders’ Representative will promptly refer the Disputed
Items for determination and resolution to a nationally-recognized accounting
firm to be mutually agreed by Parent and the Company Holders’ Representative;
provided that, if Parent and the Company Holders’ Representative do not mutually
agree on such Person within five (5) Business Days of the end of such fifteen
(15) day period, Parent or the Company Holders’ Representative may request the
American Arbitration Association (or successor thereof) to select a qualified,
nationally-recognized accounting firm having no material business relationship
with any Party or Stockholder that would reasonably be expected to result in a
conflict of interest under applicable professional responsibility rules (such
accounting firm so agreed or selected, the “Independent Expert”). For the
avoidance of

 

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doubt, the Independent Expert shall act as an expert, not as an arbitrator, and
the determination of the Independent Expert, and this agreement to submit to the
determination of the Independent Expert, shall be governed by and construed in
accordance with Article 76 of the New York Civil Practice Law and Rules. Each of
the Company Holders’ Representative and Parent agree to enter into a customary
engagement letter with the Independent Expert.

(iv) At the time of submission of the Disputed Items to the Independent Expert,
Parent and the Company Holders’ Representative will each submit a written
statement setting forth in such detail as they deem appropriate their respective
positions with respect to only the Disputed Items. Parent and the Company
Holders’ Representative shall also have the opportunity to submit a written
response to the other party’s written statement, not later than ten (10) days
following the date of receipt of the other party’s initial written statement.
There will be no ex parte communications between Parent or the Company Holders’
Representative and the Independent Expert with respect to the Disputed Items,
other than written answers by the parties to written questions from the
Independent Expert. All written communications to or from the Independent Expert
and Parent or the Company Holders’ Representative will be delivered
simultaneously to the other party. In determining the Disputed Items, the
Independent Expert (1) shall be bound solely by the Accounting Methodologies and
the Reference Closing Statement and (2) shall consider only the Disputed Items.
The determination of the Independent Expert with respect to each Disputed Item
shall be within the range represented by Parent’s and the Company Holders’
Representative’s respective positions as set forth in their respective written
communications and the Notice of Disagreement. Parent and the Company Holders’
Representative shall use reasonable efforts to cause the Independent Expert to
deliver to Parent and the Company Holders’ Representative, as promptly as
practicable, and in any event within thirty (30) days after referral of the
disputed matters to the Independent Expert, a written report setting forth its
determination with respect to each of the Disputed Items. The determination of
the Independent Expert shall be final, binding and conclusive, shall not be
subject to appeal and shall be deemed to have been accepted by Parent and the
Company Holders’ Representative, subject only to manifest error. The fees and
expenses of the Independent Expert shall be borne by Parent, on the one hand,
and by the Company Holders’ Representative (solely on behalf of the Company
Holders), on the other hand, in inverse proportion as they may prevail on the
matters resolved by the Independent Expert, which allocation shall be calculated
on an aggregate basis based on the relative dollar values of the amounts in
dispute and shall be determined by the Independent Expert at the time the
Independent Expert renders its determination on the merits of the matters
submitted to it.

(v) The Post-Closing Statement, (1) as agreed upon by Parent and the Company
Holders’ Representative or deemed accepted by the Company Holders’
Representative, or (2) as finally determined by the Independent Expert pursuant
to this Section 3.13(c), shall be referred to herein as the “Final Closing
Statement.” The Closing Balance Sheet, (A) as agreed upon by Parent and the
Company Holders’ Representative or deemed accepted by the Company Holders’
Representative or (B) as finally determined by the Independent Expert pursuant
to this Section 3.13(c), shall be referred to herein as the “Final Closing
Balance Sheet.” The Applicable Closing Net Worth, (I) as agreed upon by

 

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Parent and the Company Holders’ Representative or deemed accepted by the Company
Holders’ Representative or (II) as finally determined by the Independent Expert
pursuant to this Section 3.13(c), shall be referred to herein as the “Final
Closing Net Worth.” The Applicable Tax Benefit Amount, (X) as agreed upon by
Parent and the Company Holders’ Representative or deemed accepted by the Company
Holders’ Representative or (Y) as finally determined by the Independent Expert
pursuant to this Section 3.13(c), shall be referred to herein as the “Final Tax
Benefit Amount.” The Applicable DTA, (i) as agreed upon by Parent and the
Company Holders’ Representative or deemed accepted by the Company Holders’
Representative or (ii) as finally determined by the Independent Expert pursuant
to this Section 3.13(c), shall be referred to herein as the “Final DTA.”

(d) Post-Closing Adjustment. The Post-Closing Adjustment shall be paid to Parent
or to the Company Holders as follows:

(i) If the Post-Closing Adjustment is a positive amount, then Parent shall
promptly (and no later than five (5) Business Days following final determination
thereof) pay to each Company Holder through the Paying Agent pursuant to the
Paying Agent Agreement in cash an amount equal to the product of (A) the
Post-Closing Adjustment multiplied by (B) such Company Holder’s Specified
Percentage in accordance with the instructions provided in such Company Holder’s
Letter of Transmittal; provided that, any amount to be paid to an Optionholder
or to a holder of Company Restricted Stock pursuant to this paragraph shall
instead be paid to the Surviving Corporation and then promptly (but in no event
later than four (4) Business Days after such determination) remitted by the
Surviving Corporation to any such Optionholder or holder of Company Restricted
Stock by check, direct deposit or wire transfer of immediately available funds.

(ii) If the Post-Closing Adjustment is a negative amount, then, subject to the
Letter Agreement, Parent and the Company Holders’ Representative shall promptly
(and no later than four (4) Business Days following the final determination
thereof) provide a joint written instruction to the Escrow Agent to deliver
promptly from the Adjustment Escrow Account to Parent an amount equal to the
lesser of the Post-Closing Adjustment and the Adjustment Escrow Amount, up to
the full amount of the Adjustment Escrow Amount.

(iii) If the Post-Closing Adjustment is zero, no payment in respect thereof will
be made.

(iv) Payments of the Post-Closing Adjustment as a result of this Section 3.13
will be deemed adjustments to the Merger Consideration.

(e) Adjustment Escrow Account Release. Promptly after determination of the
Post-Closing Adjustment in accordance with this Section 3.13 and related payment
of the Post-Closing Adjustment, if any, all amounts held in the Adjustment
Escrow Account (to the extent not utilized pursuant to the terms of this
Section 3.13) shall be released by the Escrow Agent from the Adjustment Escrow
Account and distributed to the Company Holders on a pro rata basis based on
their respective Specified Percentages pursuant to the terms of the Escrow
Agreement;

 

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provided that any amount to be delivered to an Optionholder or to a holder of
Company Restricted Stock pursuant to this paragraph shall be delivered to the
Surviving Corporation and then promptly (but in no event later than four
(4) Business Days after such delivery) remitted by the Surviving Corporation to
any such Optionholder or holder of Company Restricted Stock by check, direct
deposit or wire transfer of immediately available funds. Notwithstanding
anything to the contrary contained herein, for the avoidance of doubt, payment
to any Company Holder pursuant to Section 3.13(d) or (e) shall only be made in
the event such Company Holder has delivered to Parent those materials required
to be delivered pursuant to Section 3.06(b) and Section 3.07(b), as the case may
be.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the disclosure schedule delivered by the Company to
Parent concurrently with the execution of this Agreement (the “Company
Disclosure Schedule”), the Company hereby represents and warrants to Parent and
Merger Sub as of the date hereof and as of the Closing Date as follows:

Organization, Standing and Power.

(a) The Company is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all requisite corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted. The Company is duly
qualified to do business or licensed and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties or assets owned or leased by it makes
such licensing or qualification required by Law, except where the failure to be
so qualified, licensed or in good standing would not have a Company Material
Adverse Effect. The Company is not organized or qualified as a foreign
corporation in any jurisdiction.

(b) Each of the Company’s Subsidiaries is duly organized, validly existing and
in good standing under the Law of the jurisdiction of its organization, has all
requisite power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification required by Law, except where the failure to be so qualified,
licensed or in good standing would not have a Company Material Adverse Effect.
Section 4.01(b) of the Company Disclosure Schedule sets forth the jurisdictions
in which each Subsidiary of the Company is organized and qualified as a foreign
entity.

(c) The Company has made available to Parent complete and correct copies of the
Organizational Documents of the Company and each of its Subsidiaries, each as
amended to the date hereof.

Authorization. The Company has all necessary corporate power and authority to
execute and deliver this Agreement and each Related Agreement to which it is a
party and to perform its

 

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obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. This Agreement and each Related Agreement to
which the Company is a party has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery hereof and thereof by
the other parties hereto and thereto, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar Law of general application
affecting or relating to the enforcement of creditors’ rights generally or
general principles of equity, whether considered in a proceeding at Law or in
equity (the “Bankruptcy and Equity Exception”).

Noncontravention.

(a) None of the execution and delivery by the Company of this Agreement and each
Related Agreement to which it is a party, the consummation by the Company of the
transactions contemplated hereby and thereby or compliance by the Company with
any of the terms or provisions hereof and thereof will (i) conflict with or
violate any provision of the Company’s or any of its Subsidiaries’
Organizational Documents or (ii) (1) assuming that the authorizations, consents
and approvals referred to in Section 4.08 are obtained and the filings referred
to in Section 4.08 of the Company Disclosure Schedule are made, violate any Law
applicable to the Company or any of its Subsidiaries or by which any of their
respective properties or assets are bound, (2) with or without notice, lapse of
time or both, violate, breach or constitute a default under any of the terms,
conditions or provisions of any Material Contract or Permit or accelerate or
give rise to a right of termination, modification, cancellation or acceleration
of any Material Contract or Permit or (3) result in the creation of any Lien
(other than any Permitted Lien) on any properties or assets of the Company or
any of its Subsidiaries, except, in the case of clause (ii) (other than in
respect of Material Contracts), for such violations, defaults, accelerations,
rights, losses and Liens as would not reasonably be expected to be material to
the Company and its Subsidiaries, taken as a whole.

(b) The affirmative vote (in person or by proxy) at a meeting of the
Stockholders (or a written consent in lieu thereof) of the holders of a majority
of the outstanding shares of Common Stock in favor of the adoption of this
Agreement (the “Stockholder Approval”) is the only vote of the holders of any
class or series of capital stock or debt or equity securities of the Company or
any of its Subsidiaries which is necessary to adopt and approve this Agreement
or approve the transactions contemplated hereby.

(c) Concurrent with the execution of this Agreement, the Company has delivered
to Parent a copy of the executed actions by written consent of the Identified
Company Stockholders (the “Stockholder Written Consents”) which, individually or
in the aggregate, evidence the Stockholder Approval and include a waiver of any
dissenters’ or appraisal rights available to the Identified Company Stockholders
under and in accordance with Section 262.

Financial and Statutory Statements; No Undisclosed Liabilities.

(a) Section 4.04(a) of the Company Disclosure Schedule sets forth true and
correct copies of (i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 2015 and December 31, 2014 and the related
consolidated statements of

 

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operations, changes in stockholders’ equity and cash flows for the fiscal years
then ended (the “Annual Financial Statements”) and (ii) the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of March 31,
2016 (the “Balance Sheet Date”) and the related consolidated statement of
operations, changes in stockholders’ equity and cash flows for the three-month
period then ended (the “Interim Financial Statements,” and, together with the
Annual Financial Statements, the “Financial Statements”). The Financial
Statements (A) were derived from and consistent with the books and records of
the Company, (B) were prepared in accordance with GAAP and (C) present fairly,
in all material respects, the consolidated financial position, results of
operations, changes in stockholders’ equity and cash flows of the Company and
its Subsidiaries as of the respective dates and for the respective periods
referred to in the Financial Statements, subject to normal year-end adjustments.

(b) Since December 31, 2014, each of the Insurance Company Subsidiaries has
filed, and made available to Parent prior to the date hereof copies of, all
annual and quarterly statements, together with all exhibits, interrogatories,
notes, schedules and any actuarial opinions, affirmations or certifications or
other supporting documents in connection therewith, required to be filed with or
submitted to the appropriate insurance regulatory authorities of the
jurisdiction in which it is domiciled or commercially domiciled on forms
prescribed or permitted by such authority (collectively, the “SAP Statements”),
except for such failures to file which would not reasonable be expected to be
material to the Company and its Subsidiaries, taken as a whole. The financial
statements included in the SAP Statements fairly present, in all material
respects and in conformity with SAP, in each case, consistently applied for the
periods involved, the statutory financial position of the relevant Insurance
Company Subsidiary at the respective dates thereof and the results of operations
of such Insurance Company Subsidiary for the respective periods indicated,
subject to, in the case of any interim financial statement, normal year-end
adjustments, and no material deficiency has been asserted by any Governmental
Authority with respect to any SAP Statements that has not been resolved prior to
the date hereof.

(c) Neither the Company nor any of its Subsidiaries has any Liabilities required
to be disclosed in a balance sheet, or in a footnote thereto, prepared in
accordance with GAAP (whether accrued, absolute, contingent, unliquidated or
otherwise), other than Liabilities (i) adequately accrued or reserved against in
the Reference Balance Sheet, (ii) appearing as a liability in the Reference
Balance Sheet, (iii) incurred in the Ordinary Course of Business since the
Reference Balance Sheet Date, (iv) disclosed in Section 4.04(c) of the Company
Disclosure Schedule or (v) that are not, individually or in the aggregate,
material in amount to the Company or its Subsidiaries, taken as a whole.

(d) The Company maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations and (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, except, in each case,
for any deficiencies that, individually or in the aggregate, would not
reasonably be expected to be material to the Company and its Subsidiaries, taken
as a whole.

Absence of Certain Changes. Since the Balance Sheet Date through the date
hereof, (a) except for the transactions contemplated hereby, the Business has
been conducted in all material

 

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respects in the Ordinary Course of Business, (b) no action has been taken with
respect to the Company or its Subsidiaries or the Business which, if taken after
the date hereof and prior to the Closing, would constitute a breach of
Section 6.01 and (c) there has not occurred a Company Material Adverse Effect.

Capitalization.

(a) The authorized capital stock of the Company consists of 600,000 shares of
Common Stock. As of the date hereof, (i) 444,051.67 shares of Common Stock,
including unvested Company Restricted Stock, are issued and outstanding, (ii) 0
shares of Common Stock are held by the Company in its treasury and (iii) 80,000
shares of Common Stock are reserved for issuance pursuant to outstanding Company
Options and Company Restricted Stock under the Equity Plan. All outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and were issued in compliance with all applicable
federal and state securities Laws.

(b) Section 4.06(b) of the Company Disclosure Schedule sets forth a true and
complete list, as of the date hereof, of the names of each holder of Common
Stock, Company Restricted Stock and Company Options, the number of shares of
Common Stock and Company Restricted Stock held by such holder, the number of
Company Options held by such holder, the number of shares of Common Stock
issuable in connection with the Company Options held by such holder and the
exercise price of such holder’s Company Options. There are no outstanding
(i) equity securities of the Company (including equity, appreciation, phantom
equity, profit participation or other equity based compensation),
(ii) securities, bonds, debentures or Indebtedness of the Company convertible
into or exchangeable for equity securities of the Company or (iii) options,
warrants or other rights (absolute, contingent or otherwise) to acquire from the
Company or obligations of the Company (absolute, contingent or otherwise) to
issue, repurchase or redeem any equity securities or securities convertible into
or exchangeable for equity securities of the Company. The Identified Company
Stockholders constitute all of the Stockholders as of the date hereof.

(c) The Company is not bound by any right of first refusal, right of first
offer, proxy, voting agreement, voting trust, registration rights agreement,
shareholders agreement or any other contractual obligation or commitment of any
character restricting the transfer of, requiring registration for sale of, or
with respect to the voting of any shares of capital stock or equity interests of
the Company or any of its Subsidiaries or any securities convertible into or
exchangeable or exercisable for any shares of capital stock or equity interests
of the Company or any of its Subsidiaries.

Subsidiaries.

(a) Section 4.07(a) of the Company Disclosure Schedule sets forth a true and
complete list, as of the date hereof, of all Subsidiaries of the Company,
listing for each such Subsidiary its name, its jurisdiction of organization, its
authorized capital stock or other equity interests, the number and type of its
issued and outstanding shares of capital stock or other equity interests and the
current record and beneficial ownership of such shares. All outstanding equity
securities of each Subsidiary of the Company (except to the extent such concepts
are not applicable under the

 

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applicable Law of such Subsidiary’s jurisdiction of formation or other
applicable Law) (i) have been duly authorized and validly issued, (ii) except as
set forth in its Organizational Documents, are free and clear of any preemptive
or similar rights (except to the extent provided by applicable Law and other
than such rights as may be held by the Company or any of its Subsidiaries) or
restrictions on transfer (other than restrictions under applicable federal,
state and other securities laws), (iii) are free and clear of any Liens (other
than Permitted Liens) and (iv) are owned, beneficially and of record, by the
Company or another Subsidiary of the Company.

(b) There are no outstanding (i) equity securities of any Subsidiary of the
Company (including equity, appreciation, phantom equity, profit participation or
other equity based compensation), (ii) securities, bonds, debentures or
Indebtedness of any Subsidiary of the Company convertible into or exchangeable
for, at any time, equity securities of any Subsidiary of the Company or
(iii) options, warrants or other rights (absolute, contingent or otherwise) to
acquire from any Subsidiary of the Company or obligations of any Subsidiary of
the Company (absolute, contingent or otherwise) to issue, repurchase or redeem
any equity securities or securities convertible into or exchangeable for equity
securities of any Subsidiary of the Company.

(c) None of the Subsidiaries of the Company is bound by any right of first
refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, shareholders agreement or any other contractual
obligation or commitment of any character restricting the transfer of, requiring
the registration for sale of, or with respect to voting of any shares of capital
stock or equity interests of the Company or any of its Subsidiaries or any
securities convertible into or exchangeable or exercisable for any shares of
capital stock or equity interests of the Company or any of its Subsidiaries.

Governmental Approvals. Except for the (a) filing of the Certificate of Merger
with the Secretary of State of the State of Delaware pursuant to the DGCL,
(b) filings required under, and compliance with other applicable requirements
of, the HSR Act and (c) filings, consents, authorizations and approvals set
forth in Section 4.08 of the Company Disclosure Schedule, no consents,
authorizations, or approvals of, or filings, declarations or registrations with,
any Governmental Authority are necessary for the execution, delivery and
performance by the Company of this Agreement or any Related Agreement to which
it is a party and the consummation by the Company of the transactions
contemplated hereby and thereby, other than such other consents, authorizations,
approvals, filings, declarations or registrations that, if not obtained, made or
given, would not reasonably be expected to be material to the Company and its
Subsidiaries, taken as a whole.

Legal Proceedings; Orders.

(a) There are no material Actions pending, or to the Knowledge of the Company,
threatened in writing (other than any such Action involving claims or coverage
disputes arising under Insurance Contracts or Reinsurance Contracts in the
Ordinary Course of Business; provided that, the amount claimed under each such
Action is within the applicable Insurance Contract or Reinsurance Contract
limit) by or against the Company or any of its Subsidiaries or any of their
respective officers, directors or employees (in their capacity as such).

 

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(b) As of the date hereof, there is no outstanding Law or Order, against the
Company, its Subsidiaries or any of their Affiliates which (i) challenges the
validity or enforceability of this Agreement, (ii) seeks to enjoin or prohibit
the consummation of the transactions contemplated hereby or (iii) would
(x) impair or delay the ability of the Company or its Subsidiaries to promptly
obtain the consents, approvals, authorizations, waivers, permits, filings and
notifications set forth in Section 4.08 of the Company Disclosure Schedule or
(y) individually or in the aggregate, reasonably be likely to have a Company
Material Adverse Effect.

(c) Neither the Company nor any of its Subsidiaries or any of their respective
officers, directors nor employees (in their capacity as such) is a party or
subject to any material Order by any Governmental Authority.

Compliance with Laws; Permits.

(a) The Company and each of its Subsidiaries holds and is in compliance with all
Permits necessary for the lawful conduct of the Business as presently conducted,
except for those Permits which are not material to the Company and its
Subsidiaries, taken as a whole. The Business is operated in compliance with the
terms and conditions of all such Permits, and all such Permits are valid and in
full force and effect in accordance with their terms, except as would not be
material to the Company and its Subsidiaries, taken as a whole. Since January 1,
2014, the Company and each of its Subsidiaries have not received any written
notice from any Governmental Authority regarding the actual or potential
revocation, withdrawal, suspension, cancellation or termination of any such
Permit, except as would not be material to the Company and its Subsidiaries,
taken as a whole. No Insurance Company Subsidiary is “commercially domiciled” or
“deemed domiciled” in any jurisdiction.

(b) Neither the Company nor any of its Subsidiaries is in material violation of,
and each of the Company and its Subsidiaries is and has been since January 1,
2014, in compliance in all material respects with, all Laws or Orders applicable
to the Business.

(c) Since January 1, 2014, the Company and each of its Subsidiaries have filed
all material reports, statements, documents, registrations, filings or
submissions required by Law to be filed with any Governmental Authority. All
such reports, statements, documents, registrations, filings or submissions were
timely filed and complied in all material respects with applicable Law when
filed or as amended or supplemented. No deficiencies have been asserted by any
Governmental Authority in writing with respect to such reports, statements,
documents, registrations, filings or submissions that have not been resolved to
the satisfaction in all material respects of the applicable Governmental
Authority.

(d) None of the Company or any of its Subsidiaries is the subject of any
supervision, conservation, rehabilitation, liquidation, receivership, insolvency
or other similar proceeding, nor is any of the Company or any of its
Subsidiaries operating under any formal or informal agreement or understanding
with the licensing authority of any jurisdiction which agreement or
understanding restricts its authority or requires the maintenance of a specified
level of capital in connection with the conduct of the Business (other than any
such requirements imposed under generally applicable Law).

 

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(e) None of the Company or any of its Subsidiaries (nor, to the Knowledge of the
Company, any of their respective representatives, acting on behalf of the
Company or any of its Subsidiaries) has, in connection with the operation of the
Business, (i) used or promised any funds for unlawful contributions, payments,
gifts or entertainment, or made any unlawful expenditures relating to political
activity to government officials, candidates or members of political parties or
organizations, or established or maintained any unlawful or unrecorded funds in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any other
similar applicable Law, or (ii) paid, promised, accepted or received any
unlawful contributions, payments, expenditures or gifts.

(f) In the past five (5) years there has been no action taken by the Company or
any of its Subsidiaries or any of their respective officers, directors or
employees (in their capacity is such), or, to the Knowledge of the Company, any
agent, representative, sales intermediary or other third party, in each case,
acting on behalf of the Company or any of its Subsidiaries, in material
violation of any applicable anti-corruption Law, including the Foreign Corrupt
Practices Act of 1977, as amended, or any other applicable anti-corruption Law
of a similar nature.

Insurance Matters.

(a) All policies, binders, slips, certificates, contracts and other agreements
of insurance, whether individual or group (including all applications,
supplements, endorsements, riders and ancillary documents in connection
therewith) that are issued by an Insurance Company Subsidiary (each, an
“Insurance Contract”), and any and all marketing materials related thereto are,
to the extent required under applicable insurance Laws, on forms and at rates
approved by the insurance regulatory authority of the jurisdiction where issued
or, to the extent required by applicable Law, have been filed with and not
objected to by such authority within the period provided for objection, subject
to such exceptions that would not reasonably be likely to have a material effect
on the Company and its Subsidiaries, taken as a whole.

(b) Any report or finding issued by any Governmental Authority since January 1,
2013, from any examination (including financial, market conduct and similar
examinations) performed with respect to the Insurance Company Subsidiaries have
been made available by the Company to Parent. All material deficiencies or
violations noted in such examination reports have been resolved in all material
respects to the satisfaction of the Governmental Authority that noted such
deficiencies or violations or are no longer being pursued by such Governmental
Authority.

(c) The Company has made available to Parent copies of all risk-based capital
calculations and accompanying analyses and reports and reports submitted by any
Insurance Company Subsidiary to any Governmental Authority since December 31,
2013.

Employee Benefit Plans/ERISA.

(a) Section 4.12(a) of the Company Disclosure Schedule sets forth a true and
complete list, as of the date hereof, of each material Plan. With respect to
each material Plan, the Company has made available to Parent complete copies of
each of the following documents, as

 

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applicable: (i) a copy of the Plan (including all amendments thereto); (ii) a
copy of the most recent Form 5500 and annual report, if any, required under
ERISA or the Code; (iii) a copy of the most recent summary plan description, if
any, required under ERISA and any employee communications relating to any Plan
that could give rise to any material liability; (iv) if the Plan is funded
through a trust or any third party funding vehicle, a copy of the trust or other
funding agreement (including all amendments thereto); and (v) if the Plan is
intended to be qualified under Section 401(a) of the Code, the most recent
determination letter or opinion letter received from the Internal Revenue
Service (the “IRS”). Section 4.12(a)(i) of the Company Disclosure Schedule sets
forth the standard form of agreement between the Company and its insurance
agents in existence on the date hereof (the “Form Agent Contract”). The terms
and conditions of each insurance agent’s Contract do not deviate in any material
respect from the terms and conditions set forth in the Form Agent Contract.

(b) (i) No Plan is subject to Title IV of ERISA; (ii) no Plan is a
“multiemployer plan,” as such term is defined in Section 3(37) of ERISA; and
(iii) no Plan is a plan described in Section 4063(a) of ERISA and the Company
has not sponsored, contributed to or been obligated to contribute to any such
plan within the past six (6) years.

(c) Each Plan was established and has been administered in all material respects
in accordance with its terms and in compliance with applicable Law, including
ERISA and the Code, and the transactions contemplated herein do not violate the
terms of any Plan. Neither the Company nor, to the Knowledge of the Company, any
trustee or administrator of any Plan, has engaged in any transaction with
respect to the Plans which would subject the Company, any of its Subsidiaries or
any trustee or administrator of the Plans, or any party dealing with any such
Plan, nor do the transactions contemplated by this Agreement constitute
transactions which would subject any such party, to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code, except for such transactions
that, individually or in the aggregate, would not reasonably be expected to
result in a material liability to the Company or its Subsidiaries.

(d) Each Plan that is intended to be “qualified” within the meaning of
Section 401(a) of the Code has received a favorable determination letter to the
effect that it is so qualified and, to the Knowledge of the Company, nothing has
occurred that would reasonably be expected to affect such qualification.

(e) Neither the Company nor any Subsidiary has any obligation under any Plan or
otherwise to provide medical, health, life insurance or other welfare type
benefits to any employee following such individual’s termination of employment
(except for limited continued medical benefit coverage required to be provided
under Section 4980B of the Code or as required under applicable state Law),
except for such matters that, individually or in the aggregate, would not
reasonably be expected to result in a material liability to the Company or its
Subsidiaries.

(f) There are no pending or, to the Knowledge of the Company, threatened Actions
with respect to any Plan, by any employee or beneficiary covered under any Plan
or otherwise involving any Plan (other than routine claims for benefits), except
for such matters that, individually or in the aggregate, would not reasonably be
expected to result in material liability to the Company or its Subsidiaries.

 

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(g) Except for the payment of the Aggregate Option Payments and the Aggregate
Restricted Stock Payments, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby (alone or together
with any other event which standing alone would not by itself trigger such
entitlement or acceleration) will (i) entitle any current or former director,
officer or employee of the Company or any of its Subsidiaries to severance pay,
unemployment compensation or any other payment from the Company or any of its
Subsidiaries or (ii) accelerate the time of payment, funding or vesting, or
increase the amount of compensation or benefit due any such director, officer or
employee.

(h) Neither the Company nor any of its Subsidiaries is a party to any agreement,
plan, contract or arrangement that could result, upon consummation of the
transactions contemplated hereby (alone or together with any other event which
standing alone, would not by itself trigger such payment), in the payment or
series of payments of any “excess parachute payments” within the meaning of
Section 280G of the Code.

Material Contracts.

(a) Section 4.13(a) of the Company Disclosure Schedule sets forth a list of all
of the following Contracts (other than Insurance Contracts or Reinsurance
Contracts) to which the Company or any of its Subsidiaries is a party as in
effect on the date of this Agreement (such Contracts, the “Material Contracts”):

(i) Any Contract for the employment of any officer, individual employee or other
person on a full-time, part-time, consulting or other basis, providing annual
base compensation in excess of two hundred thousand dollars ($200,000);

(ii) Lease or agreement under which the Company or any of its Subsidiaries is
lessee of or holds or operates any tangible property (other than real property)
owned by any other Person, except for any lease or agreement under which the
aggregate annual rental payments do not exceed four hundred thousand dollars
($400,000);

(iii) Lease or agreement under which the Company or any of its Subsidiaries is
lessor of or permits any third party to hold or operate any tangible property
(other than real property) owned or controlled by the Company, except for any
lease or agreement under which the aggregate annual rental payments do not
exceed four hundred thousand dollars ($400,000);

(iv) Partnership agreements, limited liability company agreements, joint venture
agreements or any other similar agreement or arrangement;

(v) Agreement, contract or commitment prohibiting or limiting the Company or any
of its Subsidiaries from competing in any business, in any locality or with any
Person, or containing any employee non-solicitation or non-hire provisions;

 

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(vi) Contracts and groups of related contracts under which the Company or any of
its Subsidiaries have created, incurred, assumed, guaranteed or secured by any
asset any Indebtedness in excess of two hundred fifty thousand dollars
($250,000) or under which a Lien (other than a Permitted Lien) has been imposed
on any of the assets or properties of the Company or any of its Subsidiaries;

(vii) Contract, arrangement or understanding that relates to the future
disposition or acquisition of any business, assets or properties valued in
excess of one million dollars ($1,000,000) by the Company or any of its
Subsidiaries, or any merger or business combination with respect to the Company
or any of its Subsidiaries;

(viii) all material Third Party Intellectual Property Licenses, and all material
Contracts under which the Company or any of the Subsidiaries has licensed to
others the right to use any Intellectual Property;

(ix) any Contract for the purchase of services, materials, supplies, goods,
equipment or other assets or property that is material to the operation of the
Business and that provides for annual payments in excess of five hundred
thousand dollars ($500,000) annually;

(x) any Contract with a Governmental Authority (other than a Permit);

(xi) any Contract for the purchase of real property;

(xii) any Contract for any Leased Real Property which provides for annual
payments by the Company or any of its Subsidiaries in excess of five hundred
thousand ($500,000) annually;

(xiii) any Contract that provides for revenue sharing or similar arrangements or
contains any “earn out” provisions which remain in effect, other than with a
Subsidiary of the Company;

(xiv) any Contract providing for any severance, success bonus, stay bonus,
change of control, redemption of equity or other payment or bonus or Transaction
Expenses which becomes due or is otherwise payable by the Company or any
Subsidiary as a result of the consummation of the transactions contemplated by
this Agreement;

(xv) any Contract that grants the other party or any third party “most favored
nation” status; and

(xvi) any other contract, arrangement or understanding not included in clauses
(i) through (xv) above under which the Company or any of its Subsidiaries
receives, or is required to pay, an amount in excess of one million dollars
($1,000,000) per annum.

Copies of all Material Contracts and summaries of any oral Material Contracts
have been made available to Parent prior to the date of this Agreement.

 

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(b) Each Material Contract is valid and binding in all material respects on the
Company and its Subsidiaries, as applicable, enforceable in accordance with its
terms against the Company and its Subsidiaries, as applicable, and, to the
Knowledge of the Company, each other party thereto (subject to the Bankruptcy
and Equity Exception) and is in full force and effect. Each of the Company and
its Subsidiaries, as applicable, and, to the Knowledge of the Company, each of
the other parties thereto has performed all obligations required to be performed
by it under each Material Contract in all material respects, and no event or
condition exists that, after notice or lapse of time or both, would constitute a
material violation, breach or event of default on the part of the Company or any
of its Subsidiaries or, to the Knowledge of the Company, any other party thereto
or result in a termination thereof or would cause or permit the acceleration of
or other material changes of or to any right or obligation or the loss of any
material benefit under any Material Contract.

Environmental Matters. (a) The Company and the Company’s Subsidiaries are in
compliance in all material respects with all applicable Environmental Laws,
including obtaining, maintaining and complying in all material respects with all
Permits required under Environmental Laws for the operation of the Business,
(b) there is no material Action or investigation by or before any Governmental
Authority relating to or arising under any Environmental Laws that is pending
or, to the Knowledge of the Company, threatened against the Company or any of
its Subsidiaries or any real property or facility owned, operated or leased by
the Company or any of its Subsidiaries and (c) neither the Company nor any of
its Subsidiaries has received any written notice of or entered into any
Liability, Order, settlement, judgment, injunction or decree involving
uncompleted, outstanding or unresolved requirements relating to or arising under
Environmental Laws. Hazardous Materials have not been generated, stored or
transported or arranged for any other Person to generate, store or transport at
or about any of the real properties or facilities currently owned, operated or
leased or, to the Knowledge of the Company, formerly owned, operated or leased
by the Company or any of its Subsidiaries in amount or condition that would
reasonably be expected to result in material Liability to the Company or any of
its Subsidiaries relating to or arising under any Environmental Laws. There has
been no material Release or threat of material Release of any Hazardous
Materials at any of the real properties or facilities currently or formerly
owned, operated or leased by the Company or any of its Subsidiaries. There exist
no underground storage tanks at any of the real properties or facilities
currently owned by the Company or its Subsidiaries. Neither the Company nor any
of its Subsidiaries has agreed to undertake or indemnify the Liability of any
Person under Environmental Laws.

Real Property.

(a) Section 4.15(a) of the Company Disclosure Schedule sets forth a list, as of
the date hereof, of all real properties owned by the Company or any of its
Subsidiaries (“Owned Real Property”), including the address or other description
and the ownership interest therein.

(i) The Company or a Subsidiary of the Company has good and valid fee simple
title to all Owned Real Property, free and clear of all Liens (except in all
cases for Permitted Liens).

 

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(ii) There are no outstanding rights of first refusal, rights of first offer or
options to purchase an interest in the Owned Real Property.

(iii) Neither the Company nor a Subsidiary of the Company has leased, licensed
or otherwise granted any Person the right to use or occupy the Owned Real
Property, including any subtenants, which lease, license or grant, is currently
in effect or granted a security interest in the Owned Real Property which
security interest is currently in effect.

(b) Section 4.15(b) of the Company Disclosure Schedule sets forth a list of all
real property leased or subleased to or by the Company or any of its
Subsidiaries (collectively, the “Leased Real Property”).

(i) The Company or a Subsidiary of the Company has valid leasehold interests in
all Leased Real Property.

(ii) The Company has furnished copies of each lease, license or other occupancy
agreement with respect to each such Leased Real Property as in effect on the
date hereof.

(iii) There are no outstanding rights of any Person (other than the Company and
its Subsidiaries) to use or occupy the Leased Real Property and there is no
Person (other than the Company and its Subsidiaries) in possession of the Leased
Real Property.

(c) There are no pending or, to the Knowledge of the Company, threatened in
writing condemnation proceedings or Actions related to any of the Owned Real
Property or Leased Real Property. To the Knowledge of the Company, neither the
Company nor any of its Subsidiaries has received any written notice from any
Governmental Authority of any material violation of Law concerning any of the
Owned Real Property that has not been fully cured or rescinded.

Labor Matters.

(a) The Company has previously delivered to Parent a true and complete list, as
of March 30, 2016, of each employee of the Company or any Company Subsidiary,
and each such employee’s Company identification number, work location, title,
2016 base salary or wage level and 2015 total bonus, which list is set forth in
Folder 9.13 of the Electronic Data Room. Except as set forth in Section 4.16(a)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries utilizes the services of any independent contractors or other
non-employee service providers.

(b) Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement with any labor organization, and there are no ongoing or,
to the Knowledge of the Company, threatened union organizing activities relating
to employees of the Company or its Subsidiaries and no such activities have
occurred within the past thirty-six (36) months.

 

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(c) None of the following is pending or, to the Knowledge of the Company,
threatened in writing: (i) any material labor dispute between the Company or any
of its Subsidiaries and any labor organization, or any material strike,
slowdown, work stoppage or other similar material organized labor activity
involving any group of employees of the Company or any of its Subsidiaries or
materially affecting the Company or any of its Subsidiaries or (ii) any union
organizing or union election activity involving any group of employees of the
Company or any of its Subsidiaries.

(d) Each of the Company and its Subsidiaries is in compliance in all material
respects with all applicable federal, state and local Laws regarding labor,
employment and employment practices, conditions of employment, occupational
safety and health, and wages and hours, including any bargaining or other
obligations under the National Labor Relations Act.

Insurance Coverage. Section 4.17 of the Company Disclosure Schedule sets forth,
as of the date hereof, all current property and liability insurance policies
covering the Company and its Subsidiaries or the Business. All such insurance
policies are in full force and effect (and all premiums due and payable thereon
have been paid in full on a timely basis), and no notice of material premium
increases, cancellation, termination or revocation or other notice that any such
insurance policy is no longer in full force or effect or that the issuer of any
policy is not willing or able to perform its obligations thereunder has been
received by the Company or any of its Subsidiaries and, to the Knowledge of the
Company, none of the Company of any of its Subsidiaries is in default in any
material respect of any provision thereof.

Intellectual Property.

(a) Section 4.18(a) of the Company Disclosure Schedule contains a true, correct
and complete list, as of the date hereof, of Intellectual Property owned by the
Company or its Subsidiaries in the following categories (the “Registered Company
Intellectual Property”): (i) registered Patents and pending Patent applications;
(ii) registered Trademarks and pending Trademark applications; (iii) domain
names and social media identifiers; and (iv) registered copyrights and pending
copyright applications listing, as applicable, (A) the title of the application
or registration, (B) the name of the applicant/registrant and current owner,
(C) the jurisdiction where the application/registration is located and (D) the
application or registration number (the Registered Company Intellectual
Property, together with all other Intellectual Property that is owned by the
Company or its Subsidiaries, collectively, the “Owned Company Intellectual
Property”). All Registered Company Intellectual Property is subsisting, and all
Owned Company Intellectual Property is subsisting, valid and enforceable, and
shall survive unchanged upon and following the consummation of the Merger.

(b) Each of the Company and its Subsidiaries either owns, free and clear of all
Liens (other than Permitted Liens), or has a right to use all of the Company
Intellectual Property used by such Person.

(c) The conduct of the Business as it has been (since January 1, 2013) and is
currently conducted, including use of the Company Intellectual Property in the
Business, does not infringe, misappropriate or otherwise violate any Person’s
rights in Intellectual Property, and, to the Knowledge of the Company, there is
no such claim pending or threatened against the

 

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Company or any of its Subsidiaries. To the Knowledge of the Company, no Person
is infringing or otherwise violating any Owned Company Intellectual Property,
and no such claims are pending or threatened against any Person by the Company
or any of its Subsidiaries.

(d) Other than pursuant to a Material Contract, neither the Company nor any of
its Subsidiaries has granted any material license or other rights to any Person
to the Owned Company Intellectual Property. All employees and other Persons who
have developed any Owned Company Intellectual Property or part thereof have
either (i) done so within the scope of their employment such that rights in such
Owned Company Intellectual Property vest in the Company or a Subsidiary under
applicable Law or (ii) entered into agreements that assign to the Company or its
applicable Subsidiary ownership thereof.

(e) The software and information technology systems owned or used by the Company
or its Subsidiaries in the Business have not, since January 1, 2014, experienced
a fault or error that materially disrupted the conduct of the Business. To the
Knowledge of the Company, all software and information technology systems owned
or used by the Company or its Subsidiaries are free from any “virus.” The
Company and its Subsidiaries employ reasonable measures to ensure that such
software and systems contain no “viruses.” For the purposes of this Agreement,
“virus” means any computer code intentionally designed to disrupt, disable or
harm in any manner the operation of any software or hardware without proper
authorization. The Company and its Subsidiaries have taken reasonable steps to
ensure the physical and electronic protection of their websites, and such
software and systems, and other information assets from unauthorized disclosure,
access, use or modification. To the Knowledge of the Company, since January 1,
2014 there has been no material breach of security involving any such websites,
software, systems or other information assets of the Company or its Subsidiaries
that has resulted in improper access to Trade Secrets or Personal Information
held by the Company or any Subsidiary.

(f) The Company and its Subsidiaries have, in relation to all data and
information from or about an individual Person gathered, used, held for use or
accessed in the conduct of the Business, including personally identifiable data
and information (“Personal Information”), established and maintained a
reasonable privacy policy in accordance with applicable Law, and all such
Personal Information has been gathered, used, held for use or accessed in
accordance with the applicable privacy policy or terms of use and all applicable
Laws. Neither the Company nor any of its Subsidiaries has received a written
notice of noncompliance with applicable Law, or any written claim of
infringement, misappropriation, misuse, breach of contract or any other written
claim related to Personal Information or use thereof, and to the Knowledge of
the Company, no such notice or claim is threatened. The Company and its
Subsidiaries have taken commercially reasonable measures to protect against
unauthorized disclosure, access, use or modification of Personal Information and
material Trade Secrets relating to the Business. To the Knowledge of the
Company, since January 1, 2014, there has not been any material unauthorized
disclosure, access, use or modification of any such Personal Information or
material Trade Secret.

(g) Notwithstanding any other provision of this Agreement and other than
Section 4.13(a)(viii), the representations and warranties contained in this
Section 4.18 constitute the sole and exclusive representations and warranties of
the Company relating to Intellectual Property, privacy and information security
matters.

 

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Taxes.

(a) Each of the Company and its Subsidiaries has (i) timely filed or caused to
be filed with the appropriate Governmental Authorities all income Tax and other
material Tax Returns required to be filed by it (taking into account any
extensions of time to file), and all such Tax Returns were true, correct and
complete in all material respects and (ii) paid all income Taxes and other
material Taxes (whether or not such amounts are shown as due and payable on such
Tax Returns) to the appropriate Governmental Authority, except to the extent
such amounts are being contested in good faith and for which adequate reserves
have been established in the Interim Financial Statements in accordance with the
Accounting Methodologies, and except as reflected in the calculation of
Estimated Closing Net Worth (as such reserves may be adjusted in the calculation
of Final Closing Net Worth).

(b) There are no outstanding waivers or agreements regarding the application of
the statute of limitations with respect to any Taxes or Tax Returns of the
Company or any of its Subsidiaries.

(c) No federal, state, local or foreign audits or other administrative
proceedings have been formally commenced or are presently pending with regard to
any Taxes or Tax Returns of the Company or any of its Subsidiaries. No
notification has been received by the Company or any of its Subsidiaries that
such an audit or other proceeding has been proposed or threatened.

(d) Neither the Company nor any of its Subsidiaries has been a party to a
“reportable transaction,” as such term is defined in Section 6707A(c)(1) of the
Code and Treasury Regulation section 1.6011-4(b) (or any similar provision of
state, local or foreign Law).

(e) The Company and its Subsidiaries have each complied with all applicable Tax
Laws with respect to the withholding of Taxes and all reporting and
recordkeeping requirements in connection therewith.

(f) Neither the Company nor any of its Subsidiaries has any liability for Taxes
of any Person (other than the Company or another Subsidiary of the
Company): (i) under any Tax indemnity, Tax sharing or Tax allocation agreement,
or any other contractual obligation (excluding for this purpose, agreements
entered into in the Ordinary Course of Business the primary purpose of which is
not related to Taxes, such as leases, licenses, insurance or credit agreements);
(ii) arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or foreign Law; or (iii) as a transferee or
successor.

(g) No Liens for Taxes have been filed or exist against the Company or any of
its Subsidiaries, except for Permitted Liens.

(h) The unpaid Taxes of the Company and its Subsidiaries for taxable periods (or
portions thereof) ending before the Closing Date (calculated by disregarding the
deductions arising from Transaction Expenses) do not exceed the reserves for
Taxes reflected in the computation of Estimated Closing Net Worth as set forth
in the Estimated Closing Statement (as such reserves may be adjusted in the
calculation of Final Closing Net Worth).

 

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(i) Neither the Company nor any of its Subsidiaries is required to include any
material amounts in income, or exclude any material item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (i) change in method of accounting for a
taxable period ending on or prior to the Effective Time; (ii) “closing
agreement” as described in Section 7121 of the Code (or any corresponding or
similar provision of federal, state, local or foreign income Tax Law) executed
at or prior to the Effective Time; (iii) installment sale or open transaction
disposition made at or prior to the Effective Time; (iv) prepaid amount (other
than insurance premiums and similar amounts) received at or prior to the
Effective Time; or (v) election under Section 108(i) of the Code.

(j) Neither the Company nor any of its Subsidiaries could be required to include
any amounts in income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any intercompany transaction or excess loss
account described in Treasury Regulations under Section 1502 of the Code (or any
corresponding or similar provision of state, local or non-U.S. Tax Law).

(k) Neither the Company nor any of its Subsidiaries has requested or received
any Tax ruling, private letter ruling, technical advice memorandum, competent
authority relief or similar agreement from the IRS (or other authority
responsible for the administration or collection of Taxes) with respect to a
taxable period for which the statute of limitations is still open.

(l) Neither the Company nor any of its Subsidiaries has entered into a closing
agreement or other similar agreement with a Governmental Authority relating to
Taxes of such Company or any of its Subsidiaries with respect to a taxable
period for which the statute of limitations is still open.

(m) Neither the Company nor any of its Subsidiaries 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 qualifying for
tax-free treatment under Section 355 of the Code in a distribution within the
past two (2) years or which could constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code) in
conjunction with the Agreement.

(n) There are no outstanding powers of attorney executed on behalf of the
Company or any of its Subsidiaries with respect to Taxes that will survive the
Closing.

(o) Notwithstanding any other provision of this Agreement, the representations
and warranties contained in this Section 4.19, as well as those contained in
Section 4.12(a), Section 4.12(c), Section 4.12(d), Section 4.12(e) and
Section 4.12(h), constitute the sole and exclusive representations and
warranties of the Company and any of its Subsidiaries relating to any Taxes or
Tax Returns.

Affiliate Transactions. Except as set forth in Section 4.20(a) of the Company
Disclosure Schedule and other than ordinary course employment relationships,
there are no Contracts or transactions between (i) the Company or any of its
Subsidiaries, on the one hand, and (ii) the Company

 

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Holders or any of their respective Affiliates (other than the Company or any
Subsidiary of the Company), on the other hand (a “Company Affiliate
Arrangement”); provided that, solely for purposes of this Section 4.20,
“Affiliate” shall not include, solely with respect to TPG or Calera, any
portfolio company of any investment fund affiliated with TPG or Calera,
respectively. Except as set forth in Section 4.20(b) of the Company Disclosure
Schedule, no penalty or other amount shall be payable by the Company or any of
its Subsidiaries in connection with the termination of any Company Affiliate
Arrangement to be terminated in connection with the Closing as contemplated by
Section 7.02(d).

Title to Assets. The Company and its Subsidiaries have good and indefeasible
title (subject only to Permitted Liens) in and to all of the properties, rights
and assets (real or personal, tangible or intangible) that are used by the
Company and its Subsidiaries in the Business, and such tangible personal
property is in good operating condition and repair (ordinary wear and tear
excepted).

Brokers. No broker, investment banker, financial advisor, intermediary, finder
or other Person is entitled to any broker’s, finder’s, financial advisor’s or
other similar fee or commission, or the reimbursement of expenses, directly or
indirectly, in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Company or any of the Company’s
Subsidiaries.

Reinsurance. Section 4.23 of the Company Disclosure Schedule sets forth, as of
the date hereof, a list of each treaty or agreement of assumed or ceded
reinsurance as to which any of the Insurance Company Subsidiaries, or any of
their respective counterparties to any such treaty or agreement, maintains claim
reserves, associated reserves for incurred but not reported claims, unearned
premiums, refunds or policy reserves, in the aggregate, equal to or exceeding
one million dollars ($1,000,000) as of December 31, 2015 (the “Reinsurance
Contracts”). Each Reinsurance Contract is valid and binding on the applicable
Insurance Company Subsidiary, enforceable in accordance with its terms and in
full force and effect, and such Insurance Company Subsidiary has performed its
obligations thereunder in all material respects. None of the Insurance Company
Subsidiaries has breached any provision of any Reinsurance Contract in any
material respect and to the Knowledge of the Company, no other party to any
Reinsurance Contract is in default thereunder in any material respect or is the
subject of a rehabilitation, liquidation, conservatorship, receivership,
bankruptcy or similar proceeding.

 

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REPRESENTATIONS AND WARRANTIES OF

PARENT AND MERGER SUB

Except as set forth in the disclosure schedule delivered by Parent to the
Company concurrently with the execution of this Agreement (the “Parent
Disclosure Schedule”), Parent and Merger Sub, jointly and severally, hereby
represent and warrant to the Company as of the date hereof and as of the Closing
Date as follows:

Organization, Standing and Power.

(a) Parent is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all requisite corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted. Parent is duly qualified to
do business or licensed and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties or assets owned or leased by it makes such licensing or qualification
required by Law, except where the failure to be so qualified, licensed or in
good standing would not have a Parent Material Adverse Effect.

(b) Merger Sub is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all requisite corporate
power and authority necessary to own, lease or operate all of its properties and
assets and to carry on its business as it is now being conducted.

(c) Parent has made available to the Company complete and correct copies of the
Organizational Documents of Merger Sub, as amended to the date hereof.

Authorization. Each of Parent and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement and each Related Agreement
to which it is a party and to perform its respective obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
This Agreement and each Related Agreement to which Parent or Merger Sub is a
party has been duly executed and delivered by each of Parent and Merger Sub and,
assuming due authorization, execution and delivery hereof and thereof by the
other parties hereto and thereto, constitutes a legal, valid and binding
obligation of each of Parent and Merger Sub, enforceable against each of Parent
and Merger Sub in accordance with its terms, subject to the Bankruptcy and
Equity Exception.

Noncontravention.

(a) None of the execution and delivery by Parent or Merger Sub of this Agreement
and each Related Agreement to which it is a party, the consummation by Parent or
Merger Sub of the transactions contemplated hereby and thereby or compliance by
Parent and Merger Sub with any of the terms or provisions hereof and thereof
will (i) conflict with or violate any provision of Parent’s or Merger Sub’s
Organizational Documents or (ii) (1) assuming that the authorizations, consents
and approvals referred to in Section 5.04 are obtained and the filings referred
to in Section 4.08 of the Company Disclosure Schedule are made, violate any Law
applicable to Parent or Merger Sub or by which any of their respective
properties or assets are bound or (2) with or without notice, lapse of time or
both, violate, breach or constitute a default under any of the terms, conditions
or provisions of any Contract or Permit to which Parent or Merger Sub is a party
or by which any of their respective properties or assets are bound or accelerate
or give rise to a right of termination, modification, cancellation or
acceleration of any of Parent’s or Merger Sub’s obligations under any such
Contract or Permit, except, in the case of clause (ii), for such violations,
defaults, accelerations, rights or losses as would not reasonably be expected to
be material to Parent, taken as a whole.

(b) The votes or consents of Parent as the sole stockholder of Merger Sub (which
occurred prior to or concurrent with the execution and delivery of this
Agreement) are the

 

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only votes or consents of the holders of any class or series of capital stock or
other equity interest of Parent or Merger Sub which are necessary to adopt and
approve this Agreement or approve the transactions contemplated hereby.

Governmental Approvals. Except for the (a) filing of the Certificate of Merger
with the Secretary of State of the State of Delaware pursuant to the DGCL,
(b) filings required under, and compliance with other applicable requirements
of, the HSR Act and (c) filings, consents, authorizations and approvals set
forth in Section 4.08 of the Company Disclosure Schedule, no consents,
authorizations, or approvals of, or filings, declarations or registrations with,
any Governmental Authority are necessary for the execution, delivery and
performance by each of Parent and Merger Sub of this Agreement or any Related
Agreement to which it is a party and the consummation by each of Parent and
Merger Sub of the transactions contemplated hereby and thereby, other than such
other consents, authorizations, approvals, filings, declarations or
registrations that, if not obtained, made or given, would not reasonably be
expected to be material to Parent, taken as a whole.

Available Funds. Parent has, or has available, and on the Closing Date will have
available, all cash and cash equivalents necessary to pay the Merger
Consideration and any other amounts required to be paid in connection with the
consummation of the transactions contemplated hereby and to pay all of its
related fees and expenses.

Parent Impediments. There is no Action pending or, to the Knowledge of Parent or
Merger Sub, threatened in writing, or any outstanding Law or Order, against
Parent, Merger Sub or any of their Affiliates which (a) challenges the validity
or enforceability of this Agreement, (b) seeks to enjoin or prohibit the
consummation of the transactions contemplated hereby or (c) would (i) impair or
delay the ability of Parent or Merger Sub to promptly obtain the consents,
approvals, authorizations, waivers, permits, filings and notifications set forth
in Section 4.08 of the Company Disclosure Schedule or (ii) individually or in
the aggregate, reasonably be likely to have a Parent Material Adverse Effect.

Compliance with Laws. The business of each of Parent and Merger Sub is operated
in compliance with all applicable Laws, except where any such non-compliance has
not had or would not reasonably be expected to have a Parent Material Adverse
Effect.

Investment Representation. Parent is acquiring the Common Stock for its own
account with the present intention of holding such securities for investment
purposes and not with a view to, or for sale in connection with, any
distribution of such securities in violation of any federal or state securities
laws. Parent is an “accredited investor” as defined in Regulation D promulgated
by the Securities and Exchange Commission under the Securities Act. Parent
acknowledges that it is informed as to the risks of the transactions
contemplated hereby and of ownership of the Common Stock. Parent acknowledges
that the Common Stock has not been registered under the Securities Act, or any
state or foreign securities laws and that the Common Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
unless such transfer, sale, assignment, pledge, hypothecation or other
disposition is pursuant to the terms of an effective registration statement
under the Securities Act and the Common Stock is registered under any applicable
state or foreign securities laws or sold pursuant to an exemption from
registration under the Securities Act and any applicable state or foreign
securities laws.

 

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Brokers. No broker, investment banker, financial advisor, intermediary, finder
or other Person is entitled to any broker’s, finder’s, financial advisor’s or
other similar fee or commission, or the reimbursement of expenses, directly or
indirectly, in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Parent or Merger Sub or any of their
respective Affiliates for which the Company Holders may become liable.

Ownership; No Prior Activities and Agreements. Merger Sub is a Subsidiary of
Parent and Parent owns beneficially and of record all of the outstanding capital
stock of Merger Sub. Except for obligations incurred in connection with its
incorporation or organization or the negotiation and consummation of this
Agreement and the transactions contemplated hereby, Merger Sub has not incurred
any Liability or engaged in any business or activity of any type or kind
whatsoever or entered into any agreement or arrangement with any Person.

Policy.

(a) Parent has entered into the Policy.

(b) The copy of the Policy that has been provided by Parent to the Company
immediately prior to execution of this Agreement, is a true and correct copy of
the original.

(c) Parent acknowledges that the Company has entered into this Agreement in
reliance on the Policy in respect of the representations and warranties
contained in Article IV hereof.

COVENANTS

Conduct of Business.

(a) During the period from the date of this Agreement until the Closing or
earlier termination of this Agreement, except (1) as otherwise expressly
permitted by this Agreement, (2) as set forth in Section 6.01(a) of the Company
Disclosure Schedule, (3) as required by applicable Law or Order by a
Governmental Authority or (4) with the prior written consent of Parent (in the
case of clauses (xi), (xii), (xviii), (xx) below, not to be unreasonably
withheld, conditioned or delayed), the Company shall, and shall cause its
Subsidiaries to, conduct the Business in the Ordinary Course of Business and use
commercially reasonable efforts to keep intact its and their relationships with
employees, counterparties to Material Contracts and other material business
relationships, and shall not, and shall cause the Company’s Subsidiaries not to:

(i) declare, set aside or pay any dividend or distribution (in cash, stock or
otherwise) on any shares of its capital stock or other equity interest, except
dividends and distributions by any Subsidiary of the Company to any other
Subsidiary of the Company, or purchase, redeem or repurchase any shares of its
capital stock or other equity interest, except (A) acquisitions in connection
with the vesting or forfeiture of equity awards outstanding on the date hereof
in accordance with the terms of the applicable Plan in effect on the date hereof
or (B) any dividends or distributions solely between or among the Company and
any of its Subsidiaries;

 

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(ii) split, combine, subdivide or reclassify any shares of its capital stock or
other equity interests;

(iii) adopt a plan or agreement of complete or partial liquidation or authorize
or undertake a dissolution, rehabilitation, merger, consolidation,
restructuring, recapitalization or other business combination or reorganization;

(iv) except for any issuances in connection with equity awards granted before
the date of this Agreement pursuant to the Equity Plan and listed in
Section 4.06(b) of the Company Disclosure Schedule, issue, sell, pledge,
transfer, dispose of or encumber any shares of its capital stock or other equity
interest or securities exercisable or convertible into, or exchangeable or
redeemable for, any such shares or other equity interest, or any rights,
warrants, options, calls or commitments to acquire any such shares or other
equity interest or make any changes (by combination, reorganization, reverse
stock split, reclassification of any equity interests or otherwise) in the
capital structure of the Company or any of its Subsidiaries;

(v) amend the Organizational Documents of the Company or the Company’s
Subsidiaries, other than immaterial amendments to such Organizational Documents;

(vi) other than in connection with an expenditure or investment of capital not
in excess of one million three hundred fifty thousand dollars ($1,350,000)
individually, acquire or agree to acquire in any manner (whether by merger,
amalgamation or consolidation, the purchase of an equity interest in or a
material portion of the assets of, via a reinsurance or retrocession agreement,
or otherwise) any assets or business or any corporation, partnership,
association or other business organization or division thereof of any other
Person, other than investments made in the Ordinary Course of Business in
accordance with its investment policies and guidelines in place as of the date
hereof and as provided to Parent;

(vii) make any capital expenditures in excess of one million dollars
($1,000,000) on any individual item or group of related items or project;

(viii) sell, pledge, transfer, assign or otherwise dispose of any of its assets
having a replacement cost or fair market value in excess of five hundred
thousand dollars ($500,000), or grant any Lien (other than a Permitted Lien) on
any of its assets, other than divestments of investments made in the Ordinary
Course of Business in accordance with its investment policies and guidelines in
place as of the date hereof and as provided to Parent;

(ix) enter into or consummate any transaction or series of transactions
involving any merger, amalgamation, consolidation, exchange, scheme of
arrangement, recapitalization or similar business combination transaction, or
sale, pledge, transfer or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries;

 

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(x) incorporate or redomesticate itself or any other Subsidiary or form a new
Subsidiary;

(xi) (A) other than (1) in the Ordinary Course of Business in connection with an
expenditure not in excess of two hundred fifty thousand dollars ($250,000)
individually or (2) the settlement of claims under Insurance Contracts in the
Ordinary Course of Business within the policy limits of such Insurance Contract,
settle or compromise any pending or threatened Action or (B) commence any Action
that would reasonably be expected to result in the Company or any of its
Subsidiaries incurring costs in excess of two hundred thousand ($200,000);

(xii) except as required by any applicable Contract or permitted by any Plan in
effect on the date hereof, (A) enter into any employment agreement except in the
Ordinary Course of Business, (B) amend any employment agreement in respect of
any officer or employee providing for aggregate annual compensation in excess of
two hundred thousand dollars ($200,000), (C) enter into, materially amend or
terminate any employee benefit plan, including any of the Plans and severance
arrangements, (D) increase the aggregate compensation of any officer or employee
whose aggregate annual compensation as of the date hereof exceeds two hundred
thousand dollars ($200,000) or (E) make any loan, guarantee or advance to any
director, officer or employee, other than advances of expenses made in the
Ordinary Course of Business;

(xiii) make any material change in its underwriting, reserving or accounting
practices or policies, except as required by GAAP or SAP or changes in the
interpretation or enforcement thereof;

(xiv) enter into any joint venture or similar strategic relationship, other than
arrangements in the Ordinary Course of Business to sell insurance products
issued by third parties pursuant to Contracts terminable on six (6) months’
notice or less without penalty or premium;

(xv) initiate any offering of equity interests of the Company or any Subsidiary
of the Company, other than issuing any shares of Common Stock upon the exercise
of any Company Options outstanding as of the date hereof;

(xvi) settle or compromise any material Tax liability, make or change any
material election with respect to its Taxes, adopt or change any material
accounting method, file an amended Tax Return, surrender any right to claim a
refund of material Taxes, or consent to any extension or waiver of the
limitation period applicable to any material Tax claim;

(xvii) (A) enter into any new line of business or introduce any new material
products or services or (B) materially change its business lines, products,
services, methods, policies, practices or principles used in connection with the
Business, in each case, in effect on the date hereof, except to the extent
required after the date hereof by any change in SAP or GAAP, as applicable;

 

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(xviii) modify or amend in any material respect or terminate any of the
Reinsurance Contracts or enter into any treaty or agreement that would
constitute a Reinsurance Contract, except for the replacement of Reinsurance
Contracts as in effect on the date hereof with generally comparable coverage on
generally comparable terms and conditions;

(xix) except for borrowings under the Credit Agreement, incur or guarantee any
Indebtedness in excess of five million dollars ($5,000,000) in the aggregate
(with respect to the Company and its Subsidiaries, taken as a whole);

(xx) other than in the Ordinary Course of Business, (A) amend, terminate or
grant a waiver of any material rights under any Material Contract or (B) enter
into any Contract that would constitute a Material Contract;

(xxi) acquire additional real property;

(xxii) effect or permit a mass layoff or similar event under the WARN Act; or

(xxiii) agree in writing or otherwise to take any of the foregoing actions
prohibited by this Section 6.01(a).

(b) Parent and Merger Sub acknowledge and agree that: (i) nothing contained in
this Agreement shall give Parent or Merger Sub, directly or indirectly, the
right to control or direct the operations of the Company or any of the Company’s
Subsidiaries prior to the Effective Time, (ii) prior to the Effective Time, the
Company and the Company’s Subsidiaries shall exercise, consistent with the terms
and conditions of this Agreement (including this Section 6.01), complete control
and supervision over their respective operations and (iii) notwithstanding
anything to the contrary set forth in this Agreement, no consent of Parent or
Merger Sub shall be required with respect to any matter set forth in this
Section 6.01 or elsewhere in this Agreement to the extent the requirement of
such consent would violate any applicable Law.

Reasonable Best Efforts to Consummate Merger/Notification.

(a) Upon the terms and subject to the conditions set forth in this Agreement,
each of the Company, Parent and Merger Sub agrees to use its reasonable best
efforts to, and agrees to cause each of its respective Affiliates to 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 with the other Parties in
doing, all things necessary, proper or advisable to fulfill, but not waive, all
conditions applicable to such Party pursuant to this Agreement and to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated hereby, including obtaining or making all
necessary, proper or advisable actions or nonactions and consents, approvals,
waivers or other authorizations from Governmental Authorities and taking all
steps as may be necessary to obtain a consent, approval, waiver or other
authorization from any Governmental Authority (including under insurance Laws
and the HSR Act).

(b) In furtherance and without limiting the foregoing, (i) Parent shall file
“Form A” Acquisition of Control Statements, together with all exhibits,
affidavits and

 

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certificates, with the Insurance Commissioner or Director of each of the States
of Arkansas, Florida, Indiana, Louisiana, Mississippi, South Carolina and
Tennessee within ten (10) Business Days of the date hereof, (ii) each of Parent
and the Company shall file a notification and report form pursuant to the HSR
Act with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice with respect to the Merger and the other
transactions contemplated hereby within ten (10) Business Days of the date
hereof and (iii) the parties shall promptly take, make or refrain from any other
actions or nonactions and consents, approvals, waivers or other authorizations
of, with or to Governmental Authorities necessary, proper or advisable to
consummate the transactions contemplated by this Agreement. Subject to
applicable Laws, the parties to this Agreement shall coordinate and cooperate
fully and promptly with each other in exchanging such information and providing
such assistance as the other parties may request in connection with the
foregoing and in seeking early termination of any applicable waiting periods,
including those under the HSR Act. The filing fee for the filing by Parent under
the HSR Act shall be borne fifty percent (50%) by Parent and fifty percent
(50%) by the Company, which amounts shall be paid by Parent and the Company
concurrent with such filing.

(c) In the event Parent or the Company receives a second request under the HSR
Act in connection with the transactions contemplated by this Agreement, such
party shall comply as promptly as practicable with such request as provided by
Section 7A(e) of the HSR Act (but in no event more than seventy-five (75) days
from the date of service of such request). For purposes of this provision, a
party shall be deemed to have complied with any such request by providing a
response that the party in good faith believes to be in substantial compliance.
In the event that a party receives a subpoena or civil investigative demand
requesting materials and information similar to that usually demanded in a
second request under the HSR Act, such party shall comply as promptly as
practicable with such subpoena or civil investigative demand (but, with respect
to a second request under the HSR Act, in no event more than seventy-five
(75) days from the date of service of the subpoena or civil investigative
demand). In the event the Governmental Authority disputes the adequacy of
compliance by a party with respect to a second request under the HSR Act,
subpoena or civil investigative demand, such party shall endeavor to satisfy the
Governmental Authority so as to minimize any delay in the conduct or resolution
of the investigation.

(d) Each of the Company, Parent and Merger Sub agrees that it shall consult with
one another with respect to the obtaining of all consents, approvals, waivers or
other authorizations of Governmental Authorities necessary, proper or advisable
to consummate the transactions contemplated by this Agreement and each of the
Company, Parent and Merger Sub shall keep the other apprised on a prompt basis
of the status of matters relating to such consents, approvals, waivers or other
authorizations. Parent and the Company shall have the right to review in advance
and, to the extent practicable, and subject to any restrictions under applicable
Law, each shall consult the other on, any filing made with, or written materials
submitted to, any Governmental Authority or any third party in connection with
the transactions contemplated by this Agreement and each party agrees to in good
faith consider and reasonably accept comments of the other parties thereon.
Parent and the Company shall promptly furnish to each other copies of all such
filings and written materials after their filing or submission, in each case
subject to applicable Laws.

 

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(e) Each of Parent, Merger Sub and the Company shall (i) promptly furnish, or
cause to be furnished, all agreements, documents, instruments, affidavits or
information that may be required or requested by any Governmental Authority
concerning themselves or their Affiliates or its or their structure, ownership,
business, operations, regulatory and legal compliance, assets, liabilities,
financing, financial condition or results of operations, or any of its or their
directors, officers, employees, partners, members or stockholders and the
transactions contemplated hereby and such other matters as may be required or
requested and (ii) make available their respective personnel and advisers during
normal business hours to each other and, upon request, any Governmental
Authority, in connection with (A) the preparation of any statement, filing,
notice or application made by or on their behalf to or (B) any review or
approval process by, any Governmental Authority in connection with the
transactions contemplated by this Agreement, including the Merger.

(f) Parent and the Company shall promptly advise each other upon receiving any
communication from any Governmental Authority whose consent, approval, waiver or
other authorization is required for consummation of the transactions
contemplated by this Agreement, including promptly furnishing each other copies
of any written or electronic communications.

(g) None of Parent, Merger Sub and the Company shall, and shall cause their
respective Affiliates not to, permit any of their respective directors,
officers, employees, partners, members, shareholders or any other
representatives to participate in any live or telephonic meeting (other than
with respect to ministerial matters) with any Governmental Authority in respect
of any filings, investigation or other inquiry relating to the transactions
contemplated by this Agreement unless it consults with the other in advance and,
to the extent permitted by applicable Law and by such Governmental Authority,
gives the other party the opportunity to attend and participate in such meeting.

(h) Notwithstanding anything in this Agreement to the contrary, (x) in no event
shall any Party be required to agree to take or enter into any action which is
not conditioned upon the Closing and (y) each Party may redact from any
correspondence, filings or communications provided to the other Party pursuant
to this Section 6.02 any confidential competitive information or non-public
personally identifiable information of such Party or its Affiliates. Each of
Parent and the Company further covenant and agree not to enter into any
agreement with any Governmental Authority or other third party not to consummate
the Closing, except with the prior written consent of the other Party.

(i) Except as set forth in Section 6.02(i) of the Parent Disclosure Schedule,
neither Parent nor Merger Sub shall at any time prior to the Closing, in
connection with the transactions contemplated by this Agreement, file any
application with or request for non-disapproval by any Governmental Authority
with respect to any inter-affiliate transaction or agreement between any
Insurance Company Subsidiary, on the one hand, and Parent or any of its
Affiliates, on the other hand, that would require approval or non-disapproval
under applicable Law.

(j) For purposes of this Section 6.02, “reasonable best efforts” shall be deemed
to include, subject to the proviso below, Parent, Merger Sub and their
Affiliates complying with any requirements of applicable Law or Order or of any
Governmental Authority that may arise or be imposed in connection with seeking
and obtaining any consents, approvals, waivers or other

 

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authorizations of any Governmental Authority necessary to consummate the
transactions contemplated by this Agreement, including the Merger; provided
that, for the purposes of this Section 6.02, “reasonable best efforts” and the
other obligations of Parent and Merger Sub under this Section 6.02 shall not
require, or be deemed to require, Parent, Merger Sub or any of their Affiliates
to agree to or take any action that would result in, with respect to the “Form
A” Acquisition of Control Statements filings made pursuant to Section 6.02(b)(i)
and the notification and report form pursuant to the HSR Act pursuant to
Section 6.02(b)(ii), any arrangement imposed by a Governmental Authority that
would (i) require or involve the sale, disposition, or separate holding, through
the establishment of a trust, or otherwise, of (A) the Company or any of its
Subsidiaries or their respective assets, properties, operations or Business or
(B) any of the respective assets, properties, operations or business of Parent
or its Affiliates (other than the Company or any of its Subsidiaries),
(ii) require the making of any debt, equity investment or capital contribution
in (1) the Company or any of its Subsidiaries (or require the maintenance by
Parent of guaranteed minimum levels of risk based capital at any of the
Insurance Company Subsidiaries, or the provision by Parent of assurances or
parental guarantees for or security of such minimum levels of risk based capital
including any requirement that assets be held in trust), or (2) Parent or any of
its Affiliates other than the Company or any of its Subsidiaries (or require
maintenance by Parent of guaranteed minimum levels of risk based capital at
Parent or any of its Affiliates (other than the Company or any of its
Subsidiaries)) or (iii) restrict or prohibit any lines or types of business in
which (x) the Company or any of its Subsidiaries or (y) Parent or any of its
Affiliates (other than the Company or any of its Subsidiaries) shall be
permitted under applicable Law to engage in immediately prior to such
imposition, which, in all cases delineated in clauses (i)-(iii) above, if
imposed by any such domiciliary state regulator would be reasonably likely,
together with all other arrangements imposed by any such domiciliary state
regulator pursuant to clauses (i)-(iii) above, individually or in the aggregate,
to have a material and adverse impact on the aggregate economic benefits, taken
as a whole, that Parent and Merger Sub would otherwise reasonably expect to
derive from the consummation of the Merger had Parent, Merger Sub or any of
their Affiliates not been obligated to agree to or take such action (each of the
arrangements delineated in clauses (i)-(iii) above after taking into effect the
following proviso, a “Burdensome Condition”); provided, however, that none of
the following shall constitute or be taken into account in determining whether a
Burdensome Condition has occurred or exists: (I) change in applicable Law, GAAP
or SAP (or any published interpretation thereof) on or after the date hereof
generally applicable to insurance companies licensed or domiciled in the States
of Arkansas, Florida, Indiana, Louisiana, Mississippi, South Carolina and
Tennessee, (II) arrangement resulting from any proposed changes to the business,
operations or financial condition of the Company or any of its Subsidiaries or
any post-Closing transactions, in each case by Parent, Merger Sub or any of
their Affiliates contained in any filing referenced in this Section 6.02 hereof
or in any amendment or supplement thereto or (III) any arrangement imposed by
statute generally on insurance companies licensed or domiciled in the States of
Arkansas, Florida, Indiana, Louisiana, Mississippi, South Carolina and Tennessee
not arising by virtue of (X) a regulatory order or similar instrument applicable
only to Parent, Merger Sub or any of their Affiliates or any Insurance Company
Subsidiary or (Y) a condition or other restriction on any regulatory approval
order or similar instrument granted or proposed to be granted to Parent, Merger
Sub or any of their Affiliates or any Insurance Company Subsidiary in connection
with the transactions contemplated by this Agreement, including the Merger.

 

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(k) The Company shall use reasonable best efforts to obtain all Optionholder
Commitment Letters prior to Closing.

(l) The Company, in consultation with Parent, will use its reasonable best
efforts to obtain as promptly as practicable following the date hereof all
consents, approvals and waivers required by third parties so that all the
Material Contracts set forth on Section 6.02(l) of the Company Disclosure
Schedule (the “Third Party Approvals”) will remain in full force and effect
immediately following the Closing; provided that, Parent and the Company shall
consult in good faith in preparing the documentation for such Third Party
Approvals. The Parties agree that in the event any costs or expenses become
payable to a counterparty (or any of its Affiliates) to a Material Contract set
forth on Section 6.02(d) of the Company Disclosure Schedule in connection with
the procurement of the Third Party Approval in respect of such Material
Contract, such cost shall be borne solely by Parent to the extent approved in
writing in advance by Parent. If Parent declines to approve any cost or expense
of a counterparty (or any of its Affiliates) to a Material Contract set forth on
Section 6.02(l) of the Company Disclosure Schedule, the Company shall be
relieved of its obligation to use reasonable best efforts to obtain the Third
Party Approval in respect of such Material Contract.

Exclusivity. During the period from the date of this Agreement until the Closing
or earlier termination of this Agreement, none of the Company or its
Subsidiaries nor any of their respective directors, officers, employees,
Affiliates, stockholders, members, managers or partners, or attorneys,
accountants, representatives, agents or financial advisors acting on behalf of
the Company or its stockholders shall (a) directly or indirectly seek, encourage
or solicit the submission of inquiries, proposals or offers from any Person
(other than Parent and its representatives) concerning (i) an amalgamation,
scheme of arrangement, business combination, merger, consolidation, change of
control or similar transaction involving the Company or any of its Subsidiaries,
(ii) a purchase, lease or other acquisition or assumption of any of the assets
of the Company or any of its Subsidiaries except as permitted pursuant to
Section 6.01 or (iii) a purchase, issuance or other acquisition (including by
way of an amalgamation, scheme of arrangement, business combination, merger,
consolidation, share exchange, change of control or similar transaction or
otherwise) of beneficial ownership of any capital stock or equity interests of
the Company or any of its Subsidiaries, other than issuances of shares of Common
Stock on account of the exercise of Company Options outstanding as of the date
hereof (each, other than in respect of Parent or Merger Sub, an “Acquisition
Proposal”), (b) participate or cooperate in or consider or pursue, any
discussions or negotiations regarding an Acquisition Proposal, (c) furnish to
any Person any information concerning the Company or its Subsidiaries for any
Acquisition Proposal, (d) enter into a Contract (including letter of intent or
other non-binding agreement) with respect to an Acquisition Proposal or
(e) solicit, initiate or knowingly encourage the making of any Acquisition
Proposal.

Preservation of Records. Parent shall, and shall cause the Surviving Corporation
and their respective Subsidiaries to, preserve and keep the records held by them
relating to the Business for a period of seven (7) years from and after the
Closing Date (or longer if required by applicable Law) and shall make such
records (or copies) and officers, management, employees, advisors and
representatives available, at reasonable times and upon reasonable advance
written notice, to the Stockholders and any of their respective Affiliates or
representatives as may be reasonably required by such Person solely to the
extent relating to and solely for use in

 

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connection with any insurance claims by, Actions or Tax audits against,
governmental investigations of, compliance with legal requirements by, or the
preparation of financial statements of, any Stockholder or any of their
respective Affiliates; provided that, from and after the Closing Date, such
Person shall, and shall cause its Affiliates and its and their respective
representatives to, keep all such information confidential and not otherwise use
or disclose any such records for any other reason or to any other Person (except
where such disclosure, upon the advice of outside counsel, is required by
applicable Law and only to the extent required by such Law and upon prior notice
to the Surviving Corporation). Notwithstanding anything to the contrary
contained in this Section 6.04, (a) no such access or examination shall be
permitted to the extent that it would reasonably be expected to cause the
Surviving Corporation or any of its Subsidiaries to lose the benefit of an
attorney-client or other legal privilege or obligation of confidentiality or
non-disclosure or conflict with any confidentiality obligations to which the
Surviving Corporation or any of its Subsidiaries is bound, in each case with
respect to information to be disclosed; provided, however, that Parent shall
request, but shall not be required to obtain, a waiver of any such
confidentiality obligations upon such Stockholder’s reasonable prior written
request; and provided, further, that Parent shall use commercially reasonable
efforts to seek alternative means to disclose such information as nearly as
possible without affecting attorney-client privilege or conflicting with such
confidentiality obligations (it being understood that such commercially
reasonable efforts shall not require Parent or any of its Subsidiaries to pay
any consideration or amend or modify any Contract) and (b) none of Parent, the
Surviving Corporation or its Subsidiaries shall be required to provide access
under this Section 6.04 with respect to any business records or other
information or employees relating to a dispute or litigation with other Parties,
the Company Holders or their Affiliates.

Access to Information.

(a) During the period from the date of this Agreement until the Closing or
earlier termination of this Agreement, and subject to applicable Law and
Section 6.06, Parent shall be entitled, through its representatives (including
its employees, legal advisors, financing sources, consultants and accountants),
to have such access to the properties, businesses, operations, books and records
of the Company and its Subsidiaries as it reasonably requests in connection with
Parent’s efforts to consummate the transactions contemplated by this Agreement.
Any such access and examination shall be conducted on reasonable advance written
notice, during regular business hours and under reasonable circumstances and
shall be subject to restrictions under applicable Law. The Company shall cause
the officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company and its Subsidiaries to reasonably cooperate with
Parent and Parent’s representatives in connection with such access and
examination, and Parent and its representatives shall reasonably cooperate with
the Company and its Subsidiaries and their respective officers, employees,
consultants, agents, accountants, attorneys and other representatives and shall
use their commercially reasonable efforts to minimize any disruption to the
Business. Prior to the Closing, Parent and Parent’s representatives may contact
and communicate with employees of the Company and its Subsidiaries to the extent
necessary in connection with the consummation of the transactions contemplated
hereby without the prior written consent of the Company; provided that, such
requested communication does not unreasonably interfere with the ongoing
operations of the Company or any of its Subsidiaries. Notwithstanding anything
herein to the contrary, no such access or examination shall be permitted to the
extent that it would (i) unreasonably disrupt the

 

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operations of the Company or any of its Subsidiaries or (ii) would reasonably be
expected to cause the Company or any of the Company’s Subsidiaries to lose the
benefit of an attorney-client or other legal privilege or obligation of
confidentiality or non-disclosure or conflict with any confidentiality
obligations to which the Company or any of the Company’s Subsidiaries is bound,
in each case with respect to information to be disclosed; provided, however,
that the Company shall request, but shall not be required to obtain, a waiver of
any such confidentiality obligations upon Parent’s reasonable prior written
request; and provided, further, that the Company shall use commercially
reasonable efforts to seek alternative means to disclose such information as
nearly as possible without affecting attorney-client privilege or conflicting
with such confidentiality obligations (it being understood that such
commercially reasonable efforts shall not require the Company or any of its
Subsidiaries to pay any consideration or amend or modify any Contract).
Notwithstanding anything to the contrary contained herein, prior to the Closing,
(A) without the prior written consent of the Company, Parent shall not, and
shall cause its officers, employees, legal advisors, consultants, agents,
accountants and other representatives not to, contact any customer, supplier,
distributor, independent contractor, landlord, lessor or bank of the Company or
any of the Company’s Subsidiaries, other than in the ordinary course of Parent’s
business, with respect to the Company, any of the Company’s Subsidiaries or the
transactions contemplated by this Agreement and (B) Parent shall have no right
to perform invasive or subsurface investigations of the properties or facilities
of the Company or any of the Company’s Subsidiaries without the prior written
consent of the Company. The Parties shall cooperate with respect to preparation
and timely submission of Tax Returns in respect of Transfer Taxes arising in
connection with the transactions contemplated by this Agreement and any Related
Agreement. The Company does not make any representation or warranty as to the
accuracy of any information (if any) provided pursuant to this Section 6.05 and
neither Parent nor Merger Sub may rely on the accuracy of any such information,
in each case other than as expressly set forth in the Company’s representations
and warranties contained in Article IV. No investigation pursuant to this
Section 6.05 or otherwise by Parent, Merger Sub or their representatives shall
be deemed to modify any of the Company’s representations and warranties
contained in Article IV.

(b) Each of Parent and Merger Sub acknowledges that the information provided to
Parent and Merger Sub in connection with this Agreement and the transactions
contemplated hereby is subject to the terms of the Confidentiality Agreement,
the terms of which are incorporated herein by reference.

Public Statements; Confidentiality.

(a) None of the Company or the Company Holders’ Representative, on the one hand,
or Parent or Merger Sub, on the other hand, shall issue any press release or
public announcement or comment concerning this Agreement, the Related Agreements
and the Stockholder Written Consents or the transactions contemplated hereby and
thereby without obtaining the prior written approval of Parent, the Company or
the Company Holders’ Representative, respectively (which approval will not be
unreasonably withheld, conditioned or delayed), unless and only to the extent,
(i) disclosure by a Party is required to enforce its rights and remedies under
this Agreement or (ii) in the judgment of such Party disclosure is required by
applicable Law (including the periodic reporting requirements under the Exchange
Act) or under the rules of any securities exchange on which the securities of
such Party or any of its Affiliates are listed; provided that, to the extent so
required by applicable Law, the Party intending to make

 

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such release shall use its commercially reasonable efforts consistent with
applicable Law to consult with the other Parties in advance of such release with
respect to the text thereof. Prior to any announcement of Parent’s entry into
this Agreement on Form 8-K (which may include the filing of this Agreement as an
exhibit to such Form 8-K), Parent shall provide the Company with a draft of such
filing and incorporate any reasonable comments of the Company to such Form 8-K
received no less than one (1) Business Day prior to the deadline for Parent to
file such Form 8-K.

(b) Each of the Parties agrees that this Agreement, the Related Agreements and
the Stockholder Written Consents and the terms and conditions set forth herein
and therein shall be kept confidential and shall not be disclosed or otherwise
made available to any other Person and that copies of this Agreement, the
Related Agreements and the Stockholder Written Consents shall not be publicly
filed or otherwise made available to the public, except (i) where such
disclosure, availability or filing is required by applicable Law (including the
periodic reporting requirements under the Exchange Act) and only to the extent
required by such Law or under the rules of any securities exchange on which the
securities of such Party or any of its Affiliates are listed (provided that,
Parent shall provide the Company with the opportunity to review and provide
comments to any Exchange Act filing, and Parent shall consider any such comments
in good faith), (ii) disclosure by TPG, Calera or their respective Affiliates of
customary information to investors or potential investors or to their respective
Affiliates (excluding for the avoidance of doubt, any other portfolio company of
TPG or Calera), in each case, who are subject to customary confidentiality
obligations, (iii) disclosure by a Party is required to enforce its rights and
remedies under this Agreement, (iv) disclosure is required by a Party to comply
with its obligations under Section 2.03 and Section 6.02 or (v) as otherwise
agreed by each of Parent and the Company; provided that, a Party shall remain
responsible for any breach of confidentiality by any such Person to which
disclosure is made pursuant to the foregoing.

(c) Notwithstanding anything in this Agreement to the contrary, following
Closing, the Company Holders’ Representative shall be permitted to: (i) after
the public announcement of the Merger, publicly announce that it has been
engaged to serve as the Company Holders’ Representative in connection with the
Merger as long as such announcement does not disclose any of the other terms of
the Merger, this Agreement or any Related Agreement, or any other transaction
contemplated by this Agreement or any Related Agreement; provided that, any such
public announcement shall be subject to the Parent’s prior review and consent
(such consent not be unreasonably withheld, conditioned or delayed); and
(ii) disclose such information to employees, advisors or consultants of the
Company Holders’ Representative and to the Company Holders, in each case, who
have a need to know such information; provided that, disclosure to any such
Person pursuant to the foregoing clause (ii) shall be conditioned on such Person
either agreeing (A) to observe the terms of this Section 6.06 or (B) to be bound
by obligations of confidentiality to the Company Holders’ Representative no less
favorable than those imposed on the Company Holders’ Representative pursuant to
this Section 6.06.

Indemnification of Directors and Officers.

(a) Parent agrees that for a period of six (6) years from and after the
Effective Time, it shall cause the Surviving Corporation and its Subsidiaries to
indemnify, defend and hold harmless, to the fullest extent permitted under
applicable Law and the Organizational Documents

 

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of the Company and its Subsidiaries as in effect on the date hereof, all past
and present (as of the Closing Date) directors and officers of the Company and
its Subsidiaries (collectively, the “D&O Indemnitees”) with respect to all acts
or omissions by them in their capacities as such or taken at the request of the
Company or any of the Company’s Subsidiaries occurring at or prior to the
Closing. Parent agrees that all rights of the D&O Indemnitees to advancement of
expenses, indemnification and exculpation from liabilities for acts or omissions
occurring on or prior to the Closing Date as provided in the certificate of
incorporation or bylaws (or comparable Organizational Documents) of the Company
and any of the Company’s Subsidiaries, in each case, as in effect on the date
hereof, and any indemnification agreements of the Company or any of the
Company’s Subsidiaries as set forth in Section 6.07(a) of the Company Disclosure
Schedule, or as otherwise provided for in the Company’s or any of the Company’s
Subsidiaries Organizational Documents as in effect on the date hereof, shall
survive the Closing Date and shall continue in full force and effect in
accordance with their terms for no less than six (6) years following the
Effective Time. Such rights shall not be amended or otherwise modified during
such six (6) year period in any manner that would adversely affect the rights of
any of the D&O Indemnitees, unless such modification is required by Law or
approved by each such D&O Indemnitee. In addition, for a period of six (6) years
from and after the Effective Time, Parent shall cause the Surviving Corporation
and its Subsidiaries, as the case may be, to advance, pay or reimburse any
expenses of any D&O Indemnitee under this Section 6.07 as incurred to the
fullest extent permitted under applicable Law (provided that, the person to whom
expenses are advanced provides an undertaking to repay such advances to the
extent required by applicable Law and the Organizational Documents of the
Company and its Subsidiaries as in effect on the date hereof).

(b) For a period of six (6) years from and after the Effective Time, except as
required by applicable Law, Parent shall cause (i) the Organizational Documents
of the Surviving Corporation to contain provisions no less favorable to the D&O
Indemnitees with respect to limitation of liabilities, advancement of expenses
and indemnification than are set forth as of the date hereof in the certificate
of incorporation and bylaws of the Company and (ii) the Organizational Documents
of each Subsidiary of the Surviving Corporation to contain provisions no less
favorable to the D&O Indemnitees with respect to limitation of liability,
advancement of expenses and indemnification than are set forth in such document
as of the date hereof.

(c) For a period of six (6) years from and after the Effective Time, Parent
shall cause the Surviving Corporation to, reasonably cooperate in the defense of
any claim that is subject to the limitation of liability, advancement of
expenses or indemnification as contemplated by this Section 6.07 and to provide
access to properties and individuals as reasonably requested and furnish or
cause to be furnished records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials or appeals, as may be
reasonably requested in connection therewith.

(d) The Surviving Corporation shall, and shall cause its Subsidiaries to,
provide or maintain in effect for six (6) years from and after the Effective
Time, through the purchase of “run-off” coverage or otherwise, directors’ and
officers’ and corporate liability insurance covering those individuals who are
covered by the directors’ and officers’ and corporate liability insurance policy
or policies provided for directors and officers of the Company and the Company’s
Subsidiaries as of the date hereof (the “D&O Policy”) on terms

 

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comparable in all respects to the D&O Policy and such coverage shall contain
minimum aggregate limits of liability for directors’ and officers’ and corporate
liability insurance coverage for directors and officers of the Company and its
Subsidiaries with the amount of coverage at least equal to that of the D&O
Policies and deductibles no larger than those of the D&O Policy; provided,
however, that if such “run-off” or other coverage is not available at a cost not
greater than three hundred percent (300%) of the annual premiums paid as of the
date hereof under the D&O Policy (the “Insurance Cap”) (which premiums are set
forth in Section 6.07(d) of the Company Disclosure Schedule), then the Surviving
Corporation and its Subsidiaries shall be required to obtain as much coverage as
is possible under substantially similar policies for such annual premiums as do
not exceed the Insurance Cap. The Surviving Corporation’s obligations under this
paragraph may be satisfied by the purchase of a “tail” insurance policy that
provides for the coverage described above.

(e) The obligations of Parent and the Surviving Corporation under this
Section 6.07 shall not be terminated or modified in such a manner as to
adversely affect any D&O Indemnitee to whom this Section 6.07 applies without
the consent of each affected D&O Indemnitee (it being expressly agreed that the
D&O Indemnitees to whom this Section 6.07 applies shall be third party
beneficiaries of this Section 6.07). The provisions of this Section 6.07 (i) are
intended to be for the benefit of, and shall be enforceable by, each D&O
Indemnitee, his, her or its heirs and his or her representatives and (ii) are in
addition to, and not in substitution for, any other rights to indemnification or
contribution that any such Person may have by Law, Contract or otherwise.

(f) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates or merges with or into any other Person and is not the
continuing or surviving entity of such consolidation or merger or (ii) transfers
or conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provision shall be made by Parent and the
Surviving Corporation so that the successors and assigns of the Surviving
Corporation shall assume all of the obligations thereof set forth in this
Section 6.07.

(g) Nothing in this Agreement is intended to, shall be construed to or shall
release, waive or impair any rights to directors’ and officers’ insurance claims
under any policy that is or has been in existence with respect to the Company or
any of the Company’s Subsidiaries or any of their respective directors or
officers, it being understood and agreed that the indemnification provided for
in this Section 6.07 is not prior to or in substitution for any such claims
under such policies.

(h) Notwithstanding anything to the contrary set forth herein, this Section 6.07
will not affect any rights or remedies otherwise available to any Indemnified
Party pursuant to Article IX.

Employee Benefits.

(a) During the period commencing at the Closing and ending on the first
(1st) anniversary of the Closing Date, Parent shall, or shall cause the
Surviving Corporation to, provide each continuing employee and officer of the
Company and its Subsidiaries with (i) at least the same base salary or wage
level as in effect immediately prior to the Effective Time and (ii) employee
benefits, bonus opportunities, perquisites and other terms as are provided to
similarly situated employees of Parent. Until the first (1st) anniversary of the
Closing Date,

 

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Parent and the Company agree to keep in effect all severance and retention
plans, practices and policies that are applicable to employees and officers of
the Company and its Subsidiaries as of the date hereof and set forth in
Section 6.08(a) of the Company Disclosure Schedule.

(b) For purposes of eligibility, vesting and entitlement to benefits, including
the determination of the level of vacation and severance pay benefits under the
benefit and compensation plans, programs, agreements and arrangements of Parent,
the Surviving Corporation or any of their respective subsidiaries in which
employees are eligible to participate following the Closing (the “Parent
Plans”), Parent and the Surviving Corporation shall credit each employee with
his or her years of service with the Company, its Subsidiaries and any
predecessor entities, to the same extent as such employee was entitled
immediately prior to the Closing to credit for such service under any similar
Plan, except where such crediting would result in duplication of benefits and
for purposes of benefit accrual under any defined benefit pension plan. The
Parent Plans (other than dental benefits) shall credit such employees for any
deductibles and out-of-pocket expenses paid prior to the Closing Date in
satisfying any deductibles and out-of-pocket expenses in the applicable plan
year to which such deductibles and out-of-pocket expenses relate.

(c) The Parties acknowledge and agree that all provisions contained in this
Section 6.08 with respect to employees of the Company and its Subsidiaries are
included for the sole benefit of the respective Parties and shall not create any
right (i) in any other Person, including any employee, former employee or any
participant or any beneficiary thereof in any Plan or Parent Plan, except for
the rights of an Optionholder or a holder of Company Restricted Stock pursuant
to Section 3.03 and Section 3.04 of this Agreement, or (ii) to continued
employment with the Company, any of its Subsidiaries, Parent, the Surviving
Corporation or any Affiliate of Parent. Nothing contained in this Section 6.08
is intended to be or shall be considered to be an amendment or adoption of any
plan, program, agreement, arrangement or policy of the Company, any of its
Subsidiaries, Parent, the Surviving Corporation or any Affiliate of Parent nor
shall it interfere with any such Person’s right to amend, modify or terminate
any Plan (subject to the foregoing provisions of this Section 6.08) or to
terminate the employment of any employee of the Company or its Subsidiaries for
any reason; provided that, the Surviving Corporation and its Subsidiaries shall
be subject to the provisions of Section 6.08(a).

Subsequent Financial Statements. From the date hereof until the Closing Date,
within twenty-five (25) days after the end of each calendar month, the Company
shall deliver to Parent an unaudited consolidated balance sheet of the Company
and its Subsidiaries as of the end of such month and a consolidated income
statement of the Company and its Subsidiaries for the portion of the calendar
year ended as of the end of such month, in each case, prepared in accordance
with the Accounting Methodologies (collectively, the “Interim Balance Sheets”);
provided, however, that solely with respect to any Interim Balance Sheet
relating to a monthly period ending December 31st, the Company shall deliver
such Interim Balance Sheet within sixty (60) days after the end of such calendar
month. The Parties agree that any Interim Balance Sheet delivered to Parent
pursuant to this Section 6.09 shall be exclusively for informational purposes,
and shall not form the basis for any claim, action, suit, proceeding or demand
asserting Damages by any Person whether pursuant to this Agreement or otherwise.

 

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Resignation of Company Directors. The Company shall cause to be delivered to
Parent at or prior to the Closing a written resignation substantially in the
form of Section 6.10 of the Company Disclosure Schedule attached hereto from
each director of the Company and its Subsidiaries, which resignations shall be
effective as of the Effective Time.

[Intentionally Omitted].

Pre-Closing Exercise of Company Options. From the date hereof until the Closing,
the Company shall cause the committee administering the Equity Plan to require
each Optionholder who desires to exercise such Optionholder’s Company Options
between the date hereof and the Effective Time to execute and become party to
the Management Stockholders’ Agreement referenced in clause (i) or (ii), as
applicable, of the definition of Stockholders Agreement, which shall include a
waiver of any rights to demand appraisal under Section 262 of the DGCL of the
shares of Common Stock to be issued to such Optionholder in connection with such
exercise of Company Options.

CONDITIONS TO CLOSING

Conditions Precedent to the Obligations of the Company, Parent and Merger Sub.
The obligations of the Company, Parent and Merger Sub to consummate the Merger
are subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions (any or all of which may be waived by the Party to whose
benefit such condition exists, in whole or in part, to the extent permitted by
applicable Law):

(a) no Governmental Authority of competent jurisdiction shall have enacted,
enforced or entered any Law or final and non-appealable Order that is in effect
on the Closing Date and prohibits the Closing;

(b) any applicable waiting period under the HSR Act shall have expired or been
terminated; and

(c) all consents and approvals of Governmental Authorities listed in
Section 7.01(c) of the Company Disclosure Schedule shall have been obtained and
such consents and approvals shall be in full force and effect.

Conditions Precedent to the Obligations of Parent and Merger Sub. In addition,
the obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions (any or all of which may be waived by Parent, in whole or in part, to
the extent permitted by applicable Law):

(a) (i) (A) the Company Fundamental Representations (other than Section 4.06
(Capitalization) and Section 4.19 (Taxes)) and (B) all other representations and
warranties of the Company contained in Article IV (other than Section 4.06
(Capitalization), but including, for the avoidance of doubt, Section 4.19
(Taxes)) shall be true and correct (without giving effect to any limitation as
to “materiality” or “Company Material Adverse Effect” set forth therein, other
than with respect to Section 4.05(c)) on and as of the Closing Date (except to
the extent expressly made as of an earlier date, in which case on

 

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and as of such date), except, in the case of this clause (B), where the failure
of such representations and warranties to be so true and correct (giving effect
to the applicable exceptions set forth in the Company Disclosure Schedule but
without giving effect to any limitation as to “materiality” or “Company Material
Adverse Effect” set forth therein (other than with respect to Section 4.05(c)))
has not had a Company Material Adverse Effect and (ii) the representations and
warranties of the Company contained in Section 4.06 (Capitalization) shall be
true and correct except for de minimis breaches as of the Closing Date as if
made on and as of the Closing Date (except to the extent expressly made as of an
earlier date, in which case as of such earlier date);

(b) the Company shall have performed and complied in all material respects with
all covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing Date;

(c) since the date hereof, there shall not have occurred any Company Material
Adverse Effect;

(d) Parent shall have received evidence, in customary form, of the termination
by the Company and its Subsidiaries, as applicable, of all Company Affiliate
Arrangements, other than those set forth in Section 7.02(d) of the Company
Disclosure Schedule, in each case effective as of the Effective Time and without
continuing Liability or obligation of any of the parties thereto;

(e) assuming simultaneous payment by Parent of the Pay-Off Company Indebtedness,
all Liens on the assets of the Company and its Subsidiaries pursuant to the
Credit Agreement (other than Permitted Liens) shall have been released;

(f) the Company shall have delivered to Parent a certificate, in form and
substance reasonably acceptable to Parent, dated as of the Closing Date,
executed by a duly authorized officer of the Company, certifying the
satisfaction of the conditions set forth in Section 7.02(a), Section 7.02(b) and
Section 7.02(c); and

(g) the Company shall have delivered or caused to be delivered to Parent the
Closing deliverables of the Company as set forth in Section 3.06(a) (other than
Section 3.06(a)(iv)).

Conditions Precedent to the Obligations of the Company. In addition, the
obligations of the Company to consummate the Merger are subject to the
fulfillment, on or prior to the Closing Date, of each of the following
conditions (any or all of which may be waived by the Company, in whole or in
part, to the extent permitted by applicable Law):

(a) (i) the Parent Fundamental Representations and (ii) all other
representations and warranties of Parent and Merger Sub contained in Article V
shall be true and correct (without giving effect to any limitation as to
“materiality” or “Parent Material Adverse Effect” set forth therein) on and as
of the Closing Date (except to the extent expressly made as of an earlier date,
in which case on and as of such date), except, in the case of this clause (ii),
where the failure of such representations and warranties to be so true and
correct (giving effect to the applicable exceptions set forth in the Parent
Disclosure Schedule but without giving effect to any limitation as to
“materiality” or “Parent Material Adverse Effect” set forth therein) has not had
a Parent Material Adverse Effect;

 

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(b) each of Parent and Merger Sub shall have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on or prior to the Closing Date;

(c) Parent and Merger Sub shall have delivered to the Company a certificate, in
form and substance reasonably acceptable to the Company, dated as of the Closing
Date, executed by a duly authorized officer of each of Parent and Merger Sub,
certifying to the satisfaction of the conditions set forth in Section 7.03(a)
and Section 7.03(b) hereof; and

(d) Parent shall have delivered or caused to be delivered to the Company the
Closing deliverables of Parent as set forth in Section 3.06(a).

Waiver of Conditions. All conditions to the Closing shall be deemed to have been
satisfied or waived from and after the Closing.

TERMINATION

Termination of Agreement. This Agreement may be terminated at any time prior to
the Effective Time as follows:

(a) by mutual written consent of the Company and Parent;

(b) by either Parent or by the Company, if the Merger shall not have been
consummated on or prior to the date that is the one (1) year anniversary of the
date hereof (the “Termination Date”) and the Party seeking to terminate this
Agreement pursuant to this Section 8.01(b) shall not have breached in any
material respect its representations, warranties or covenants under this
Agreement in any manner that shall have proximately caused the failure to
consummate the transactions contemplated by this Agreement on or before the
Termination Date, and subject to Section 10.12(c);

(c) by either the Company or Parent in the event of the issuance of a final,
non-appealable Order by a Governmental Authority restraining or prohibiting the
consummation of the transactions contemplated by this Agreement;

(d) by Parent if (i) neither Parent nor Merger Sub is in material breach of any
of its respective representations, warranties or covenants hereunder and
(ii) the Company is in material breach of any of its representations, warranties
or covenants hereunder that renders or would render the conditions set forth in
Section 7.02(a) or Section 7.02(b) incapable of being satisfied on the
Termination Date, and such breach is either (A) not capable of being cured prior
to the Termination Date or (B) if curable, is not cured within the earlier of
(x) twenty (20) Business Days after the giving of written notice by Parent to
the Company and (y) two (2) Business Days prior to the Termination Date; and

(e) by the Company if (i) the Company is not in material breach of any of its
representations, warranties or covenants hereunder and (ii) either Parent or
Merger Sub is in material breach of any of their respective representations,
warranties or covenants hereunder that

 

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renders or would render the conditions set forth in Section 7.03(a) or
Section 7.03(b) incapable of being satisfied on the Termination Date, and such
breach is either (A) not capable of being cured prior to the Termination Date or
(B) if curable, is not cured within the earlier of (x) twenty (20) Business Days
after the giving of written notice by the Company to Parent and (y) two
(2) Business Days prior to the Termination Date.

Procedure on Termination. In the event of termination and abandonment by Parent
or the Company, or both, pursuant to Section 8.01, written notice thereof shall
forthwith be given to the other Parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement shall terminate, and the
Merger shall be abandoned, without further action by Parent or the Parties.

Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 8.01, this entire Agreement shall forthwith become void (and
there shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or the Company Holders’ Representative or their respective officers,
directors or equity holders or any other Person) except that (a) the provisions
of this Section 8.03 and Article X and the obligations under the Confidentiality
Agreement shall survive such termination and remain valid and binding
obligations of the Parties, and (b) no such termination shall relieve any Party
of any liability for damages to the other Party resulting from any Willful
Breach of this Agreement prior to such termination.

INDEMNIFICATION

Indemnification by Company Holders. Following the Closing, the Company Holders
shall (severally, and not jointly, based on each Company Holder’s Specified
Percentage), subject to the provisions of this Article IX and the Escrow
Agreement, indemnify and hold harmless each Parent Indemnified Party from and
against any and all Liabilities, damages, penalties, Taxes, losses, amounts paid
in settlement, and reasonable out-of-pocket costs and expenses related thereto
(including reasonable attorneys’ fees and reasonable and documented
out-of-pocket expenses and costs incurred in enforcing any of the respective
rights under this Agreement) (collectively, “Damages”), incurred by such Parent
Indemnified Party, whether or not involving a Third Party Claim, arising out of
or resulting from:

(a) any inaccuracy in or breach of any representation or warranty of the Company
contained in Article IV (except in the case of Section 4.05(c), without giving
effect to any materiality or Company Material Adverse Effect or other similar
qualifier contained therein for purposes of determining whether an inaccuracy or
breach has occurred and the amount of Damages attributable thereto); or

(b) any breach of any covenant or agreement of the Company (for the period prior
to the Closing) contained in this Agreement.

Indemnification by Parent. Following the Closing, Parent shall, subject to the
provisions of this Article IX, indemnify and hold harmless each Company Holder
Indemnified Party from and

 

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against any and all Damages, incurred by such Company Holder Indemnified Party,
whether or not involving a Third Party Claim, arising out of or resulting from:

(a) any inaccuracy in or breach of any representation or warranty of Parent or
Merger Sub contained in Article V (in each case, without giving effect to any
materiality, Parent Material Adverse Effect or other similar qualifier contained
therein for purposes of determining whether an inaccuracy or breach has occurred
and the amount of Damages attributable thereto); or

(b) any breach of any covenant or agreement of Parent, Merger Sub or, following
the Closing, the Surviving Corporation contained in this Agreement.

Indemnification Process.

(a) Any Parent Indemnified Party or Company Holder Indemnified Party making a
claim for indemnification under Section 9.01 or Section 9.02 (an “Indemnified
Party”) may seek indemnification by giving written notice to the applicable
party or parties from whom indemnification is sought (the “Indemnifying Party”),
specifying in reasonable detail (i) the representation and warranty or covenant
or other agreement that is alleged to have been breached or to have given rise
to indemnification, (ii) the facts constituting the basis for such allegation
and (iii) if known, the aggregate amount of the Damages for which a claim is
being made under Section 9.01 or Section 9.02 or, to the extent that such
Damages are not known or have not been incurred at the time such claim is made,
a good faith estimate of the aggregate potential amount of such Damages. In the
event that any claim for indemnification hereunder results from or is in
connection with a Third Party Claim, the Indemnified Party shall provide written
notice of such Third Party Claim to the Indemnifying Party, which notice shall
include the information specified in clauses (i)-(iii) above (a “Third Party
Claim Notice”) as soon as practicable after the Indemnified Party first receives
notice of the claim but in any event not later than seven (7) days following
such notice; provided that, the Indemnified Party shall not be limited in
seeking indemnification pursuant to this Article IX by any failure to provide
such notice of the existence of a claim to the Indemnifying Party except to the
extent that such Indemnifying Party is prejudiced as a result of such failure.
Any such notice pursuant to this first sentence of this Section 9.03(a) or Third
Party Claim Notice shall be given, if by a Parent Indemnified Party, in
accordance with the Escrow Agreement. To the extent there is any conflict
between this Agreement and the Escrow Agreement in respect of the mechanics for
distribution of the Indemnity Escrow Amount, the terms of the Escrow Agreement
will control.

(b) Third Party Claims.

(i) Except as otherwise provided in Section 9.03(b)(ii), in the case of any
claim, action, suit, proceeding or demand asserted by a Person that is not a
party to this Agreement or its Affiliate (or a successor thereof) (a “Third
Party Claim”), the Indemnifying Party may elect (at the expense of such
Indemnifying Party and with reputable counsel of its own choosing) by written
notice to the Indemnified Party delivered within fifteen (15) days from the date
of receipt of a Third Party Claim Notice, to assume and control the defense of
such Third Party Claim. If the Indemnifying Party does not assume control of
such defense in accordance with the terms hereof, the Indemnified Party shall
control such defense without prejudice to its rights hereunder. The party not
controlling any such defense may participate in such defense at such party’s
sole cost and expense (including the costs and expenses of counsel).

 

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(ii) Notwithstanding Section 9.03(b)(i), the Indemnifying Party shall have no
right to assume the defense of any Third Party Claim (A) in the event that the
Indemnified Party shall in good faith determine after consultation with outside
counsel that the Indemnified Party may have available to it one or more defenses
or counterclaims that are inconsistent with one or more of the defenses or
counterclaims that may be available to the Indemnifying Party in respect of a
Third Party Claim that would make it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, (B) if the
Indemnified Party reasonably determines, after prior consultation with the
Company Holders’ Representative, that the amount of the Third Party Claim if
successful would be likely to exceed the Indemnifying Party’s Liability under
this Agreement (including the amount then available in the Indemnity Escrow
Account) or (C) if such Third Party Claim seeks or could reasonably be expected
to result in the imposition of criminal penalties against the Indemnified Party,
which in each such case the reasonable and documented out-of-pocket costs and
expenses of counsel to the Indemnified Party will be subject to the indemnity
provided for in Section 9.01 or Section 9.02. If the Indemnifying Party fails to
take reasonable steps necessary to defend diligently a Third Party Claim after
notifying the Indemnified Party of its assumption of the defense and
investigation of such Third Party Claim, the Indemnified Party may assume such
defense, and the reasonable and documented out-of-pocket costs and expenses of
counsel to the Indemnified Party will be subject to the indemnity provided for
in Section 9.01 or Section 9.02, as applicable. Notwithstanding anything to the
contrary contained herein, in no event shall the Indemnifying Party be
responsible for the fees of more than one counsel for all Indemnified Parties in
each applicable jurisdiction. The party conducting the defense of any Third
Party Claim shall keep the other party advised of all significant developments
with respect to such Third Party Claim.

(iii) Neither the Indemnified Party nor the Indemnifying Party shall enter into
any settlement, compromise or consent to judgment with respect to such Third
Party Claim unless consented to by the Indemnified Party and the Indemnifying
Party in writing, which consent will not be unreasonably withheld, conditioned
or delayed; provided that, the Indemnifying Party who conducts the defense of a
Third Party Claim may enter into any settlement, compromise or consent to
judgment the relief for which (A) consists solely of monetary damages which
shall be paid in full by the Indemnifying Party and does not require any
admission or acknowledgement of fault of the Indemnified Party or its Affiliates
and (B) which procures a full and unconditional release of the Indemnified Party
with respect to such Third Party Claim.

(iv) The Indemnified Party and the Indemnifying Party shall make reasonably
available to each other and their respective representatives all relevant
business records and other documents reasonably available to them that are
necessary or appropriate for the defense of any Third Party Claim, subject to
any bona fide claims of attorney-client privilege, and the Indemnified Party
shall use commercially reasonable efforts to assist, and to cause the employees
and counsel of such party to assist, at the cost of the Indemnifying Party, in
the defense of such Third Party Claim.

 

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(c) For purposes of this Section 9.03, (i) any notices to be provided or
received by any Company Holder as an Indemnifying Party or Indemnified Party
pursuant to this Section 9.03 shall be provided or received, as applicable, by
the Company Holders’ Representative on behalf of the applicable Company
Holder(s) and (ii) the Company Holders’ Representative shall have the sole and
exclusive right and authority to make indemnification claims on behalf of the
Company Holders pursuant to the terms hereof and, as the context may require,
references herein to the Indemnified Party shall be construed accordingly.

Limitations on Indemnification.

(a) De Minimis Limitation and Deductible. No claim for indemnification under
Section 9.01(a) may be made by the Parent Indemnified Parties and no claim for
indemnification under Section 9.02(a) may be made by the Company Holder
Indemnified Parties, and no payment in respect of such a claim for
indemnification shall be required from any Company Holder or Parent, as
applicable, (i) for any Damages arising from any individual claim under such
Sections, as applicable, (treating claims resulting from the same facts and
circumstances as an individual claim) that does not exceed twenty-five thousand
dollars ($25,000) (the “De Minimis Limitation”) and (ii) until the aggregate
amount of Damages which the Parent Indemnified Parties or the Company Holder
Indemnified Parties, as applicable, have incurred on a cumulative basis exceeds
the Deductible, after which the Parent Indemnified Parties or the Company Holder
Indemnified Parties, as applicable, shall be indemnified, subject to
Section 9.04(b), for all such Damages in excess of the Deductible, as
applicable; provided that the foregoing De Minimis Limitation and Deductible
shall not apply to, and the Parent Indemnified Parties or the Company Holder
Indemnified Parties, as applicable, shall be entitled to indemnification without
regard to satisfaction of the De Minimis Limitation and Deductible with respect
to, claims for breach of any Fundamental Representation.

(b) Maximum Damages. Notwithstanding anything in this Agreement or the Escrow
Agreement to the contrary, subject to Section 9.04(c) and without derogation to
the rights of any Parent Indemnified Party pursuant to the Policy, the maximum
aggregate amount of Damages against which (i) the Parent Indemnified Parties
shall be entitled to be indemnified by the Company Holders under Section 9.01
shall be the remaining Indemnity Escrow Amount (if any) and (ii) the Company
Holder Indemnified Parties shall be entitled to be indemnified by Parent under
Section 9.02 shall be one million two hundred seventy five thousand dollars
($1,275,000).

(c) Types of Damages. The Parties expressly acknowledge and agree that there
shall be no indemnification by an Indemnifying Party for any punitive,
exemplary, treble, consequential, incidental, special or indirect damages,
except, in each case, to the extent constituting direct, market-measured or
general damages or to the extent paid or payable to a claimant in respect of a
Third Party Claim.

(d) Tax Benefit. The amount of any Damages subject to indemnification under this
Article IX shall be calculated net of any Tax benefit actually realized by the
Indemnified Party from the incurrence or payment of such Damages (through a
refund or reduction in Tax Liability) in the taxable year immediately following
the year in which the indemnification payment is made or an earlier year.

 

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(e) Indemnity Escrow Account. Without derogation to the rights of any
Indemnified Parties pursuant to the Policy, any indemnification of a Parent
Indemnified Party for any and all Damages pursuant to Section 9.01 shall be paid
solely and exclusively by release of remaining funds (if any) to such Parent
Indemnified Party from the Indemnity Escrow Account in accordance with the terms
of this Agreement and the Escrow Agreement.

(f) Mitigation. Any Indemnified Party shall use commercially reasonable efforts
to mitigate the amount of its Damages upon and after becoming aware of any facts
or circumstances that would reasonably be expected to result in any Damages that
are indemnifiable hereunder. Except to the extent otherwise required by Law,
Parent and the Surviving Corporation shall not, without the prior consent of the
Company Holders’ Representative, which consent shall not be unreasonably
withheld, conditioned or delayed, take, or allow to be taken, any action after
the Closing that could increase any Company Holder’s liability for Taxes.

(g) No Duplication. Any liability for indemnification under this Agreement shall
be determined without duplication of recovery by reason of the state of facts
giving rise to such liability constituting a breach of more than one
representation, warranty, covenant or agreement.

(h) Net Amounts. The amount of any Damages sustained by an Indemnified Party
shall be reduced by any amount actually received by such Indemnified Party or
its Affiliates with respect thereto (i) under any insurance coverage relating
thereto (other than the Policy) and (ii) from any non-Affiliate Person alleged
to be responsible for any Damages, in each case, net of any reasonable and
documented out-of-pocket costs, expenses or premiums incurred in connection with
securing or obtaining such recovery under such insurance coverage or from such
non-Affiliate Person (including any increased premiums resulting therefrom). The
Indemnified Parties shall use reasonable best efforts to collect any amounts
available under insurance policies or recoverable from non-Affiliate Persons
with respect to Damages incurred by such Indemnified Party. If the Indemnified
Party or its Affiliates receive any amounts under insurance policies, or from
any non-Affiliate Person alleged to be responsible for any Damages, in each case
in connection with a matter giving rise to an indemnification payment, but
subsequent to such indemnification payment by the Indemnifying Party, then such
Indemnified Party shall promptly reimburse the Indemnifying Party for any
payment made or out-of-pocket expense incurred by such Indemnifying Party in
connection with providing such indemnification payment up to the amount received
by the Indemnified Party or its Affiliates, net of any reasonable and documented
out-of-pocket costs, expenses or premiums incurred in connection with securing
or obtaining such recovery under such insurance coverage or from such
non-Affiliate Person (including any increased premiums resulting therefrom).

(i) Final Closing Statement. No Damages may be claimed hereunder by an
Indemnified Party, and no claims for Taxes may be claimed by Parent, to the
extent that such Damages or Taxes have been reflected or accrued or reserved for
as a Liability on the Final Closing Statement or otherwise taken into account in
the preparation or determination of the Final Closing Statement or the
Post-Closing Adjustment, if any, pursuant to Section 3.13.

(j) Subrogation. Except with respect to Taxes, in the event of payment by or on
behalf of any Indemnifying Party to any Indemnified Party pursuant to a claim or
demand in a

 

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notice of a claim for indemnification pursuant to this Article IX, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnified Party as to any events or circumstances in respect of which such
Indemnified Party may have any right, defense or claim relating to such claim or
demand against any claimant or plaintiff asserting such claim or demand. Such
Indemnified Party shall cooperate with such Indemnifying Party in a reasonable
manner, and at the cost of such Indemnifying Party, in presenting any subrogated
right, defense or claim. The Policy shall contain a waiver of all rights of
subrogation to recover against the Company Holders except with respect to Fraud.

Survival. The representations and warranties of the Company, Parent and Merger
Sub contained in this Agreement shall survive the Closing until the Release Date
(the “Survival Period”). Any and all claims for indemnification under this
Article IX arising out of any inaccuracy in or breach of any representation or
warranty of the Company, Parent or Merger Sub must be made prior to the end of
the Survival Period, it being understood that in the event notice of any claim
for indemnification submitted in compliance with Section 9.01(a) or
Section 9.02(a) shall have been given within the Survival Period, the
representations and warranties with respect to such indemnification claim shall
survive until such time as such claim is finally resolved, whether or not
litigation has been commenced at such time to resolve such claim. The covenants
and agreements of the Parties under this Agreement shall survive the Closing
until the seven (7) year anniversary of the Closing Date unless a shorter period
of performance is specified with respect to such covenant or agreement (and any
pre-Closing covenants shall survive the Closing for the Survival Period), it
being understood that in the event notice of any claim for indemnification
submitted in compliance with Section 9.01(b) or Section 9.02(b) shall have been
given within the applicable survival period, the covenants and agreements solely
with respect to such indemnification claim shall survive until such time as such
claim is finally resolved, whether or not litigation has been commenced at such
time to resolve such claim.

Treatment of Indemnification Payments. In the event any claim for
indemnification under this Article IX has been finally determined, the amount of
such final determination shall be paid if the Indemnified Party is a: (i) Parent
Indemnified Party, by the Escrow Agent to the Parent Indemnified Party, pursuant
to the terms and conditions of the Escrow Agreement and (ii) Company Holder
Indemnified Party, unless otherwise directed by the Company Holders’
Representative, by Parent to the Paying Agent by wire transfer of immediately
available funds within fifteen (15) days after the date upon which any
underlying claims are finally resolved, for the benefit of, and for further
distribution to, the Company Holders, and the Paying Agent shall promptly
distribute such amount to the Company Holders on a pro rata basis based on their
respective Specified Percentages in accordance with the written instructions of
the Company Holders’ Representative, and Parent shall be entitled to rely
exclusively upon the written instructions of the Company Holders’ Representative
in paying such indemnification amounts; provided that, at the request of the
Company Holders’ Representative, a portion of any such amount that is subject to
employment tax withholding shall be paid to the Surviving Corporation for
payment through the Surviving Corporation’s payroll system no later than the
first regularly scheduled payroll date that is at least four (4) Business Days
following such request. Any claim, and the liability for and amount of Damages
therefor, shall be deemed to be “finally determined” for purposes of this
Article IX and Section 10.16(g) when the parties hereto have so determined by
mutual agreement or, if disputed, when a final and non-appealable Order by a
Governmental Authority has been entered with respect to such claim. The Parties
agree that any indemnification payments made pursuant to this Article IX shall
be treated as an adjustment to the Merger Consideration.

 

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Sole Remedy. Following the Closing, the Parties acknowledge and agree that the
provisions of this Article IX shall be the sole and exclusive remedy for any
breach of or inaccuracy in any representation or warranty, or breach or failure
to perform any covenant or agreement, contained in this Agreement, except for
(a) any claim of Fraud asserted against any Person who committed such Fraud or
against any Person who is responsible for Damages under this Article IX for such
Fraud it being understood that (i) each Company Holder shall be responsible (on
a several and not joint basis) for any Fraud committed by the Company or the
Company’s officers prior to the Closing and (ii) no Company Holder will be
responsible for the Fraud committed by any other Company Holder, other than the
Fraud of such other Company Holder committed solely in its capacity as an
officer of the Company, (b) claims for equitable remedies under Section 10.12(b)
or (c) the matters referenced in Section 3.13, which, in the case of the
foregoing clauses (b) and (c) shall be governed solely by such sections.
Notwithstanding anything to the contrary contained in this Agreement, no breach
of or inaccuracy in any representation or warranty, or breach or failure to
perform any covenant or agreement, contained in this Agreement shall give rise
to any right on the part of any party to rescind this Agreement or any Related
Agreement or any of the transactions contemplated hereby or thereby.

No Claim Against the Surviving Corporation. Each Company Holder, solely in its
capacity as a Company Holder, waives any right of contribution against the
Surviving Corporation with respect to any indemnity claim arising out of this
Agreement to the extent that the Company, the Surviving Corporation or any
Parent Indemnified Party is determined to be entitled to indemnification
hereunder for such claim.

Procedures Related to Tax Contests. Notwithstanding the terms of
Section 9.03(b)(i), if any deficiency, proposed adjustment, adjustment,
assessment audit, examination or other administrative or court proceeding, suit,
dispute or other claim commenced or initiated against the Surviving Corporation
or any of its Subsidiaries by any Tax authority following the Closing (a “Tax
Contest”), would, if successful, require the Company Holders to fully indemnify
Parent pursuant to Section 9.01, the Company Holders’ Representative shall have
the right (but not the obligation), upon timely written notice (which notice
shall acknowledge the Company Holders’ indemnification obligation with respect
to such Tax Contest), to elect to control, defend, settle, compromise, or
contest such Tax Contest; provided that, notwithstanding anything to the
contrary set forth herein, (a) the Company Holders’ Representative shall keep
Parent reasonably informed of any proceedings, events and developments related
to or in connection with such Tax Contest, (b) Parent shall be entitled to
receive copies of all correspondence and documents related to such Tax Contest,
(c) the Company Holders’ Representative shall consult with Parent and shall not
enter into any settlement with respect to any such Tax Contest without Parent’s
prior written consent, which will not be unreasonably withheld, conditioned or
delayed and (d) at its own cost and expense, Parent shall have the right to
participate in (but not control) the defense of such Tax Contest. Parent shall
give the Company Holders’ Representative written notice of any Tax Contest
within fifteen (15) days of receiving notice of such Tax Contest which may give
rise to any indemnity obligation of the Company Holders under Section 9.01.
Failure to give prompt notice shall not affect the indemnification obligations
thereunder in absence of prejudice. Parent shall reasonably cooperate with the
Company Holders’ Representative in pursuing such Tax Contest.

 

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Parent’s out-of-pocket expenses incurred in connection with such cooperation,
including the cost of counsel, shall be reimbursed solely and exclusively from
the Indemnity Escrow Account. If the Company Holders’ Representative does not
elect to control such Tax Contest, Parent shall control such Tax Contest but
shall provide the Company Holders’ Representative the same rights that Parent
has in the event the Company Holders’ Representative elects to control such Tax
Contest pursuant to clauses (a) through (c) above.

Release of Indemnity Escrow Account. On the date that is the fifteen (15) month
anniversary of the Closing Date (the “Release Date”), all remaining amounts held
in the Indemnity Escrow Account, less the aggregate amount of all claims, if
any, claimed by the Parent Indemnified Parties (such claims, the “Outstanding
Claims”) properly made in accordance with this Article IX and not fully paid or
satisfied prior to the Release Date (the amount of which will be retained in the
Indemnity Escrow Account in accordance with the Escrow Agreement) shall be
promptly released by the Escrow Agent from the Indemnity Escrow Account to the
Company Holders on a pro rata basis based on their respective Specified
Percentages pursuant to the terms of the Escrow Agreement. At any time after the
Release Date, when an Outstanding Claim is finally resolved and paid to the
Parent Indemnified Party from the Indemnity Escrow Account for less than the
full amount that was reserved in respect of such Outstanding Claim, the Escrow
Agent will promptly release to the Company Holders from the Indemnity Escrow
Account following such distribution to the Parent Indemnified Party an amount
equal to the remaining funds then held in the Indemnity Escrow Account, less the
amounts reserved in respect of any then remaining Outstanding Claims, which
distribution to the Company Holders shall be made on a pro rata basis based on
their respective Specified Percentages pursuant to the terms of the Escrow
Agreement. Notwithstanding the foregoing, any amount to be delivered to an
Optionholder or to a holder of Company Restricted Stock pursuant to this
paragraph shall be delivered to the Surviving Corporation for payment through
Surviving Corporation’s payroll system no later than the first regularly
scheduled payroll date that is at least four (4) Business Days following the
Surviving Corporation’s receipt of such funds.

MISCELLANEOUS

Notices. All notices and other communications under this Agreement shall be in
writing and shall be deemed given (a) when delivered personally by hand (with
written confirmation of receipt by other than automatic means, whether
electronic or otherwise), (b) when sent by facsimile or email (with written
confirmation of transmission) or (c) one (1) Business Day following the day sent
by an internationally-recognized overnight courier (with written confirmation of
receipt), in each case, at the following addresses, facsimile numbers and email
addresses (or to such other address, facsimile number or email address as a
Party may have specified by notice given to the other Party pursuant to this
provision):

If to the Company:

Direct General Corporation

1281 Murfreesboro Road

 

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Nashville, Tennessee 37217

Facsimile: (615) 366-3722

Email: Sharon.Roberson@directgeneral.com

Attention: Sharon K. Roberson

with copies to (which shall not constitute notice):

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

Facsimile: (212) 735-2000

Email: Todd.Freed@skadden.com

            Sven.Mickisch@skadden.com

Attention: Todd E. Freed, Esq. and Sven G. Mickisch, Esq.

and

Skadden, Arps, Slate, Meagher & Flom LLP

525 University Avenue

Palo Alto, California 94301

Facsimile: (650) 470-4570

Email: Leif.King@skadden.com

Attention: Leif B. King, Esq.

If to Parent or Merger Sub:

National General Holdings Corp.

59 Maiden Lane, 38th Floor

New York, NY 10038

Facsimile: (212) 380-9498

Email: Jeffrey.Weissmann@ngic.com

Attention: Jeffrey Weissmann

with a copy to (which shall not constitute notice):

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Facsimile: (212) 715-8000

Email: ewechsler@kramerlevin.com

Attention: Ernest S. Wechsler, Esq.

 

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If to the Company Holders’ Representative or a Company Holder:

Shareholder Representative Services LLC

1614 15th Street, Suite 200

Denver, Colorado 80202

Facsimile: (303) 623-0294

Email: deals@srsacquiom.com

Attention: Managing Director

Amendment/Waiver. This Agreement may be amended, supplemented or changed only by
a written instrument signed by each of the Parties. Each provision in this
Agreement may be waived only by a written instrument making specific reference
to this Agreement signed by the Party against whom enforcement of any such
provision so waived is sought. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representation, warranty, covenant or agreement contained herein. The waiver by
any Party of a breach of any provision of this Agreement shall not operate or be
construed as a further or continuing waiver of such breach or as a waiver of any
other or subsequent breach. No failure on the part of any Party to exercise, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of such right, power or
remedy by such Party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.

Assignment. No assignment of this Agreement or of any rights or obligations
hereunder may be made, directly or indirectly (by operation of law or
otherwise), by (i) the Company, without the prior written consent of Parent,
(ii) any of Parent or Merger Sub without the prior written consent of the other
Parties (but not including, after the Closing, the Surviving Corporation) or
(iii) the Company Holders’ Representative without the prior written consent of
Parent. Any attempted assignment without obtaining such required consent shall
be null and void.

Entire Agreement. This Agreement (including the Confidentiality Agreement, the
Company Disclosure Schedule and the Parent Disclosure Schedule and the documents
attached thereto), the Related Agreements and the Stockholder Written Consents
represent the entire understanding and agreement among the Parties with respect
to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter hereof.

Fulfillment of Obligations. Any obligation of any Party under this Agreement,
which obligation is performed, satisfied or fulfilled by an Affiliate of such
Party, shall be deemed to have been performed, satisfied or fulfilled by such
Party.

Parties in Interest. This Agreement shall be binding upon and inure solely to
the benefit of each Party and its successors and permitted assigns and, except
as provided in Section 6.07, Article IX, this Section 10.06, Section 10.13 and
Section 10.14, nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement. Notwithstanding the
foregoing, the Company Holders are third party beneficiaries

 

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of Article III, Section 9.10 and Section 10.13 (it being understood that only
the Company Holders’ Representative may take any action in respect of such
Sections (other than Section 10.13) following the Closing on behalf of the
Company Holders). For the avoidance of doubt, in the event of Parent or Merger
Sub’s breach of this Agreement, damages to the Company shall include, to the
extent proven, the loss of the benefit of the bargain to the Company and the
Company Holders.

Expenses. Except as otherwise expressly provided in this Agreement, whether or
not the transactions contemplated by this Agreement are consummated, all direct
and indirect costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be borne by the party incurring such
expenses.

Governing Law/Jurisdiction/Waiver of Jury Trial.

(a) Except as otherwise set forth in Section 3.13, this Agreement, and all
claims or causes of action (whether in contract, tort or otherwise) that may
arise out of or relate to this Agreement or the negotiation, execution or
performance of this Agreement (including any claim or cause of action arising
out of or relating to any representation or warranty made in this Agreement)
shall be governed by and construed in accordance with the Laws of the State of
Delaware, regardless of the Laws that might otherwise govern under applicable
principles of conflicts of laws.

(b) Except as otherwise set forth in Section 3.13, each of the Parties hereby
irrevocably and unconditionally (i) submits, for itself and its property, to the
exclusive jurisdiction and venue of the Delaware Court of Chancery (or, only if
the Delaware Court of Chancery does not have jurisdiction over a particular
matter, the Superior Court of the State of Delaware (and the Complex Commercial
Litigation Division thereof if such division has jurisdiction over the
particular matter), or if the Superior Court of the State of Delaware does not
have jurisdiction, any federal or state court of the U.S. sitting in the State
of Delaware) (“Delaware Courts”), and any appellate court from any decision
thereof, in any Action arising out of or relating to this Agreement, including
the negotiation, execution or performance of this Agreement and agrees that all
claims in respect of any such Action shall be heard and determined in the
Delaware Courts, (ii) waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any Action arising out of or relating to this Agreement or
the negotiation, execution or performance of this Agreement in the Delaware
Courts, including any objection based on its place of incorporation,
(iii) waives, to the fullest extent permitted by Law, the defense of an
inconvenient forum to the maintenance of such Action in any such court and
(iv) agrees that a final judgment in any such Action shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by Law. Each of the Parties consents and agrees that service of
process, summons, notice or document for any action permitted hereunder may be
delivered by registered mail addressed to it at the applicable address set forth
in Section 10.01 or in any other manner permitted by applicable Law.

(c) THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES IN THE
NEGOTIATION, EXECUTION, PERFORMANCE AND ENFORCEMENT OF THIS

 

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AGREEMENT, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY
OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY
AND BARGAINED FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY
AND THAT ANY ACTION WHATSOEVER BETWEEN OR AMONG THEM RELATING TO THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

Counterparts. This Agreement may be executed in any number of counterparts
(including by means of facsimile or email in .pdf format), each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.

Severability. If any term or other provision of this Agreement is invalid,
illegal, or incapable of being enforced by any Law or public policy, all other
terms or provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
Party (or to the Company Holders). Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, 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 are consummated as originally
contemplated to the greatest extent possible.

Further Assurances. Subject to the terms and conditions of this Agreement, from
time to time, at the request of any Party and without additional consideration,
each other Party shall execute and deliver to such requesting Party such
documents and take such other action as such requesting Party may reasonably
request in order to consummate the transactions contemplated by this Agreement.

Remedies.

(a) Except as otherwise provided in this Agreement, any and all remedies herein
expressly conferred upon a Party will be deemed cumulative with and not
exclusive of any other remedy expressly conferred hereby, and the exercise by a
Party of any one such remedy will not preclude the exercise of any other such
remedy.

(b) Each of the Parties agrees that irreparable damage would occur in the event
of a breach of this Agreement by any Party (including by any Party failing to
take such actions as are required of it hereunder to consummate the Merger),
money damages may be inadequate and there may be no adequate remedy at Law.
Accordingly, the Parties agree that, subject to and without limiting
Section 10.12(c) below (if applicable), each of the Parties shall have the
right, in addition to any other rights and remedies existing in its favor at Law
or in equity, to enforce its rights and each Party’s respective obligations
hereunder by an Action or Actions for specific performance, injunctive and/or
other equitable relief (without posting of bond or other security). Each of the
Parties agrees that it shall not oppose the granting of an injunction, specific

 

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performance and other equitable relief when expressly available pursuant to the
terms of this Agreement, and hereby waives (i) any defenses in any Action for an
injunction, specific performance or other equitable relief, including the
defense that the other Parties have an adequate remedy at Law or an award of
specific performance is not an appropriate remedy for any reason at Law or
equity, and (ii) any requirement under Law to post a bond, undertaking or other
security as a prerequisite to obtaining equitable relief.

(c) To the extent any Party brings any Action before any Governmental Authority
to enforce specifically the performance of the terms and provisions of this
Agreement prior to the Termination Date, the Termination Date shall
automatically be extended by (i) the amount of time during which such Action is
pending, plus twenty (20) Business Days, or (ii) such other time period
established by the court presiding over such Action.

Non-Recourse. Notwithstanding anything that may be expressed or implied in this
Agreement, Parent and Merger Sub agree and acknowledge that no recourse under
this Agreement or any documents or instruments delivered in connection with this
Agreement shall be had against any former, current or future director, officer,
employee, incorporator, Affiliate, member, manager, partner, equity holder,
agent, attorney or representative of any Company Holder or any Affiliate or
permitted assignee of any Company Holder (excluding any Company Holder who may
be deemed to be a Non-Recourse Party of another Company Holder other than in its
role as a Company Holder itself) (collectively, “Non-Recourse Parties”), as
such, whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any statute, regulation or other applicable Law, it
being expressly agreed and acknowledged that no personal liability whatsoever
shall attach to, be imposed on or otherwise be incurred by any Non-Recourse
Parties, as such, for any obligation of any Company Holder under this Agreement
or any documents or instruments delivered in connection with this Agreement for
any claim based on, in respect of or by reason of such obligations or their
creation, or otherwise by reason of this Agreement or its negotiation or
execution or the transactions contemplated hereby, and Parent and Merger Sub
(and at and following the Closing the Surviving Corporation) waives and releases
all such liabilities, claims and obligations against any such Non-Recourse
Parties. Non-Recourse Parties are expressly intended as third party
beneficiaries of this provision of this Agreement.

Waiver of Conflicts.

(a) It is acknowledged by each of the Parties that each of the Company and
certain Affiliates of TPG and Calera have retained Skadden to act as their
counsel in connection with the transactions contemplated hereby and that Skadden
has not acted as counsel for any other Party in connection with the transactions
contemplated hereby and that none of the other Parties has the status of a
client of Skadden for conflict of interest or any other purposes as a result
thereof. Each Party hereby agrees that, in the event that any dispute arises
after the Closing between Parent, the Surviving Corporation or any of their
respective Subsidiaries or Affiliates, on the one hand, and any of TPG or Calera
or their respective Affiliates, on the other hand, Skadden may represent either
or both of TPG and Calera in such dispute even though the interests of TPG and
Calera may be directly adverse to Parent, the Surviving Corporation or any of
their respective Subsidiaries or Affiliates, and even though Skadden formerly
may have represented the Company or any of the Company’s Subsidiaries in any
matter substantially

 

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related to such dispute. Each of the Company (on behalf of itself and the
Surviving Corporation), Parent and Merger Sub acknowledges and agrees that, in
connection with any future dispute between Parent, the Surviving Corporation or
any of their respective Subsidiaries or Affiliates, on the one hand, and any of
TPG or Calera or their respective Affiliates, on the other hand, with respect to
the negotiation, documentation and consummation of the transactions contemplated
by this Agreement, as to all communications among Skadden, the Company, any of
the Company’s Subsidiaries, TPG and Calera that relate in any way to the
negotiation, documentation and consummation of the transactions contemplated by
this Agreement (“Privileged Deal Communications”), the attorney-client privilege
and the expectation of client confidence belongs to TPG or Calera, as
applicable, and may be controlled by such Person and shall not pass to or be
claimed by Parent, the Surviving Corporation or any of their respective
Subsidiaries or Affiliates.

(b) The Parties understand and agree that the Parties have each undertaken
commercially reasonable efforts to prevent the disclosure of confidential or
attorney-client privileged information. Notwithstanding those efforts, the
Parties further understand and agree that the consummation of the transactions
contemplated by this Agreement may result in the inadvertent disclosure of
information that may be confidential or subject to a claim of privilege. The
Parties further understand and agree that any disclosure of information that may
be confidential or subject to a claim of privilege will not prejudice or
otherwise constitute a waiver of any claim of privilege. Accordingly, following
the Closing each of Parent and the Surviving Corporation agrees to use
commercially reasonable efforts to return promptly any communications among
Skadden, the Company, any of the Company’s Subsidiaries, TPG and Calera that
relate in any way to the negotiation, documentation and consummation of the
transactions contemplated by this Agreement inadvertently disclosed to the
appropriate Person upon becoming aware of its existence. Notwithstanding the
foregoing, in the event that a dispute arises between Parent, the Surviving
Corporation or any of their respective Affiliates, on the one hand, and a third
party (other than a Party, TPG or Calera or their respective Affiliates), on the
other hand, after the Closing, the Surviving Corporation may assert the
attorney-client privilege to prevent disclosure of confidential communications
by Skadden to such third party.

(c) The Parties agree that the protections afforded to TPG and Calera above
shall not be considered, and is not, a waiver by Parent, the Surviving
Corporation or any of their respective Subsidiaries or Affiliates of any
attorney client privilege that they may have over the Privileged Deal
Communications solely as against any third party (other than a Party, TPG or
Calera or their respective Affiliates). Notwithstanding the foregoing, in the
event that a dispute arises between Parent, the Surviving Corporation or any of
their respective Affiliates, on the one hand, and a third party (other than a
Party, TPG or Calera or their respective Affiliates), on the other hand, after
the Closing, the Surviving Corporation (i) may assert the attorney-client
privilege to prevent disclosure of confidential communications by Skadden to
such third party and (ii) shall not waive any attorney-client privilege under
the Privileged Deal Communications as against any third party without the prior
written consent of TPG and Calera. In the event that Parent, the Surviving
Corporation or any of its Subsidiaries is required under applicable Law, or by
order of or request by any Governmental Authority (any such requirement, order
or request, a “Legal Request”) to produce, or otherwise access or obtain a copy
of all or a portion of such confidential communications by Skadden, Parent, the
Surviving Corporation and its Subsidiaries, subject to compliance with the
following sentence, shall be entitled to access or obtain a copy of

 

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and disclose such communications to the extent necessary to comply with any such
Legal Request. In the event of any Legal Request, Parent shall promptly
following such Legal Request, notify the Company Holders’ Representative in
writing so that the Company Holders’ Representative can seek a protective order
and Parent agrees to use all commercially reasonable efforts (at the sole cost
and expense of the Company Holders’ Representative) to assist therewith.

(d) Skadden shall be a third party beneficiary for purposes of this
Section 10.14.

Acknowledgments and Disclaimers.

(a) THE COMPANY IS NOT MAKING AND HAS NOT MADE ANY REPRESENTATION OR WARRANTY OF
ANY KIND OR NATURE WHATSOEVER, ORAL OR WRITTEN, EXPRESS OR IMPLIED, EXCEPT AS
EXPRESSLY SET FORTH IN ARTICLE IV (AS MODIFIED BY THE COMPANY DISCLOSURE
SCHEDULE), AND THE COMPANY HEREBY DISCLAIMS, AND PARENT EXPRESSLY DISCLAIMS ANY
RELIANCE ON, AND SHALL CAUSE ITS AFFILIATES, AND ANY OF ITS OR ITS AFFILIATES
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS, MEMBERS, EQUITYHOLDERS,
AGENTS OR REPRESENTATIVES TO EXPRESSLY DISCLAIM ANY RELIANCE ON, ANY AND ALL
SUCH OTHER REPRESENTATIONS OR WARRANTIES. NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO PARENT OR MERGER SUB OR THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, PARTNERS, MEMBERS, EQUITYHOLDERS, AGENTS OR REPRESENTATIVES OF ANY
DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS,
FORWARD-LOOKING STATEMENTS, ESTIMATES, PREDICTIONS OR OTHER SUPPLEMENTAL DATA,
AND INCLUDING DATA SET FORTH IN THE ELECTRONIC DATA ROOM), EXCEPT AS OTHERWISE
EXPRESSLY SET FORTH IN ARTICLE IV (AS MODIFIED BY THE COMPANY DISCLOSURE
SCHEDULE), THE COMPANY AND ITS SUBSIDIARIES EXPRESSLY DISCLAIM ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, ORAL OR WRITTEN, EXPRESS OR
IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF THEIR BUSINESSES OR THEIR
ASSETS, AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE IV (AS MODIFIED
BY THE COMPANY DISCLOSURE SCHEDULE), THE COMPANY AND ITS SUBSIDIARIES
SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE,
SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THEIR ASSETS
AND ANY PART THEREOF, THE WORKMANSHIP THEREOF, AND THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH SUBJECT ASSETS
ARE BEING ACQUIRED “AS IS, WHERE IS” ON THE CLOSING DATE, AND IN THEIR PRESENT
CONDITION, AND PARENT AND MERGER SUB, AND THEIR RESPECTIVE AFFILIATES AND EACH
OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS, MEMBERS,
EQUITYHOLDERS, AGENTS AND REPRESENTATIVES, HAVE RELIED SOLELY ON THEIR OWN
EXAMINATION, REVIEW, ANALYSIS AND INVESTIGATION THEREOF AS WELL AS THE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY SET FORTH IN ARTICLE IV (AS
MODIFIED BY THE COMPANY DISCLOSURE SCHEDULE) IN DETERMINING TO ENTER INTO THIS
AGREEMENT, AND EXPRESSLY DISCLAIM ANY RELIANCE ON, ANY AND ALL OTHER
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED.

 

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(b) NONE OF PARENT OR MERGER SUB IS MAKING AND HAS NOT MADE ANY REPRESENTATION
OR WARRANTY OF ANY KIND OR NATURE WHATSOEVER, ORAL OR WRITTEN, EXPRESS OR
IMPLIED, EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE V (AS MODIFIED BY THE PARENT
DISCLOSURE SCHEDULE). NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE COMPANY
OR ITS DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS, MEMBERS, EQUITYHOLDERS, AGENTS
OR REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY
FINANCIAL PROJECTIONS, FORWARD-LOOKING STATEMENTS, ESTIMATES, PREDICTIONS OR
OTHER SUPPLEMENTAL DATA), EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE V
(AS MODIFIED BY THE PARENT DISCLOSURE SCHEDULE), PARENT AND MERGER SUB EXPRESSLY
DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, ORAL OR
WRITTEN, EXPRESS OR IMPLIED, AND THE COMPANY AND COMPANY HOLDERS, AND THEIR
RESPECTIVE AFFILIATES AND EACH OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, PARTNERS, MEMBERS, EQUITYHOLDERS, AGENTS AND REPRESENTATIVES, HAVE
RELIED SOLELY ON THEIR OWN EXAMINATION AND INVESTIGATION THEREOF AS WELL AS THE
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB SET FORTH IN ARTICLE V
(AS MODIFIED BY THE PARENT DISCLOSURE SCHEDULE) IN DETERMINING TO ENTER INTO
THIS AGREEMENT, AND EXPRESSLY DISCLAIM ANY RELIANCE ON, ANY AND ALL OTHER
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED.

(c) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, INCLUDING THIS
SECTION 10.15, NO PARTY SHALL BE LIMITED FROM MAKING ANY CLAIM BASED ON FRAUD.

(d) Notwithstanding anything to the contrary in this Agreement or any other
agreement, document or instrument delivered or to be delivered in connection
herewith, each of Parent and Merger Sub acknowledges and agrees that the Company
and its Subsidiaries make no representations, warranties, covenants or
agreements with respect to, and nothing contained in this Agreement or in any
other agreement, document or instrument to be delivered in connection herewith
is intended or shall be construed to be a representation, warranty, covenant or
agreement, express or implied, of the Company or any of its Subsidiaries, for
any purposes of this Agreement (including for purposes of the preparation of the
Estimated Balance Sheet, the Closing Balance Sheet and the Final Closing Balance
Sheet) or any other agreement, document or instrument to be delivered in
connection herewith or therewith, in respect of (i) the adequacy or sufficiency
of the loss, loss adjustment expense and unearned premium reserves of any of the
Insurance Company Subsidiaries to cover the amount of actual expenses, losses or
unearned premium eventually incurred, paid, recognized, realized or otherwise
discharged, or that such reserves held by the Insurance Company Subsidiaries
have been or will be adequate to cover the actual amount of Liabilities in
respect of which they were established or (ii) the collectability of any amounts
under any reinsurance agreement. Furthermore, each of Parent and Merger Sub
acknowledges, understands and agrees that no fact, condition, development or
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the adequacy or sufficiency of such reserves described in clause (i) of the
preceding sentence may be used, directly or indirectly, (1) to demonstrate or
support the breach or violation of any representation, warranty, covenant or
agreement of or by the Company or its Subsidiaries contained in this Agreement
or any other agreement, document or instrument delivered or to be delivered in
connection herewith or (2) for purposes of Section 3.13 hereof.

Company Holders’ Representative.

(a) Each Identified Company Stockholder, by virtue of the adoption of this
Agreement by the Identified Company Stockholder and the execution of its
Stockholder Commitment Letter and each Optionholder, by virtue of its execution
of an Optionholder Commitment Letter, hereby irrevocably constitutes and
appoints, effective from and after the date hereof, Shareholder Representative
Services LLC, as the true and lawful agent and attorney-in-fact of such Company
Holder, as the case may be, to act as the Company Holders’ Representative under
this Agreement in accordance with the terms of this Section 10.16. The Company
Holders’ Representative has been both authorized by each Identified Company
Stockholder (and will be authorized by Optionholder upon its execution of the
Optionholder Commitment Letter), for and on his, her or its behalf and directed
to act (and the Company Holders’ Representative hereby agrees to act), in
accordance with the terms of the SRS Letter Agreement, in each case, to:

(i) take all actions required by, and exercise all rights granted to, the
Company Holders’ Representative in this Agreement and the Related Agreements;

(ii) receive all notices or other documents given or to be given to any Company
Holder by Parent pursuant to this Agreement and the Related Agreements;

(iii) receive and accept service of legal process in connection with any Action
against any Company Holder in their capacity as such arising under this
Agreement or any Related Agreement;

(iv) investigate, defend, contest, compromise or settle any controversy, Action
or indemnity claim hereunder on behalf of any Company Holder arising under this
Agreement or any Related Agreement;

(v) execute and deliver all agreements, certificates and documents required or
deemed appropriate by the Company Holders’ Representative in connection with any
of the transactions contemplated under this Agreement;

(vi) engage special counsel, accountants and other advisors and incur such other
expenses in connection with any of the transactions contemplated under this
Agreement;

(vii) enforce payment of any amounts payable to the Company Holders, on behalf
of the Company Holders, in the name of the Company Holders’ Representative;

 

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(viii) waive or refrain from enforcing any right of the Company Holders and/or
the Company Holders’ Representative arising out of or under or in any manner
relating to this Agreement or any Related Agreement;

(ix) consent to the settlement of any and all disputes in connection with this
Agreement, including with respect to Section 3.13 (including the selection of
the Independent Expert) and the disbursement of the Adjustment Escrow Amount;

(x) take such other action as the Company Holders’ Representative may deem
appropriate, including (A) agreeing to any waiver, modification or amendment of
this Agreement or any Related Agreement, and executing and delivering an
agreement of such waiver, modification or amendment, and (B) all such other
matters as the Company Holders’ Representative may deem necessary or appropriate
to carry out the intents and purposes of this Agreement and the Related
Agreements;

(xi) make adjustments to the Specified Percentage following the Closing pursuant
to Section 3.05(d);

(xii) pay or reimburse itself from the Expense Fund Amount for any reasonable
third party expenses pursuant to this Agreement and the Related Agreements; and

(xiii) to otherwise act in such Person’s name, place, and stead and for its use
and benefit, to prepare, execute, certify, acknowledge, swear to, file, deliver,
or record any and all agreements, instruments or other documents, and to take
any and all actions, that are within the scope and authority of the Company
Holders’ Representative provided for in this Section 10.16.

(b) In the event of the resignation, removal, death or incapacity of the Company
Holders’ Representative, a successor shall thereafter promptly be appointed by
an instrument in writing signed by such successor and the Company Holders
representing a majority of the Specified Percentage of the Company Holders
pursuant to which such successor shall become party to this Agreement as the
Company Holders’ Representative hereunder (including in respect of the
representations and warranties in Section 10.16(c)), and such appointment shall
become effective as to any such successor when a copy of such instrument, in
form and substance reasonably acceptable to Parent, shall have been delivered to
Parent. The Company Holders’ Representative may be removed by action of the
Company Holders representing a majority of the Specified Percentage of the
Company Holders at any time and for any reason upon written notice to Parent.

(c) The Company Holders’ Representative represents and warrants to each other
Party that: (i) it is duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its formation; (ii) it has the requisite
right, limited liability company power, authority and legal capacity to execute,
deliver and perform this Agreement; (iii) the execution, delivery and
performance of this Agreement has been duly and validly authorized by all
necessary action of the Company Holders’ Representative, its managers,
directors, members, or stockholders, as applicable; (iv) this Agreement is a
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Company Holders’ Representative, enforceable against it in accordance with its
terms; and (v) the execution, delivery and performance by the Company Holders’
Representative of this Agreement does not, (x) conflict with the Organizational
Documents of the Company Holders’ Representative or (y) conflict with or result
in the breach of, or constitute a default under any Contract to which the
Company Holders’ Representative is bound.

(d) Parent shall be entitled to rely exclusively upon the communications of the
Company Holders’ Representative relating to the foregoing as the communications
of the Company Holders. Parent (i) need not be concerned with the authority of
the Company Holders’ Representative to act on behalf of all Company Holders
hereunder, and (ii) shall not be held liable or accountable in any manner for
any act or omission of the Company Holders’ Representative in such capacity.
Notwithstanding anything to the contrary herein, except for the payment to be
made to the Company Holders’ Representative at Closing pursuant to
Section 3.06(a)(ix)(5), none of Parent, Merger Sub, the Company or the Surviving
Corporation shall have any Liability to the Company Holders’ Representative in
connection with its appointment and service as the Company Holders’
Representative hereunder.

(e) The grant of authority provided for in this Section 10.16 (i) is coupled
with an interest and is being granted, in part, as an inducement to the Parties
to enter into this Agreement and shall be irrevocable and survive the death,
incompetency, bankruptcy or liquidation of any Company Holder and shall be
binding on any successor thereto, and (ii) shall survive the payment of all or
any portion of the Merger Consideration hereunder and the Escrow Amount.

(f) At the Closing, pursuant to Section 3.06(a)(ix)(5), the Parent shall wire
one million dollars ($1,000,000) (the “Expense Fund Amount”) to the Company
Holders’ Representative, which amount will be used for the purposes of paying
directly, or reimbursing the Company Holders’ Representative for, any reasonable
and documented out-of-pocked third party expenses incurred by the Company
Holders’ Representative in connection with the exercise of its duties and
obligations pursuant to this Agreement or any Related Agreement. The Company
Holders will not receive any interest or earnings on the Expense Fund Amount and
hereby irrevocably transfer and assign to the Company Holders’ Representative
any interest, right or title that they may otherwise have had in any respect of
any such interest or earnings. The Company Holders’ Representative will not be
liable for any loss of principal of the Expense Fund other than as a result of
its bad faith, gross negligence or willful misconduct. The Company Holders’
Representative will hold these funds separate from its corporate funds, will not
use these funds for its operating expenses or any other corporate purposes and
will not make these funds available to its creditors in the event of bankruptcy
other than as required by a non-appealable Order from a Governmental Authority.
Contemporaneous with or as soon as practicable following the completion of the
Company Holders’ Representative’s duties, the Company Holders’ Representative
will deliver the balance of the Expense Fund to the Paying Agent for the benefit
of, and for further distribution to, the Company Holders on a pro rata basis
based on their respective Specified Percentages pursuant to written instructions
of the Company Holders’ Representative; provided that a portion of any such
amount that is subject to employment tax withholding shall be paid to the
Surviving Corporation for payment through the Surviving Corporation’s payroll
system no later than the first regularly scheduled payroll date that is at least
four (4) Business Days following the Surviving Corporation’s receipt of such
funds.

 

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(g) The Company Holders’ Representative will incur no liability of any kind with
respect to any action or omission by the Company Holders’ Representative in
connection with the Company Holders’ Representative’s services pursuant to this
Agreement or any Related Agreement, except in the event of liability resulting
from the Company Holders’ Representative’s bad faith, gross negligence or
willful misconduct. The Company Holders’ Representative shall not be liable for
any action or omission taken based on the written advice of outside counsel. The
Company Holders will indemnify, defend and hold harmless the Company Holders’
Representative from and against any and all losses, liabilities, damages,
claims, penalties, fines, forfeitures, actions, fees, costs and reasonable and
documented out-of-pocket expenses (including the fees and expenses of outside
counsel and experts) (collectively, “Representative Losses”) incurred by the
Company Holders’ Representative arising out of, in connection with or resulting
from the Company Holders’ Representative’s performance of its duties and
obligations pursuant this Agreement or any Related Agreement in each case as
such Representative Loss is suffered or incurred; provided that, in the event
that any such Representative Loss is finally adjudicated to have been caused by
the bad faith, gross negligence or willful misconduct of the Company Holders’
Representative, the Company Holders’ Representative will promptly reimburse the
Company Holders the amount of such indemnified Representative Loss to the extent
attributable to such bad faith, gross negligence or willful misconduct. If not
paid directly to the Company Holders’ Representative by the Company Holders and
subject to the proviso set forth in the prior sentence, any such Representative
Losses may be recovered by the Company Holders’ Representative from (i) the
Expense Fund Amount, and (ii) the funds in the Adjustment Escrow Account and the
Indemnity Escrow Account at such time as the remaining amounts in the Adjustment
Escrow Account or the Indemnity Escrow Account would otherwise be distributable
to the Company Holders pursuant to the terms of this Agreement or the Escrow
Agreement; provided that, while this section permits the Company Holders’
Representative to be paid from the Expense Fund, the Adjustment Escrow Account
and the Indemnity Escrow Account, this does not relieve the Company Holders from
their obligation to promptly pay, in accordance with their Specified
Percentages, such Representative Losses as they are suffered or incurred, nor
does it prevent the Company Holders’ Representative from seeking any remedies
available to it at Law or otherwise. In no event will the Company Holders’
Representative be required to advance its own funds on behalf of the Company
Holders or otherwise. The Company Holders acknowledge and agree that the
foregoing indemnities will survive the resignation or removal of the Company
Holders’ Representative. Notwithstanding anything in this Agreement to the
contrary, any restrictions or limitations on indemnity contained elsewhere in
this Agreement are not intended to be applicable to the indemnities provided to
the Company Holders’ Representative under this Section 10.16 and the terms of
the SRS Letter Agreement.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement, or
caused this Agreement to be executed and delivered by their duly authorized
representatives, as of the date first written above.

 

NATIONAL GENERAL HOLDINGS CORP. By:  

/s/ Barry Karfunkel

Name:   Barry Karfunkel Title:   Chief Executive Officer BLUEBIRD ACQUISITION
CORP. By:  

/s/ Barry Karfunkel

Name:   Barry Karfunkel Title:   President ELARA HOLDINGS, INC. By:  

/s/ J. Todd Hagely

Name:   J. Todd Hagely Title:   EVP & CFO SHAREHOLDER REPRESENTATIVE SERVICES
LLC, solely in its capacity as Company Holders’ Representative By:  

/s/ Sam Riffe

Name:   Sam Riffe Title:   Executive Director

 

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