Document:

ex10-2.htm

Exhibit 10.2

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (this "Agreement"), dated as of October 24, 2012, among the Persons listed on the signature pages hereof as "Grantors" and those additional entities that hereafter become parties hereto by executing the form of Joinder attached hereto as Annex 1 (each, a "Grantor" and collectively, the "Grantors"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), in its capacity as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Agent").

 

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement of even date herewith (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement") by and among PATRICK INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the lenders party thereto as "Lenders" (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a "Lender" and, collectively, the "Lenders"), and Agent, the Lenders have agreed to make certain financial accommodations available to the Borrower from time to time pursuant to the terms and conditions thereof; and

 

WHEREAS, Agent has agreed to act as administrative agent for the benefit of the Lenders in connection with the transactions contemplated by the Credit Agreement and this Agreement; and

 

WHEREAS, in order to induce the Lenders to enter into the Credit Agreement and the other Loan Documents, and to induce the Lenders to make financial accommodations to the Borrower as provided for in the Credit Agreement and the other Loan Documents, Grantors have agreed to grant a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, among other things, the Secured Obligations.

 

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.           Defined Terms. All initially capitalized terms used herein (including in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Credit Agreement.  Any terms (whether capitalized or lower case) used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Credit Agreement; provided, however, that to the extent that the Code is used to define any term used herein and if such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 

(a)           "Account" means an account (as that term is defined in Article 9 of the Code).

 

(b)           "Account Debtor" means an account debtor (as that term is defined in the Code).

 

(c)           "Administrative Agent's Lien" means the Liens granted by the Borrower or its Subsidiary Guarantors to Administrative Agent under the Loan Documents.

 

(d)           "Agent" has the meaning specified therefor in the preamble to this Agreement.

 

(e)           "Agreement" has the meaning specified therefor in the preamble to this Agreement.

 

  

  

  

 

(f)            "Books" means books and records (including each Grantor's Records indicating, summarizing, or evidencing such Grantor's assets (including the Collateral) or liabilities, each Grantor's records relating to such Grantor's business operations or financial condition, and each Grantor's goods or General Intangibles related to such information).

 

(g)           "Borrower" has the meaning specified therefor in the recitals to this Agreement.

 

(h)           "Capital Stock" has the meaning specified therefor in the Credit Agreement.

 

(i)            "Cash Equivalents" has the meaning specified therefor in the Credit Agreement.

 

(j)            "CFC" means a controlled foreign corporation (as that term is defined in the Internal Revenue Code).

 

(k)           "Chattel Paper" means chattel paper (as that term is defined in the Code), and includes tangible chattel paper and electronic chattel paper.

 

(l)            "Code" means the Illinois Uniform Commercial Code, as in effect from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Administrative Agent's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

 

(m)           "Collateral" has the meaning specified therefor in Section 2.

 

(n)           "Commercial Tort Claims" means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims with a value in excess of $250,000 listed on Schedule 1.

 

(o)           "Controlled Account" has the meaning specified therefor in Section 6(k).

 

(p)           "Controlled Account Agreements" means those certain cash management agreements, in form and substance reasonably satisfactory to Agent, each of which is executed and delivered by a Grantor, Agent, and one of the Controlled Account Banks.

 

(q)           "Controlled Account Bank" has the meaning specified therefor in Section 6(k).

 

(r)            "Copyrights" means any and all rights in any works of authorship, including (i) copyrights and moral rights, (ii) copyright registrations and recordings thereof and all applications in connection therewith including those listed on Schedule 2, (iii) income, license fees, royalties, damages, and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (iv) the right to sue for past, present, and future infringements thereof, and  (v) all of each Grantor's rights corresponding thereto throughout the world.

 

(s)           "Copyright Security Agreement" means each Copyright Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit A.

 

(t)           "Credit Agreement" has the meaning specified therefor in the recitals to this Agreement.

 

(u)           "Deposit Account" means a deposit account (as that term is defined in the Code).

 

  

-2-

  

 

(v)           "Equipment" means equipment (as that term is defined in the Code).

 

(w)           "Event of Default" has the meaning specified therefor in the Credit Agreement.

 

(x)           "Fixtures" means fixtures (as that term is defined in the Code).

 

(y)           "General Intangibles" means general intangibles (as that term is defined in the Code), and includes payment intangibles, contract rights, rights to payment, rights under Hedge Agreements (including the right to receive payment on account of the termination (voluntarily or involuntarily) of any such Hedge Agreements), rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Intellectual Property, Intellectual Property Licenses, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the Code, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.

 

(z)           "Grantor" and "Grantors" have the respective meanings specified therefor in the preamble to this Agreement.

 

(aa)         "Insolvency Proceeding" has the meaning specified therefor in the Credit Agreement.

 

(bb)         "Intellectual Property" means any and all Patents, Copyrights, Trademarks, trade secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including source code and object code), processes, product designs, industrial designs, blueprints, drawings, data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs, literature, and any other forms of technology or proprietary information of any kind, including all rights therein and all applications for registration or registrations thereof.

 

(cc)         "Intellectual Property Licenses" means, with respect to any Person (the "Specified Party"), (i) any licenses or other similar rights provided to the Specified Party in or with respect to Intellectual Property owned or controlled by any other Person, and (ii) any licenses or other similar rights provided to any other Person in or with respect to Intellectual Property owned or controlled by the Specified Party, in each case, including (A) any software license agreements (other than license agreements for commercially available off-the-shelf software that is generally available to the public which have been licensed to a Grantor pursuant to end-user licenses), (B) the license agreements listed on Schedule 3, and (C) the right to use any of the licenses or other similar rights described in this definition in connection with the enforcement of the Lenders' rights under the Loan Documents.

 

(dd)        "Internal Revenue Code" means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, each as amended or modified from time to time.

 

(ee)         "Inventory" means inventory (as that term is defined in the Code).

 

(ff)          "Investment Related Property" means (i) any and all investment property (as that term is defined in the Code), and (ii) any and all of the following (regardless of whether classified as investment property under the Code):  all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.

 

(gg)           "Joinder" means each Joinder to this Agreement executed and delivered by Agent and each of the other parties listed on the signature pages thereto, in substantially the form of Annex 1.

 

  

-3-

  

 

(hh)        "Lender" and "Lenders" have the respective meanings specified therefor in the Credit Agreement.

 

(ii)           "Loan Document" has the meaning specified therefor in the Credit Agreement.

 

(jj)           "Negotiable Collateral" means letters of credit, letter-of-credit rights, instruments, promissory notes, drafts and documents (as each such term is defined in the Code).

 

(kk)         "Obligations" has the meaning specified therefor in the Credit Agreement.

 

(ll)           "Patents" means patents and patent applications, including (i) the patents and patent applications listed on Schedule 4, (ii) all continuations, divisionals, continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (iv) the right to sue for past, present, and future infringements thereof, and (v) all of each Grantor's rights corresponding thereto throughout the world.

 

(mm)       "Patent Security Agreement" means each Patent Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit B.

 

(nn)        "Permitted Liens" has the meaning specified therefor in the Credit Agreement.

 

(oo)        "Person" has the meaning specified therefor in the Credit Agreement.

 

(pp)        "Pledged Companies" means each Person listed on Schedule 6 as a "Pledged Company", together with each other Person, all or a portion of whose Capital Stock is acquired or otherwise owned by a Grantor after the Closing Date.

 

(qq)        "Pledged Interests" means, subject to the last paragraph of Section 2 hereof, all of each Grantor's right, title and interest in and to all of the Capital Stock now owned or hereafter acquired by such Grantor, regardless of class or designation, including in each of the Pledged Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, also including any certificates representing the Capital Stock, the right to receive any certificates representing any of the Capital Stock, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and the right to receive all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and all cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.

 

(rr)          "Pledged Interests Addendum" means a Pledged Interests Addendum substantially in the form of Exhibit C.

 

(ss)         "Pledged Notes" has the meaning specified therefor in Section 5(i).

 

(tt)          "Pledged Operating Agreements" means all of each Grantor's rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies.

 

(uu)        "Pledged Partnership Agreements" means all of each Grantor's rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships.

 

(vv)        "Proceeds" has the meaning specified therefor in Section 2.

 

  

-4-

  

 

(ww)       "PTO" means the United States Patent and Trademark Office.

 

(xx)          "Real Property" means any estates or interests in real property now owned or hereafter acquired by any Grantor or any Subsidiary of any Grantor and the improvements thereto.

 

(yy)         "Records" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

 

(zz)           "Secured Obligations" means each and all of the following: (a) all of the present and future obligations of each of the Grantors arising from, relating to, owing under or pursuant to, this Agreement, the Credit Agreement, or any of the other Loan Documents (including any Subsidiary Guaranty Agreement), (b) all Secured Obligations as defined in the Credit Agreement, and (c) all other Obligations of the Borrower (including, in the case of each of clauses (a), (b) and (c), reasonable attorneys fees and expenses and any interest, fees, or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding).

 

(aaa)       "Securities Account" means a securities account (as that term is defined in the Code).

 

(bbb)      "Security Interest" has the meaning specified therefor in Section 2.

 

(ccc)       "Subsidiary Guaranty Agreement" has the meaning specified therefor in the Credit Agreement.

 

(ddd)      "Supporting Obligations" means supporting obligations (as such term is defined in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments or Investment Related Property.

 

(eee)           "Trademarks" means any and all trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including (i) the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 5, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof, (v) the goodwill of each Grantor's business symbolized by the foregoing or connected therewith, and (vi) all of each Grantor's rights corresponding thereto throughout the world.

 

(fff)         "Trademark Security Agreement" means each Trademark Security Agreement executed and delivered by Grantors, or any of them, and Agent, in substantially the form of Exhibit D.

 

(ggg)      "URL" means "uniform resource locator," an internet web address.

 

2.           Grant of Security.  Each Grantor hereby unconditionally grants, assigns, and pledges to Agent, for the benefit of each of the Lenders, to secure the Secured Obligations, a continuing security interest (hereinafter referred to as the "Security Interest") in all of such Grantor's right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the "Collateral"):

 

(a)           all of such Grantor's Accounts;

 

(b)           all of such Grantor's Books;

 

(c)           all of such Grantor's Chattel Paper;

 

  

-5-

  

 

(d)           all of such Grantor's Deposit Accounts;

 

(e)           all of such Grantor's Equipment and Fixtures;

 

(f)            all of such Grantor's General Intangibles;

 

(g)           all of such Grantor's Inventory;

 

(h)           all of such Grantor's Investment Related Property;

 

(i)            all of such Grantor's Negotiable Collateral;

 

(j)            all of such Grantor's Supporting Obligations;

 

(k)           all of such Grantor's Commercial Tort Claims;

 

(l)            all of such Grantor's money, Cash Equivalents, or other assets of such Grantor that now or hereafter come into the possession, custody, or control of Agent (or its agent or designee) or any other Lender;

 

(m)           all of such Grantor's other personal property; and

 

(n)           all of the proceeds (as such term is defined in the Code) and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing (the "Proceeds").  Without limiting the generality of the foregoing, the term "Proceeds" includes whatever is receivable or received when Investment Related Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Agent from time to time with respect to any of the Investment Related Property.

 

Notwithstanding anything contained in this Agreement to the contrary, the term "Collateral" shall not include: (i) voting Stock of any CFC, solely to the extent that (y) such Stock represents more than 65% of the outstanding voting Stock of such CFC, and (z) pledging or hypothecating more than 65% of the total outstanding voting Stock of such CFC would result in material adverse tax consequences; (ii) any rights or interest in any contract, lease, permit, license, or license agreement covering real or personal property of any Grantor if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect thereto, the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contract, lease, permit, license, or license agreement and such prohibition or restriction has not been waived or the consent of the other party to such contract, lease, permit, license, or license agreement has not been obtained (provided, that, (A) the foregoing exclusions of this clause (ii) shall in no way be construed (1) to apply to the extent that any described prohibition or restriction is unenforceable under Section 9-406, 9-407, 9-408, or 9-409 of the Code or other applicable law, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Agent's security interest or lien notwithstanding the prohibition or restriction on the pledge of such contract, lease, permit, license, or license agreement and (B) the foregoing exclusions of clauses (i) and (ii) shall in no way be construed to limit, impair, or otherwise affect any of Agent's, any other Lender's continuing security interests in and liens upon any rights or interests of any Grantor in or to (1) monies due or to become due under or in connection with any described contract, lease, permit, license, license agreement, or Stock (including any Accounts or Stock), or (2) any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, license agreement, or Stock); (iii) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law, provided that upon submission and acceptance by the PTO of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall be considered Collateral, or (iv) Equipment or other assets or any proceeds thereof owned by any Grantor on the date hereof or hereafter acquired that is subject to a Permitted Lien which is a permitted purchase money Lien or the interest of a lessor under a Capital Lease if the contract or other agreement in which such Permitted Lien is granted (or the documentation providing for such Indebtedness in respect of purchase money financing) prohibits the creation of any other Lien on such Equipment, other assets or proceeds.

 

  

-6-

  

 

3.           Security for Secured Obligations.  The Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lenders or any of them, but for the fact that they are unenforceable or not allowable (in whole or in part) as a claim in an Insolvency Proceeding involving any Grantor due to the existence of such Insolvency Proceeding.

 

4.           Grantors Remain Liable.  Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, including the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Agent or any other Lender of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) none of the Lenders shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any of the Lenders be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Credit Agreement, or any other Loan Document, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and of the Credit Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including all voting, consensual, dividend, and distribution rights, shall remain in the applicable Grantor until (i) the occurrence and continuance of an Event of Default and (ii) Agent has notified the applicable Grantor of Agent's election to exercise such rights with respect to Pledged Interests pursuant to Section 15.

 

  

-7-

  

 

5.           Representations and Warranties.  Each Grantor hereby represents and warrants to Agent, for the benefit of the Lenders, which representations and warranties shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

 

(a)           The exact legal name of each of the Grantors is set forth on the signature pages of this Agreement or a written notice provided to Agent.

 

(b)           Schedule 7 sets forth all Real Property owned by any of the Grantors as of the Closing Date.

 

(c)           As of the Closing Date: (i) Schedule 2 provides a complete and correct list of all registered Copyrights owned by any Grantor and all applications for registration of Copyrights owned by any Grantor,; (ii) Schedule 3 provides a complete and correct list of all Intellectual Property Licenses entered into by any Grantor pursuant to which (A) any Grantor has provided any license or other rights in Intellectual Property owned or controlled by such Grantor to any other Person or (B) any Person has granted to any Grantor any license or other rights in registered Intellectual Property owned or controlled by such Person that is material to the business of such Grantor, including any Intellectual Property that is incorporated in any Inventory, software, or other product marketed, sold, licensed, or distributed by such Grantor; (iii) Schedule 4 provides a complete and correct list of all registered Patents owned by any Grantor and all applications for Patents owned by any Grantor; and (iv) Schedule 5 provides a complete and correct list of all registered Trademarks owned by any Grantor and all applications for registration of Trademarks owned by any Grantor.

 

(d)           (i) (A) each Grantor owns exclusively or holds licenses in all Intellectual Property that is necessary to the conduct of its business, and (B) all employees and contractors of each Grantor who were involved in the creation or development of any material Intellectual Property for such Grantor that is necessary to the business of such Grantor have signed agreements containing assignment of Intellectual Property rights to such Grantor and obligations of confidentiality;

 

(ii)         to each Grantor's knowledge, no Person has infringed or misappropriated or is currently infringing or misappropriating any Intellectual Property rights owned by such Grantor, in each case, that either individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect;

 

(iii)         (A) to each Grantor's knowledge, (1) such Grantor has never infringed or misappropriated in the last five (5) years and is not currently infringing or misappropriating any Intellectual Property rights of any Person, and (2) no product manufactured, used, distributed, licensed, or sold by or service provided by such Grantor has ever infringed or misappropriated in the last five (5) years or is currently infringing or misappropriating any Intellectual Property rights of any Person, in each case, except where such infringement either individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect, and (B) there are no pending, or to any Grantor's knowledge, threatened infringement or misappropriation claims or proceedings pending against any Grantor, and no Grantor has received any notice or other communication of any actual or alleged infringement or misappropriation of any Intellectual Property rights of any Person, in each case, except where such infringement either individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect;

 

(iv)         to each Grantor's knowledge, all registered Copyrights, registered Trademarks, and issued Patents that are owned by such Grantor and necessary in to the conduct of its business are valid, subsisting and enforceable and in compliance with all legal requirements, filings, and payments and other actions that are required to maintain such Intellectual Property in full force and effect; and

 

(v)          each Grantor has taken commercially reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all trade secrets owned by such Grantor that are necessary in the business of such Grantor;

 

  

-8-

  

 

(e)           This Agreement creates a valid security interest in the Collateral of each Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations.  Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of financing statements listing each applicable Grantor, as a debtor, and Agent, as secured party, in the jurisdictions listed next to such Grantor's name on Schedule 8.  Upon the making of such filings, Agent shall have a first priority perfected security interest in the Collateral of each Grantor to the extent such security interest can be perfected by the filing of a financing statement.  Upon filing of the Copyright Security Agreement with the United States Copyright Office, filing of the Patent Security Agreement and the Trademark Security Agreement with the PTO, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 8, all action necessary or desirable to protect and perfect the Security Interest in and to on each Grantor's Patents, Trademarks, or Copyrights has been taken and such perfected Security Interest is enforceable as such as against any and all creditors of and purchasers from any Grantor, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally.  All action by any Grantor necessary to protect and perfect such security interest on each item of Collateral (to the extent perfection is required hereby) has been duly taken or will be taken substantially contemporaneously with the Closing Date.

 

(f)            (i) Except for the Security Interest created hereby, each Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 6 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests owned by such Grantor are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Stock of the Pledged Companies of such Grantor identified on Schedule 6 as supplemented or modified by any Pledged Interests Addendum or any Joinder to this Agreement; (iii) such Grantor has the right and requisite authority to pledge, the Investment Related Property pledged by such Grantor to Agent as provided herein; (iv) all actions necessary to perfect and establish the first priority of Administrative Agent's Liens in the Investment Related Property, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; (B) the taking of possession by Agent (or its agent or designee) of any certificates representing the Pledged Interests, together with undated powers (or other documents of transfer reasonably acceptable to Agent) endorsed in blank by the applicable Grantor; (C) the filing of financing statements in the applicable jurisdiction set forth on Schedule 8 for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts, the delivery of Controlled Account Agreements with respect thereto; and (v) each Grantor has delivered to and deposited with Agent all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers (or other documents of transfer reasonably acceptable to Agent) endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject.

 

(g)           No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement with respect to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally.  No Intellectual Property License of any Grantor that is necessary to the conduct of such Grantor's business requires any consent of any other Person in order for such Grantor to grant the security interest granted hereunder in such Grantor's right, title or interest in or to such Intellectual Property License.

 

(h)           [Intentionally Omitted].

 

  

-9-

  

 

(i)            There is no default, breach, violation, or event of acceleration existing under any promissory note (as defined in the Code) constituting Collateral and pledged hereunder (each a "Pledged Note") and no event has occurred or circumstance exists which, with the passage of time or the giving of notice, or both, would constitute a default, breach, violation, or event of acceleration under any Pledged Note.  No Grantor that is an obligee under a Pledged Note has waived any default, breach, violation, or event of acceleration under such Pledged Note.

 

(j)            As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents and warrants that the Pledged Interests issued pursuant to such agreement (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by such Grantor in a securities account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

 

6.           Covenants.  Each Grantor, jointly and severally, covenants and agrees with Agent that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 22:

 

(a)           Possession of Collateral.  In the event that any Collateral, including Proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, in each case, having an aggregate value or face amount of $100,000 or more for all such Negotiable Collateral, Investment Related Property, or Chattel Paper, the Grantors shall promptly (and in any event within two (2) Business Days after receipt thereof (or such longer period as Agent in its Permitted Discretion may agree)), notify Agent thereof, and if and to the extent that perfection or priority of Agent's Security Interest is dependent on or enhanced by possession, the applicable Grantor, promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree)) after request by Agent, shall execute such other documents and instruments as shall be reasonably requested by Agent or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to Agent, together with such undated powers (or other relevant document of transfer reasonably acceptable to Agent) endorsed in blank as shall be reasonably requested by Agent, and shall do such other acts or things deemed reasonably necessary by Agent to protect Agent's Security Interest therein;

 

(b)           Chattel Paper.

 

(i)         Promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree)) after request by Agent, each Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel Paper in accordance with the Code and all "transferable records" as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that the aggregate value or face amount of such electronic Chattel Paper equals or exceeds $100,000;

 

(ii)        If any Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Credit Agreement), promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree)) upon the request of Agent, such Chattel Paper and instruments shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Wells Fargo Bank, National Association, as Agent for the benefit of the Lenders ";

 

  

-10-

  

 

(c)            Controlled Account Agreements.

 

(i)         Except to the extent otherwise permitted by Section 6(c)(iv) hereof, each Grantor shall obtain an authenticated Controlled Account Agreement (which may include a Controlled Account Agreement), from each bank maintaining a Deposit Account for such Grantor;

 

(ii)        Except to the extent otherwise permitted by Section 6(c)(iv) hereof, each Grantor shall obtain an authenticated Controlled Account Agreement, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor;

 

(iii)       Except to the extent otherwise permitted by Section 6(c)(iv) hereof, each Grantor shall obtain an authenticated Controlled Account Agreement with respect to all of such Grantor's investment property;

 

(iv)       Grantors covenant and agree that, until termination of all of the Commitments and payment in full of the Obligations, the Grantors will not and will not permit any of their Subsidiaries to make, acquire, or permit to exist any to Deposit Accounts or Securities Accounts unless Grantors or their Subsidiaries, as applicable, and the applicable bank or securities intermediary have entered into Controlled Account Agreements with Agent governing such Deposit Accounts or Securities Accounts in order to perfect (and further establish) Administrative Agent's Liens in such Deposit Accounts or Securities Accounts other than (1) amounts deposited into Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the Grantors or their Subsidiaries' employees, (2) an aggregate amount of not more than $250,000 (calculated at current exchange rates) at any one time, in the case of Subsidiaries of the Grantors that are CFCs, and (3) an aggregate amount of not more than $100,000 at any one time, in the case of the Grantors and their Subsidiaries (other than those Subsidiaries that are CFCs).  Except as provided in Section 6.11(c)(iv)(1) through (3), the Grantors shall not and shall not permit their Subsidiaries to establish or maintain any Deposit Account or Securities Account unless Agent shall have received a Controlled Account Agreement in respect of such Deposit Account or Securities Account.

 

(d)           Letter-of-Credit Rights.  If the Grantors (or any of them) are or become the beneficiary of letters of credit having a face amount or value of $100,000 or more in the aggregate, then the applicable Grantor or Grantors shall promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree) after becoming a beneficiary), notify Agent thereof and, promptly (and in any event within two (2) Business Days) after request by Agent, enter into a tri-party agreement with Agent and the issuer or confirming bank with respect to letter-of-credit rights assigning such letter-of-credit rights to Agent and directing all payments thereunder to Agent's Account, all in form and substance reasonably satisfactory to Agent;

 

(e)            Commercial Tort Claims.  If the Grantors (or any of them) have an interest in or obtain Commercial Tort Claims having a value, or involving an asserted claim, in the amount of $250,000 or more in the aggregate for all Commercial Tort Claims, then the applicable Grantor or Grantors shall promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree) of obtaining such Commercial Tort Claim), notify Agent upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree)) after request by Agent, amend Schedule 1 to describe such Commercial Tort Claims in a manner that reasonably identifies such Commercial Tort Claims and which is otherwise reasonably satisfactory to Agent, and hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by Agent to give Agent a first priority, perfected security interest in any such Commercial Tort Claim;

 

  

-11-

  

 

(f)            Government Contracts.  Other than Accounts and Chattel Paper the aggregate value of which does not at any one time exceed $50,000, if any Account or Chattel Paper arises out of a contract or contracts with the United States of America or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within two (2) Business Days of the creation thereof) notify Agent thereof and, promptly (and in any event within two (2) Business Days) after request by Agent, execute any instruments or take any steps reasonably required by Agent in order that all moneys due or to become due under such contract or contracts shall be assigned to Agent, for the benefit of the Lenders, and shall provide written notice thereof under the Assignment of Claims Act or other applicable law;

 

(g)           Intellectual Property.

 

(i)         Upon the request of Agent, in order to facilitate filings with the United States Patent and Trademark Office and the United States Copyright Office, each Grantor shall execute and deliver to Agent one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to further evidence Administrative Agent's Lien on such Grantor's Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;

 

(ii)        Each Grantor shall have the duty, with respect to Intellectual Property that is necessary in the conduct of such Grantor's business, to protect and diligently enforce and defend at such Grantor's expense its Intellectual Property, including (A) to diligently enforce and defend, including promptly suing for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation, or dilution, and filing for opposition, interference, and cancellation against conflicting Intellectual Property rights of any Person, (B) to prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement, (D) to take all reasonable and necessary action to preserve and maintain all of such Grantor's Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights therein, including paying all maintenance fees and filing of applications for renewal, affidavits of use, and affidavits of noncontestability, and (E) to require all employees, consultants, and contractors of each Grantor who were involved in the creation or development of such Intellectual Property to sign agreements containing assignment of Intellectual Property rights and obligations of confidentiality.  Each Grantor further agrees not to abandon any Intellectual Property or Intellectual Property License that is necessary in the conduct of such Grantor's business.  Each Grantor hereby agrees to take the steps described in this Section 6(g)(ii) with respect to all new or acquired Intellectual Property to which it or any of its Subsidiaries is now or later becomes entitled that is necessary in the conduct of such Grantor's business;

 

(iii)       Grantors acknowledge and agree that the Lenders shall have no duties with respect to any Intellectual Property or Intellectual Property Licenses of any Grantor.  Without limiting the generality of this Section 6(g)(iii), Grantors acknowledge and agree that no Lender shall be under any obligation to take any steps necessary to preserve rights in the Collateral consisting of Intellectual Property or Intellectual Property Licenses against any other Person, but any Lender may do so at its option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of the Borrower and shall be chargeable to the Loan Account;

 

(iv)       [Intentionally omitted];

 

(v)        [Intentionally omitted];

 

  

-12-

  

 

(vi)       On each date on which a Compliance Certificate is delivered by the Borrower pursuant to Section 8.2 of the Credit Agreement, each Grantor shall provide Agent with a written report of all new Patents or Trademarks that are registered or the subject of pending applications for registrations, and of all Intellectual Property Licenses that are material to the conduct of such Grantor's business, in each case, which were acquired, registered, or for which applications for registration were filed by any Grantor during the prior period and any statement of use or amendment to allege use with respect to intent-to-use trademark applications.  In the case of such registrations or applications therefor, which were acquired by any Grantor, each such Grantor shall file the necessary documents with the appropriate Governmental Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the case) of such Intellectual Property.  In each of the foregoing cases, the applicable Grantor shall promptly cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such Patent and Trademark registrations and applications therefor (with the exception of Trademark applications filed on an intent-to-use basis for which no statement of use or amendment to allege use has been filed) and Intellectual Property Licenses as being subject to the security interests created thereunder;

 

(vii)      On each date on which a Compliance Certificate is delivered by the Borrower pursuant to Section 8.2 of the Credit Agreement, each Grantor shall provide Agent with a written report of all new Copyrights that are registered or the subject of pending applications for registration with the United States Copyright Office which were acquired, registered, or for which applications for registration were filed by any Grantor during the prior period.  In the case of such registrations or applications therefor, which were acquired by any Grantor, each such Grantor shall file the necessary documents with the appropriate Governmental Authority identifying the applicable Grantor as the owner (or as a co-owner thereof, if such is the case) of such Copyright.  The applicable Grantor shall promptly cause to be prepared, executed and delivered to Administrative Agent supplemental schedules to the Applicable Loan Documents to identify such Copyright registrations and applications therefor as being subject to the security interests created thereunder .

 

(viii)     Each Grantor shall take commercially reasonable steps to maintain the confidentiality of, and otherwise protect and enforce its rights in, the Intellectual Property that is necessary in the conduct of such Grantor's business, including, as applicable (A) protecting the secrecy and confidentiality of its confidential information and trade secrets by having and enforcing a policy requiring all current employees, consultants, licensees, vendors and contractors with access to such information to execute appropriate confidentiality agreements; (B) taking actions reasonably necessary to ensure that no trade secret falls into the public domain; and (C) protecting the secrecy and confidentiality of the source code of all software programs and applications of which it is the owner or licensee by having and enforcing a policy requiring any licensees (or sublicensees) of such source code to enter into license agreements with commercially reasonable use and non-disclosure restrictions;

 

(ix)        [Intentionally omitted]; and

 

(x)         No Grantor shall enter into any material Intellectual Property License to receive any license or rights in any Intellectual Property of any other Person unless such Grantor has used commercially reasonable efforts to permit the assignment of or grant of a security interest in such Intellectual Property License (and all rights of Grantor thereunder) to the (and any transferees of Agent).

 

(h)           Investment Related Property.

 

(i)         If any Grantor shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the Closing Date, it shall promptly (and in any event within two (2) Business Days (or such longer period as Agent in its Permitted Discretion may agree) of acquiring or obtaining such Collateral) deliver to Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests;

 

(ii)        Upon the occurrence and during the continuance of an Event of Default, following the request of Agent, all sums of money and property paid or distributed in respect of the Investment Related Property that are received by any Grantor shall be held by the Grantors in trust for the benefit of Agent segregated from such Grantor's other property, and such Grantor shall deliver it forthwith to Agent in the exact form received;

 

  

-13-

  

 

(iii)       Each Grantor shall promptly deliver to Agent a copy of each material notice or other material communication received by it in respect of any Pledged Interests;

 

(iv)       No Grantor shall make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to the Loan Documents;

 

(v)        Each Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law to effect the perfection of the Security Interest on the Investment Related Property or to effect any sale or transfer thereof;

 

(vi)       As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by such Grantor in a securities account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

 

(i)             Real Property; Fixtures.  Each Grantor covenants and agrees that upon the acquisition of any fee interest in Real Property it will promptly (and in any event within two (2) Business Days of acquisition) notify Agent of the acquisition of such Real Property and will grant to Agent, for the benefit of the Lenders, a first priority Mortgage on each fee interest in Real Property with a fair market value of at least $250,000 now or hereafter owned by such Grantor and shall deliver such other documentation and opinions, in form and substance satisfactory to Agent, in connection with the grant of such Mortgage as Agent shall reasonably request in its Permitted Discretion, including title insurance policies, financing statements, fixture filings and environmental audits and such Grantor shall pay all recording costs, intangible taxes and other fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.  Each Grantor acknowledges and agrees that, to the extent permitted by applicable law, all of the Collateral shall remain personal property regardless of the manner of its attachment or affixation to real property;

 

(j)             Transfers and Other Liens.  Grantors shall not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as expressly permitted by the Credit Agreement, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral of any Grantor, except for Permitted Liens.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agent's consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Loan Documents;

 

(k)            Controlled Accounts.

 

(i)         Each Grantor shall (A) establish and maintain cash management services of a type and on terms reasonably satisfactory to Agent at one or more of the banks set forth on Schedule 6(k) (each a "Controlled Account Bank"), and shall take reasonable steps to ensure that all of its and its Subsidiaries' Account Debtors forward payment of the amounts owed by them directly to such Controlled Account Bank, and (B) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all of their collections (including those sent directly by their Account Debtors to a Grantor) into a bank account of such Grantor (each, a "Controlled Account") at one of the Controlled Account Banks.

 

  

-14-

  

 

(ii)        Each Grantor shall establish and maintain Controlled Account Agreements with Agent and the applicable Controlled Account Bank, in form and substance reasonably acceptable to Agent.  Each such Controlled Account Agreement shall provide, among other things, that (A) the Controlled Account Bank will comply with any instructions originated by Agent directing the disposition of the funds in such Controlled Account without further consent by the applicable Grantor, (B) the Controlled Account Bank waives any rights of setoff or recoupment or any other claim against the applicable Controlled Account other than for payment of its service fees and other charges directly related to the administration of such Controlled Account and for returned checks or other items of payment, and (C) the Controlled Account Bank will forward, by daily sweep, all amounts in the applicable Controlled Account to the Agent's Account.

 

(iii)       So long as no Default or Event of Default has occurred and is continuing, the Borrower may amend Schedule 6(k) to add or replace a Controlled Account Bank or Controlled Account; provided, however, that (A) such prospective Controlled Account Bank shall be reasonably satisfactory to Agent, and (B) prior to the time of the opening of such Controlled Account, the applicable Grantor and such prospective Controlled Account Bank shall have executed and delivered to Agent a Controlled Account Agreement.  Each Grantor shall close any of its Controlled Accounts (and establish replacement Controlled Account accounts in accordance with the foregoing sentence) as promptly as practicable and in any event within forty-five (45) days of notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Controlled Account Bank with respect to Controlled Account Accounts or Agent's liability under any Controlled Account Agreement with such Controlled Account Bank is no longer acceptable in Agent's reasonable judgment;

 

(l)             [Intentionally Omitted]

 

(m)           Pledged Notes.   Grantors (i) without the prior written consent of Agent, will not (A) waive or release any obligation of any Person that is obligated under any of the Pledged Notes, (B) take or omit to take any action or knowingly suffer or permit any action to be omitted or taken, the taking or omission of which would result in any right of offset against sums payable under the Pledged Notes, or (C) other than Permitted Dispositions, assign or surrender their rights and interests under any of the Pledged Notes or terminate, cancel, modify, change, supplement or amend the Pledged Notes, and (ii) shall provide to Agent copies of all material written notices (including notices of default) given or received with respect to the Pledged Notes promptly after giving or receiving such notice.

 

7.           Relation to Other Security Documents.  The provisions of this Agreement shall be read and construed with the other Loan Documents referred to below in the manner so indicated.

 

(a)            Credit Agreement. In the event of any conflict between any provision in this Agreement and a provision in the Credit Agreement, such provision of the Credit Agreement shall control.

 

(b)            Patent, Trademark, Copyright Security Agreements.  The provisions of the Copyright Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements, Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or remedies of Agent hereunder.  In the event of any conflict between any provision in this Agreement and a provision in a Copyright Security Agreement, Trademark Security Agreement or Patent Security Agreement, such provision of this Agreement shall control.

 

  

-15-

  

 

8.           Further Assurances.

 

(a)           Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that Agent may reasonably request, in order to perfect and protect the Security Interest granted hereby, to create, perfect or protect the Security Interest purported to be granted hereby or to enable Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

 

(b)           Each Grantor authorizes the filing by Agent of financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to Agent such other instruments or notices, as Agent may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.

 

(c)           Each Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments (i) describing the Collateral as "all personal property of debtor" or "all assets of debtor" or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance.  Each Grantor also hereby ratifies any and all financing statements or amendments previously filed by Agent in any jurisdiction.

 

(d)           Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Agent, subject to such Grantor's rights under Section 9-509(d)(2) of the Code.

 

9.           Agent's Right to Perform Contracts, Exercise Rights, etc.  Upon the occurrence and during the continuance of an Event of Default, Agent (or its designee) (a) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully as such Grantor itself could, (b) shall have the right to use any Grantor's rights under Intellectual Property Licenses in connection with the enforcement of Agent's rights hereunder, including the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses, and (c) shall have the right to request that any Stock that is pledged hereunder be registered in the name of Agent or any of its nominees.

 

10.          Agent Appointed Attorney-in-Fact.  Each Grantor hereby irrevocably appoints Agent its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to take any action and to execute any instrument which Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including:

 

(a)           to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any other Collateral of such Grantor;

 

(b)           to receive and open all mail addressed to such Grantor and to notify postal authorities to change the address for the delivery of mail to such Grantor to that of Agent;

 

(c)           to receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper;

 

(d)           to file any claims or take any action or institute any proceedings which Agent may deem necessary or desirable for the collection of any of the Collateral of such Grantor or otherwise to enforce the rights of Agent with respect to any of the Collateral;

 

  

-16-

  

 

(e)           to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor;

 

(f)           to use any Intellectual Property or Intellectual Property Licenses of such Grantor, including but not limited to any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in preparing for sale, advertising for sale, or selling Inventory or other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor; and

 

(g)           Agent, on behalf of the Lenders, shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property and Intellectual Property Licenses and, if Agent shall commence any such suit, the appropriate Grantor shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents reasonably required by Agent in aid of such enforcement.

 

To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated.

 

11.          Agent May Perform.  If any Grantor fails to perform any agreement contained herein, Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of Agent incurred in connection therewith shall be payable, jointly and severally, by Grantors.

 

12.          Agent's Duties.  The powers conferred on Agent hereunder are solely to protect Agent's interest in the Collateral, for the benefit of the Lenders, and shall not impose any duty upon Agent to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Agent accords its own property.

 

13.          Collection of Accounts, General Intangibles and Negotiable Collateral.  At any time upon the occurrence and during the continuance of an Event of Default, Agent or Agent's designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral of such Grantor have been assigned to Agent, for the benefit of the Lenders, or that Agent has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral of any Grantor directly, and any collection costs and expenses shall constitute part of such Grantor's Secured Obligations under the Loan Documents.

 

14.          Disposition of Pledged Interests by Agent.  None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal or state securities laws of the United States and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration.  Each Grantor understands that in connection with such disposition, Agent may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal and state securities laws and sold on the open market.  Each Grantor, therefore, agrees that:  (a) if Agent shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, Agent shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.

 

  

-17-

  

 

15.          Voting and Other Rights in Respect of Pledged Interests.

 

(a)           Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at its option, and with two (2) Business Days prior written notice to any Grantor, and in addition to all rights and remedies available to Agent under any other agreement, at law, in equity, or otherwise, exercise all voting rights, or any other ownership or consensual rights (including any dividend or distribution rights) in respect of the Pledged Interests owned by such Grantor, but under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights, and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, each Grantor hereby appoints Agent, such Grantor's true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or members, as the case may be.  The power-of-attorney and proxy granted hereby is coupled with an interest and shall be irrevocable.

 

(b)           For so long as any Grantor shall have the right to vote the Pledged Interests owned by it, such Grantor covenants and agrees that it will not, without the prior written consent of Agent, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of Agent, the other Lenders, or the value of the Pledged Interests.

 

16.          Remedies.  Upon the occurrence and during the continuance of an Event of Default:

 

(a)           Agent may, and, at the instruction of the Required Lenders, shall exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.  Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, Agent without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and make it available to Agent at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Agent's offices or elsewhere, for cash, on credit, and upon such other terms as Agent may deem commercially reasonable.  Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to the applicable Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable "authenticated notification of disposition" within the meaning of Section 9-611 of the Code.  Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.  Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  Each Grantor agrees that the internet shall constitute a "place" for purposes of Section 9-610(b) of the Code.  Each Grantor agrees that any sale of Collateral to a licensor pursuant to the terms of a license agreement between such licensor and a Grantor is sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and time) within the meaning of Section 9-610 of the Code.

 

(b)           Agent is hereby granted a license or other right to use, without liability for royalties or any other charge, each Grantor's Intellectual Property, including but not limited to, any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, and advertising matter, whether owned by any Grantor or with respect to which any Grantor has rights under license, sublicense, or other agreements (including any Intellectual Property License), as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor's rights under all licenses and all franchise agreements shall inure to the benefit of Agent.

 

  

-18-

  

 

(c)          Agent may, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it under applicable law and without the requirement of notice to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), (i) with respect to any Grantor's Deposit Accounts in which Agent's Liens are perfected by control under Section 9-104 of the Code, instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of such Deposit Account to or for the benefit of Agent, and (ii) with respect to any Grantor's Securities Accounts in which Agent's Liens are perfected by control under Section 9-106 of the Code, instruct the securities intermediary maintaining such Securities Account for the applicable Grantor to (A) transfer any cash in such Securities Account to or for the benefit of Agent, or (B)  liquidate any financial assets in such Securities Account that are customarily sold on a recognized market and transfer the cash proceeds thereof to or for the benefit of Agent.

 

(d)           Any cash held by Agent as Collateral and all cash proceeds received by Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Credit Agreement.   In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such deficiency.

 

(e)           Each Grantor hereby acknowledges that the Secured Obligations arise out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing Agent shall have the right to an immediate writ of possession without notice of a hearing.  Agent shall have the right to the appointment of a receiver for the properties and assets of each Grantor, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantor may have thereto or the right to have a bond or other security posted by Agent.

 

17.          Remedies Cumulative.  Each right, power, and remedy of Agent or any other Lender as provided for in this Agreement, the other Loan Documents now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement, the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Agent, any other Lender, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Agent or such other Lender of any or all such other rights, powers, or remedies.

 

18.          Marshaling. Agent shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Agent's rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

19.          Indemnity and Expenses.

 

(a)           Each Grantor agrees to indemnify Agent and the other Lenders from and against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement (including enforcement of this Agreement) or any other Loan Document to which such Grantor is a party to the same extent contemplated by Section 10.3 of the Credit Agreement.  This provision shall survive the termination of this Agreement and the Credit Agreement and the repayment of the Secured Obligations.

 

  

-19-

  

 

(b)           Grantors, jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge to the Loan Account) at the times contemplated by Section 12.3 of the Credit Agreement all the expenses which Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Loan Documents, (iii) the exercise or enforcement of any of the rights of Agent hereunder or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.

 

20.          Merger, Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Agent and each Grantor to which such amendment applies.

 

21.          Addresses for Notices.  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Agent at its address specified in the Credit Agreement, and to any of the Grantors at their respective addresses specified in the Credit Agreement or Subsidiary Guaranty Agreement, as applicable, or, as to any party, at such other address as shall be designated by such party in a written notice to the other party.

 

22.          Continuing Security Interest: Assignments under Credit Agreement.  This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the Obligations have been paid in full in accordance with the provisions of the Credit Agreement and the Commitments have expired or have been terminated, (b) be binding upon each Grantor, and their respective successors and assigns, and (c) inure to the benefit of, and be enforceable by, Agent, and its successors, permitted transferees and permitted assigns.  Without limiting the generality of the foregoing clause (c), any Lender may, in accordance with the provisions of the Credit Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise.  Upon payment in full of the Secured Obligations in accordance with the provisions of the Credit Agreement and the expiration or termination of the Commitments, the Security Interest granted hereby shall terminate, any Liens arising therefrom shall automatically terminate, and all rights to the Collateral shall revert to Grantors or any other Person entitled thereto.  At such time, Agent will authorize the filing of appropriate termination statements to terminate such Security Interests.  No transfer or renewal, extension, assignment, or termination of this Agreement or of the Credit Agreement, any other Loan Document, or any other instrument or document executed and delivered by any Grantor to Agent nor any additional Advances or other loans made by any Lender to the Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by Agent, nor any other act of the Lenders, or any of them, shall release any Grantor from any obligation, except a release or discharge executed in writing by Agent in accordance with the provisions of the Credit Agreement.  Agent shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Agent and then only to the extent therein set forth.  A waiver by Agent of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Agent would otherwise have had on any other occasion.

 

  

-20-

  

 

23.          Governing Law.

 

(a)           THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

(b)           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS, LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

 

(c)           TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

24.          New Subsidiaries.  Pursuant to Section 8.14 of the Credit Agreement, certain Subsidiaries (whether by acquisition or creation) of any Grantor are required to enter into this Agreement by executing and delivering in favor of Agent a Joinder to this Agreement in substantially the form of Annex 1.  Upon the execution and delivery of Annex 1 by any such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein.  The execution and delivery of any instrument adding an additional Grantor as a party to this Agreement shall not require the consent of any Grantor hereunder.  The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor hereunder.

 

25.          Agent.  Each reference herein to any right granted to, benefit conferred upon or power exercisable by the "Agent" shall be a reference to Agent, for the benefit of each of the Lenders.

 

26.          Miscellaneous.

 

(a)           This Agreement is a Loan Document.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Loan Document mutatis mutandis.

 

  

-21-

  

 

(b)           Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.  Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

(c)           Headings and numbers have been set forth herein for convenience only.  Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

 

(d)           Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against any Lender or any Grantor, whether under any rule of construction or otherwise.  This Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

 

(e)           The pronouns used herein shall include, when appropriate, either gender and both singular and plural, and the grammatical construction of sentences shall conform thereto.

 

(f)           Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and  "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or".  The words "hereof", "herein", "hereby", "hereunder", and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified.  Any reference in this Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  The words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights.  Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately available funds of all of the Secured Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Secured Obligations) under Hedge Agreements) other than (i) unasserted contingent indemnification Secured Obligations, and (ii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Bank to remain outstanding without being required to be repaid.  Any reference herein to any Person shall be construed to include such Person's successors and assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.

 

(g)           All of the annexes, schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

 

[signature pages follow]

 

  

-22-

  

 

IN WITNESS WHEREOF, the undersigned parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written.

 

	GRANTORS:	
PATRICK INDUSTRIES, INC., an Indiana corporation

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	              /s/Andy L. Nemet	 
	 	 	Andy L. Nemeth, Executive Vice President	 
	 	 	Secretary and Treasurer	 

	 	
ADORN HOLDINGS, INC., a Delaware corporation

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	              /s/Andy L. Nemeth 	 
	 	 	Andy L. Nemeth, Secretary and Treasurer	 

 

 

 

Signature Page To Security Agreement

 

  

  

  

 

	AGENT:	
WELLS FARGO BANK, NATIONAL ASSOCIATION,

	 
	 	a national banking association	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	              /s/David W. O’Neal	 
	 	 	David W. O'Neal, Senior Vice President	 

 

 

Signature Page To Security Agreement

 

  

  

  

 

SCHEDULES TO

 

 

SECURITY AGREEMENT

 

  

  

  

 

SCHEDULE 1

 

 

COMMERCIAL TORT CLAIMS

 

None.

 

  

-2-

  

 

SCHEDULE 2

 

 

COPYRIGHTS

 

None.

 

  

-3-

  

 

SCHEDULE 3

 

 

INTELLECTUAL PROPERTY LICENSES

 

	
1.

	
Development and Trademark License Agreement by and between Rockford Corporation and Patrick Industries, Inc., as amended by Amendment 1 to Development and License Agreement and Amendment 2 to Development and License Agreement dated April 26, 2010.

 

	
2.

	
Asset Transfer Agreement by and between Estone Digital and Patrick Industries, Inc. dated December 7, 2009.

 

  

-4-

  

 

 

 

SCHEDULE 4

 

 

PATENTS

 

None.

 

  

-5-

  

 

SCHEDULE 5

 

 

TRADEMARKS

 

US Trademark Registrations

 

	
Registrant of Record

 

	
Trademark

	
Reg./Appl. No.

	
Reg. Date

	
Patrick Industries, Inc.

 

	
SUDDEN CHANGE

	
3868546

	
26 Oct. 2010

	
Patrick Industries, Inc.

 

	
ARCADIA

	
85245746

	  
	
Patrick Industries

 

	
VERVE

	
85736483

	  
	
Patrick Industries

 

	
iRV

	
85734183

	  

 

Trade Names

 

Patrick Industries

Custom Vinyls

Adorn

Interior Components Plus

Gravure Ink

Gravure

Patrick Distribution

Quest Audio Video

Sun Adhesives

Midwest Laminating

American Hardwoods

Nickell Enterprises

ILC Products

Patrick Moulding

Mobilcraft

Harlan Machinery

Patrick Door

Adorn of Indiana

Bristol Laminating

Adorn Pennsylvania

AIA Countertops

AIA

Décor

Décor Manufacturing

Décor Manufacturing, LLC

 

  

-6-

  

 

Creative Wood Designs

Creative Wood

Gustafson Lighting

Praxis

Praxis Group

Praxis Group, Inc.

Estone

Performance Graphics

Performance Graphics, LLC

Zombie Killer Graphics

Performance Graphics Motorsports

Decorative Dynamics

Infinity Graphics

Adorn LLC

Adorn Holdings, Inc.

 

  

-7-

  

 

SCHEDULE 6

 

PLEDGED COMPANIES

 

 

	
Name of Grantor

	
Name of Pledged 

Company

	
Number of 

hares/Units

	
Class of 

Interests

	
Percentage of 

Class Owned

	
Certificate 

Nos.

	
Patrick Industries, Inc.

 

	
Adorn Holdings, Inc.

	
29,043.956

	
Common A

	
100%

	
21

  

-8-

  

 

SCHEDULE 6(k)

 

 

CONTROLLED ACCOUNT BANKS

 

Well Fargo Bank, National Association

 

  

-9-

  

 

SCHEDULE 7

 

 

OWNED REAL PROPERTY

 

	
1.

	
1001 Beltline, Decatur, AL  35601

 

	
2.

	
107 W. Franklin St., Elkhart, IN  46516

 

	
3.

	
28163 CR 20, Elkhart, IN  46517

 

	
4.

	
201 Industrial Road, Halstead, KS  67056

 

	
5.

	
1930 West Lusher, Elkhart, IN  46517 (also known as 2044 West Lusher, Elkhart, IN 46517)

 

	
6.

	
20 Eby Chiques Rd., Mount Joy, PA  17552

 

	
7.

	
2225 Cypress St., Valdosta, GA 31601

 

	
8.

	
1500 Old Fort Graham Rd., Lacy Lakeview, TX  76705

 

	
9.

	
44017 US Highway 52 N, New London, NC  28127

 

	
10.

	
203 S. Huntington Avenue, Syracuse, IN 46567

 

	
11.

	
57766 County Road 3, Elkhart, IN 46516

 

  

-10-

  

 

SCHEDULE 8

 

 

LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

 

	
Grantors

	
Jurisdictions

	 	 
	
Patrick Industries, Inc.

	
Indiana

	 	 
	
Patrick Industries, Inc.

	
Elkhart County, Indiana

	 	 
	
Patrick Industries, Inc.

	
Morgan County, Alabama

	 	 
	
Patrick Industries, Inc.

	
Lowndes County, Georgia

	 	 
	
Patrick Industries, Inc.

	
Harvey County, Kansas

	 	 
	
Patrick Industries, Inc.

	
Lancaster County, Pennsylvania

	 	 
	
Patrick Industries, Inc.

	
McLennan County, Texas

	 	 
	
Patrick Industries, Inc.

	
Stanly County, North Carolina

  

-11-

  

 

ANNEX 1 TO SECURITY AGREEMENT

FORM OF JOINDER

 

Joinder No. ____ (this "Joinder"), dated as of _______________, to the Security Agreement, dated as of October 24, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the "Security Agreement"), by and among each of the parties listed on the signature pages thereto and those additional entities that thereafter become parties thereto (collectively, jointly and severally, "Grantors" and each, individually, a "Grantor") and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), in its capacity as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Agent").

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of October 24, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), by and among PATRICK INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the lenders party thereto as "Lenders" (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a "Lender" and, collectively, the "Lenders"), and Agent, the Lenders have agreed to make certain financial accommodations available to the Borrower from time to time pursuant to the terms and conditions thereof; and

 

WHEREAS, initially capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement or, if not defined therein, in the Credit Agreement; and

 

WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lenders to make certain financial accommodations to the Borrower; and

 

WHEREAS, pursuant to Section 5.11 of the Credit Agreement and Section 24 of the Security Agreement, certain Subsidiaries of the Credit Parties, must execute and deliver certain Loan Documents, including the Security Agreement, and the joinder to the Security Agreement by the undersigned new Grantor or Grantors (collectively, the "New Grantors") may be accomplished by the execution of this Joinder in favor of Agent, for the benefit of the Lenders; and

 

WHEREAS, each New Grantor (a) is [an Affiliate][a Subsidiary] of the Borrower and, as such, will benefit by virtue of the financial accommodations extended to the Borrower by the Lenders and (b) by becoming a Credit Party will benefit from certain rights granted to the Credit Parties pursuant to the terms of the Loan Documents;

 

  

Annex 1

Page 1

  

 

NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor hereby agrees as follows:

 

1.           In accordance with Section 24 of the Security Agreement, each New Grantor, by its signature below, becomes a "Grantor" under the Security Agreement with the same force and effect as if originally named therein as a "Grantor" and each New Grantor hereby (a) agrees to all of the terms and provisions of the Security Agreement applicable to it as a "Grantor" thereunder and (b) represents and warrants that the representations and warranties made by it as a "Grantor" thereunder are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that are already qualified or modified by materiality in the text thereof) on and as of the date hereof.  In furtherance of the foregoing, each New Grantor does hereby unconditionally grant, assign, and pledge to Agent, for the benefit of the Lenders, to secure the Secured Obligations, a continuing security interest in and to all of such New Grantor's right, title and interest in and to the Collateral.  Schedule 1, "Commercial Tort Claims", Schedule 2, "Copyrights", Schedule 3, "Intellectual Property Licenses", Schedule 4, "Patents", Schedule 5, "Trademarks", Schedule 6, "Pledged Companies", Schedule 6(k), "Controlled Account Banks", Schedule 7, "Owned Real Property", and Schedule 8, "List of Uniform Commercial Code Filing Jurisdictions" attached hereto supplement Schedule 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, Schedule 6, Schedule 6(k), Schedule 7, and Schedule 8, respectively, to the Security Agreement and shall be deemed a part thereof for all purposes of the Security Agreement.  Each reference to a "Grantor" in the Security Agreement shall be deemed to include each New Grantor.  The Security Agreement is incorporated herein by reference.  Each New Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments thereto (i) describing the Collateral as "all personal property of debtor" or "all assets of debtor" or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance.  Each New Grantor also hereby ratifies any and all financing statements or amendments previously filed by Agent in any jurisdiction in connection with the Loan Documents.

 

2.           Each New Grantor represents and warrants to Agent and the Lenders that this Joinder has been duly executed and delivered by such New Grantor and constitutes its legal, valid, and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium, or other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

 

3.           This Joinder is a Loan Document.  This Joinder may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Joinder.  Delivery of an executed counterpart of this Joinder by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Joinder.  Any party delivering an executed counterpart of this Joinder by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Joinder but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Joinder.

 

4.           The Security Agreement, as supplemented hereby, shall remain in full force and effect.

 

5.           THE VALIDITY OF THIS JOINDER, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

6.           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS JOINDER SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH NEW GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 6.

 

  

Annex 1

Page 2

  

 

7.           TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH NEW GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS JOINDER OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH NEW GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS JOINDER MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

  

Annex 1

Page 3

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Joinder to the Security Agreement to be executed and delivered as of the day and year first above written.

 

	NEW GRANTORS:	[NAME OF NEW GRANTOR]	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name:	 
	 	 	Title 	 

                                                                          

 

	 	
[NAME OF NEW GRANTOR]

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

 

 

	AGENT:	
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

[SIGNATURE PAGE TO JOINDER NO. ___ TO SECURITY AGREEMENT]

 

  

Annex 1

Page 4

  

 

EXHIBIT A

 

COPYRIGHT SECURITY AGREEMENT

 

This COPYRIGHT SECURITY AGREEMENT (this "Copyright Security Agreement") is made this ___ day of ___________, 20__, by and among Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), in its capacity as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Agent").

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of October ___, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement") by and among PATRICK INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the lenders party thereto as "Lenders" (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a "Lender" and, collectively, the "Lenders"), and Agent, the Lenders have agreed to make certain financial accommodations available to the Borrower from time to time pursuant to the terms and conditions thereof; and

 

WHEREAS, each of the Lenders is willing to make the financial accommodations to the Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that Grantors shall have executed and delivered to Agent, for the benefit of the Lenders, that certain Security Agreement, dated as of October ___, 2012 (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Agent, for the benefit of the Lenders, this Copyright Security Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:

 

1.           DEFINED TERMS.  All initially capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or, if not defined therein, in the Credit Agreement.

 

2.           GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL.  Each Grantor hereby unconditionally grants, collaterally assigns, and pledges to Agent, for the benefit of each Lender, to secure the Secured Obligations, a continuing security interest (referred to in this Copyright Security Agreement as the "Security Interest") in all of such Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired or arising (collectively, the "Copyright Collateral"):

 

(a)           all of such Grantor's Copyrights and Copyright Intellectual Property Licenses to which it is a party including those referred to on Schedule I;

 

(b)           all renewals or extensions of the foregoing; and

 

(c)           all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement of any Copyright or any Copyright exclusively licensed under any Intellectual Property License, including the right to receive damages, or the right to receive license fees, royalties, and other compensation under any Copyright Intellectual Property License.

 

  

Exhibit A

Page 1

  

 

3.           SECURITY FOR SECURED OBLIGATIONS.  This Copyright Security Agreement and the Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Copyright Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lenders or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4.           SECURITY AGREEMENT.  The Security Interest granted pursuant to this Copyright Security Agreement is granted in conjunction with the security interests granted to Agent, for the benefit of the Lenders, pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the Security Interest in the Copyright Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  To the extent there is any inconsistency between this Copyright Security Agreement and the Security Agreement, the Security Agreement shall control.

 

5.           AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new copyrights, the provisions of this Copyright Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new copyrights.  Without limiting Grantors' obligations under this Section, Grantors hereby authorize Agent unilaterally to modify this Copyright Security Agreement by amending Schedule I to include any future United States registered copyrights or applications therefor of each Grantor.  Notwithstanding the foregoing, no failure to so modify this Copyright Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Agent's continuing security interest in all Collateral, whether or not listed on Schedule I.

 

6.           COUNTERPARTS.  This Copyright Security Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Copyright Security Agreement.  Delivery of an executed counterpart of this Copyright Security Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Copyright Security Agreement.  Any party delivering an executed counterpart of this Copyright Security Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Copyright Security Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Copyright Security Agreement.

 

7.           CONSTRUCTION.  This Copyright Security Agreement is a Loan Document.  Unless the context of this Copyright Security Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and  "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or".  The words "hereof", "herein", "hereby", "hereunder", and similar terms in this Copyright Security Agreement refer to this Copyright Security Agreement as a whole and not to any particular provision of this Copyright Security Agreement.  Section, subsection, clause, schedule, and exhibit references herein are to this Copyright Security Agreement unless otherwise specified.  Any reference in this Copyright Security Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  The words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights.  Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately available funds of all of the Secured Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Secured Obligations) under Hedge Agreements) other than (i) unasserted contingent indemnification Secured Obligations, and (ii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Bank to remain outstanding without being required to be repaid.  Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.

 

  

Exhibit A

Page 2

  

 

8.           THE VALIDITY OF THIS COPYRIGHT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

9.           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS COPYRIGHT SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.

 

10.         TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS COPYRIGHT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

 

[signature page follows]

 

  

Exhibit A

Page 3

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Copyright Security Agreement to be executed and delivered as of the day and year first above written.

 

 

	GRANTORS:	 	 
	 	 	 	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	Name;	 
	 	 	Title:	 

.

 

	 	 	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

 

 

	AGENT:	
ACCEPTED AND ACKNOWLEDGED BY:

	 
	 	 	 
	 	WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

 

 

[SIGNATURE PAGE TO COPYRIGHT SECURITY AGREEMENT]

 

  

Exhibit A

Page 4

  

 

SCHEDULE I

 

to

 

COPYRIGHT SECURITY AGREEMENT

 

Copyright Registrations

 

	
 

Grantor

 

	
 

Country

 

	
 

Copyright

 

	
 

Registration No.

 

	
 

Registration Date

 

	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  
	
  

 

 

	  	  	  	  

 

Copyright Licenses

 

 

 

COPYRIGHT SECURITY AGREEMENT

 

  

  

  

 

EXHIBIT B

 

 

PATENT SECURITY AGREEMENT

 

This PATENT SECURITY AGREEMENT (this "Patent Security Agreement") is made this ___ day of ___________, 20__, by and among the Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), in its capacity as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity,  "Agent").

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of October ____, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), by and among PATRICK INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the lenders party thereto as "Lenders" (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a "Lender" and, collectively, the "Lenders"), and Agent, the Lenders agreed to make certain financial accommodations available to the Borrower from time to time pursuant to the terms and conditions thereof; and

 

WHEREAS, each of the Lenders is willing to make the financial accommodations to the Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that the Grantors shall have executed and delivered to Agent, for the benefit of the Lenders, that certain Security Agreement, dated as of October ___, 2012 (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Agent, for the benefit of the Lenders, this Patent Security Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows:

 

1.           DEFINED TERMS.  All initially capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or, if not defined therein, in the Credit Agreement.

 

2.           GRANT OF SECURITY INTEREST IN PATENT COLLATERAL. Each Grantor hereby unconditionally grants, collaterally assigns, and pledges to Agent, for the benefit each  of the Lenders, to secure the Secured Obligations, a continuing security interest (referred to in this Patent Security Agreement as the "Security Interest") in all of such Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired or arising (collectively, the "Patent Collateral"):

 

(a)           all of its Patents and Patent Intellectual Property Licenses to which it is a party including those referred to on Schedule I;

 

(b)           all divisionals, continuations, continuations-in-part, reissues, reexaminations, or extensions of the foregoing; and

 

(c)           all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement of any Patent or any Patent exclusively licensed under any Intellectual Property License, including the right to receive damages, or right to receive license fees, royalties, and other compensation under any Patent Intellectual Property License.

 

Exhibit B

Page 1

  

 

3.           SECURITY FOR SECURED OBLIGATIONS.  This Patent Security Agreement and the Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Patent Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lenders or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4.           SECURITY AGREEMENT.  The Security Interest granted pursuant to this Patent Security Agreement is granted in conjunction with the security interests granted to Agent, for the benefit of the Lenders, pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the Security Interest in the Patent Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  To the extent there is any inconsistency between this Patent Security Agreement and the Security Agreement, the Security Agreement shall control.

 

5.           AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new patent application or issued patent or become entitled to the benefit of any patent application or patent for any divisional, continuation, continuation-in-part, reissue, or reexamination of any existing patent or patent application, the provisions of this Patent Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new patent rights.  Without limiting Grantors' obligations under this Section, Grantors hereby authorize Agent unilaterally to modify this Patent Security Agreement by amending Schedule I to include any such new patent rights of each Grantor.  Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Agent's continuing security interest in all Collateral, whether or not listed on Schedule I.

 

6.           COUNTERPARTS.  This Patent Security Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Patent Security Agreement.  Delivery of an executed counterpart of this Patent Security Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Patent Security Agreement.  Any party delivering an executed counterpart of this Patent Security Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Patent Security Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Patent Security Agreement.

 

7.           CONSTRUCTION.  This Patent Security Agreement is a Loan Document.  Unless the context of this Patent Security Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and  "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or".  The words "hereof", "herein", "hereby", "hereunder", and similar terms in this Patent Security Agreement refer to this Patent Security Agreement as a whole and not to any particular provision of this Patent Security Agreement.  Section, subsection, clause, schedule, and exhibit references herein are to this Patent Security Agreement unless otherwise specified.  Any reference in this Patent Security Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  The words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights.  Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately available funds of all of the Secured Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Secured Obligations) under Hedge Agreements) other than (i) unasserted contingent indemnification Secured Obligations, and (ii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Bank to remain outstanding without being required to be repaid.  Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.

 

Exhibit B

Page 2

  

 

8.           THE VALIDITY OF THIS PATENT SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

9.           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PATENT SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.

 

10.         TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS PATENT SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

[signature page follows]

 

Exhibit B

Page 3

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Patent Security Agreement to be executed and delivered as of the day and year first above written.

 

	
GRANTORS:

	 	 
	  	 	  	 
	  	 	  	 
	  	By:	
           

	 
	  	 	
Name:

	 
	  	 	
Title:

	 
	  	 	  	 
	  	 	  	 
	  	 	 
	  	 	  	 
	  	 	  	 
	  	By:  	
         

	 
	  	 	
Name:

	 
	  	 	
Title:

	 
	  	 	  	 
	  	 	  	 
	
AGENT:

	ACCEPTED AND ACKNOWLEDGED BY:	 
	  	WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association	 
	  	 	  	 
	  	 	  	 
	  	By:	
           

	 
	  	 	
Name:

	 
	  	 	
Title:

	 

 

 

 

[SIGNATURE PAGE TO PATENT SECURITY AGREEMENT]

 

Exhibit B

Page 4

  

 

SCHEDULE I

to

PATENT SECURITY AGREEMENT

Patents

	
 

Grantor

 

	
 

Country

 

	
 

Patent

 

	
 

Application/ Patent No.

 

	
 

Filing Date

 

	
  

 

	  	  	  	  
	
  

 

	  	  	  	  
	
  

 

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  

Patent Licenses

 

  

  

  

 

EXHIBIT C

PLEDGED INTERESTS ADDENDUM

 

This Pledged Interests Addendum, dated as of _________ __, 20___ (this "Pledged Interests Addendum"), is delivered pursuant to Section 6 of the Security Agreement referred to below.  The undersigned hereby agrees that this Pledged Interests Addendum may be attached to that certain Security Agreement, dated as of October ___, 2012, (as amended, restated, supplemented, or otherwise modified from time to time, the "Security Agreement"), made by the undersigned, together with the other Grantors named therein, to WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Agent.  Initially capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Security Agreement or, if not defined therein, in the Credit Agreement.  The undersigned hereby agrees that the additional interests listed on Schedule I shall be and become part of the Pledged Interests pledged by the undersigned to Agent in the Security Agreement and any pledged company set forth on Schedule I shall be and become a "Pledged Company" under the Security Agreement, each with the same force and effect as if originally named therein.

 

This Pledged Interests Addendum is a Loan Document.  Delivery of an executed counterpart of this Pledged Interests Addendum by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Pledged Interests Addendum.  If the undersigned delivers an executed counterpart of this Pledged Interests Addendum by telefacsimile or other electronic method of transmission, the undersigned shall also deliver an original executed counterpart of this Pledged Interests Addendum but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Pledged Interests Addendum.

 

The undersigned hereby certifies that the representations and warranties set forth in Section 5 of the Security Agreement of the undersigned are true and correct as to the Pledged Interests listed herein on and as of the date hereof.

 

THE VALIDITY OF THIS PLEDGED INTERESTS ADDENDUM, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGED INTERESTS ADDENDUM SHALL BE TRIED AND LITIGATED ONLY IN THE STATE, AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS PARAGRAPH.

 

Exhibit C

Page 1

  

 

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS PLEDGED INTERESTS ADDENDUM OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS PLEDGED INTERESTS ADDENDUM MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

 

[signature page follows]

 

Exhibit C

Page 2

  

 

IN WITNESS WHEREOF, the undersigned has caused this Pledged Interests Addendum to be executed and delivered as of the day and year first above written.

 

	 	
[___________________]

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	Name:	 
	 	 	Title:	 

Exhibit C

Page 3

  

 

SCHEDULE I

 

to

 

PLEDGED INTERESTS ADDENDUM

 

Pledged Interests

 

	
 

Name of Grantor

 

	
 

Name of Pledged 

Company

 

	
 

Number of 

Shares/Units

 

	
 

Class of 

Interests

 

	
 

Percentage of 

Class Owned

 

	
 

Certificate 

Nos.

 

	
  

 

	  	  	  	  	  
	
  

 

	  	  	  	  	  

 

Exhibit C

Page 4

  

 

EXHIBIT D

 

TRADEMARK SECURITY AGREEMENT

 

This TRADEMARK SECURITY AGREEMENT (this "Trademark Security Agreement") is made this ___ day of ___________, 20__, by and among Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), in its capacity as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, "Agent").

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of October ___, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement") by and among PATRICK INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the lenders party thereto as "Lenders" (such Lenders, together with their respective successors and assigns in such capacity, each, individually, a "Lender" and, collectively, the "Lenders"), and Agent, the Lenders have agreed to make certain financial accommodations available to the Borrower from time to time pursuant to the terms and conditions thereof; and

 

WHEREAS, each of the Lenders is willing to make the financial accommodations to the Borrower as provided for in the Credit Agreement, but only upon the condition, among others, that Grantors shall have executed and delivered to Agent, for the benefit of Lenders, that certain Security Agreement, dated as of October ___, 2012 (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and

 

WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Agent, for the benefit of Lenders, this Trademark Security Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows:

 

1.           DEFINED TERMS.  All initially capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or, if not defined therein, in the Credit Agreement.

 

2.           GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL.  Each Grantor hereby unconditionally grants, collaterally assigns, and pledges to Agent, for the benefit of each Lender, to secure the Secured Obligations, a continuing security interest (referred to in this Trademark Security Agreement as the "Security Interest") in all of such Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired or arising (collectively, the "Trademark Collateral"):

 

(a)           all of its Trademarks and Trademark Intellectual Property Licenses to which it is a party including those referred to on Schedule I;

 

(b)           all goodwill of the business connected with the use of, and symbolized by, each Trademark and each Trademark Intellectual Property License; and

 

(c)           all products and proceeds (as that term is defined in the Code) of the foregoing, including any claim by such Grantor against third parties for past, present or future (i) infringement or dilution of any Trademark or any Trademarks exclusively licensed under any Intellectual Property License, including right to receive any damages, (ii) injury to the goodwill associated with any Trademark, or (iii) right to receive license fees, royalties, and other compensation under any Trademark Intellectual Property License.

 

  

Exhibit D

Page 1

  

 

3.           SECURITY FOR SECURED OBLIGATIONS.  This Trademark Security Agreement and the Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Trademark Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Agent, the Lenders or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

 

4.           SECURITY AGREEMENT.  The Security Interest granted pursuant to this Trademark Security Agreement is granted in conjunction with the security interests granted to Agent, for the benefit of the Lenders, pursuant to the Security Agreement.  Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the Security Interest in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  To the extent there is any inconsistency between this Trademark Security Agreement and the Security Agreement, the Security Agreement shall control.

 

5.           AUTHORIZATION TO SUPPLEMENT.  If any Grantor shall obtain rights to any new trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Agent with respect to any such new trademarks or renewal or extension of any trademark registration.   Without limiting Grantors' obligations under this Section, Grantors hereby authorize Agent unilaterally to modify this Trademark Security Agreement by amending Schedule I to include any such new trademark rights of each Grantor.  Notwithstanding the foregoing, no failure to so modify this Trademark Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Agent's continuing security interest in all Collateral, whether or not listed on Schedule I.

 

6.           COUNTERPARTS.  This Trademark Security Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Trademark Security Agreement.  Delivery of an executed counterpart of this Trademark Security Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Trademark Security Agreement.  Any party delivering an executed counterpart of this Trademark Security Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Trademark Security Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Trademark Security Agreement.

 

7.           CONSTRUCTION.  This Trademark Security Agreement is a Loan Document.  Unless the context of this Trademark Security Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and  "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or".  The words "hereof", "herein", "hereby", "hereunder", and similar terms in this Trademark Security Agreement refer to this Trademark Security Agreement as a whole and not to any particular provision of this Trademark Security Agreement.  Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified.  Any reference in this Trademark Security Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein).  The words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights.  Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations shall mean the repayment in full in cash or immediately available funds of all of the Secured Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Secured Obligations) under Hedge Agreements) other than (i) unasserted contingent indemnification Secured Obligations, and (ii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Bank to remain outstanding without being required to be repaid.  Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns.  Any requirement of a writing contained herein shall be satisfied by the transmission of a Record.

 

  

Exhibit D

Page 2

  

 

8.           THE VALIDITY OF THIS TRADEMARK SECURITY AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

 

9.           THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS TRADEMARK SECURITY AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.

 

10.         TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS TRADEMARK SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

[signature page follows]

 

  

Exhibit D

Page 3

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Trademark Security Agreement to be executed and delivered as of the day and year first above written.

 

	
GRANTORS:

	 
	  	 	  
	  	 	  
	  	By:	
           

	  	 	
Name:

	  	 	
Title:

	  	 	  
	  	 	  
	  	 
	  	 	  
	  	 	  
	  	By:  	
         

	  	 	
Name:

	  	 	
Title:

	  	 	  
	  	 	  
	
AGENT:

	ACCEPTED AND ACKNOWLEDGED BY:
	  	 	  
	  	WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association
	  	 	  
	  	 	  
	  	By:	
           

	  	 	
Name:

	  	 	
Title:

	  	 	  
	  	 	  

 

[SIGNATURE PAGE TO TRADEMARK SECURITY AGREEMENT]

 

  

Exhibit D

Page 4

  

 

SCHEDULE I

to

TRADEMARK SECURITY AGREEMENT

 

Trademark Registrations/Applications

 

	
 

Grantor

 

	
 

Country

 

	
 

Mark

 

	
 

Application/ Registration No.

 

	
 

App/Reg Date

 

	
  

 

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  
	
 

  

	  	  	  	  

 

Trade Names

 

 

Common Law Trademarks

 

 

Trademarks Not Currently In Use

 

 

Trademark LicensesWTM 9-30-2012 Ex. 10.1

EXECUTION COPY

STOCK PURCHASE AGREEMENT
BY AND AMONG
ONEBEACON INSURANCE GROUP LLC,
ONEBEACON INSURANCE GROUP, LTD.,
TREBUCHET US HOLDINGS, INC.
AND
ARMOUR GROUP HOLDINGS LIMITED
DATED AS OF OCTOBER 17, 2012

703550379

TABLE OF CONTENTS

Page

		
	ARTICLE I
	DEFINITIONS AND TERMS    1

		
	Section 1.1
	Definitions    1

		
	Section 1.2
	Interpretation    14

		
	ARTICLE II
	PURCHASE AND SALE    16

		
	Section 2.1
	Purchase and Sale    16

		
	Section 2.2
	Closing    17

		
	Section 2.3
	Post-Closing Adjustment of the Closing Purchase Price    18

		
	Section 2.4
	No Set-off    22

		
	ARTICLE III
	REPRESENTATIONS AND WARRANTIES OF SELLER    22

		
	Section 3.1
	Organization and Authority    22

		
	Section 3.2
	Binding Effect    22

		
	Section 3.3
	Organization, Qualification and Authority of the Acquired Companies    23

		
	Section 3.4
	Capital Structure; Ownership of the Acquired Companies    23

		
	Section 3.5
	Filings and Consents    24

		
	Section 3.6
	No Violations    24

		
	Section 3.7
	Financial and Statutory Statements; No Undisclosed Liabilities    24

		
	Section 3.8
	Absence of Certain Changes    25

	
			
	 
	1
	 

703550379

TABLE OF CONTENTS
(continued)
Page

		
	Section 3.9
	Litigation; Governmental Orders    26

		
	Section 3.10
	Taxes.    26

		
	Section 3.11
	Employee Benefits    28

		
	Section 3.12
	Compliance with Laws; Governmental Authorizations    30

		
	Section 3.13
	Intellectual Property.    30

		
	Section 3.14
	Material Contracts    32

		
	Section 3.15
	Assets; Real Property    33

		
	Section 3.16
	Finders’ Fees    34

		
	Section 3.17
	Insurance Contracts    34

		
	Section 3.18
	Reinsurance    35

		
	Section 3.19
	Investment Assets    35

		
	Section 3.20
	Labor Matters    35

		
	Section 3.21
	Intercompany Agreements    35

		
	Section 3.22
	Environmental Laws    36

		
	Section 3.23
	Insurance    36

		
	Section 3.24
	Bank Accounts    36

		
	ARTICLE IV
	REPRESENTATIONS AND WARRANTIES OF PURCHASER    36

		
	Section 4.1
	Organization and Authority    36

	
			
	 
	2
	 

703550379

TABLE OF CONTENTS
(continued)
Page

		
	Section 4.2
	Binding Effect    36

		
	Section 4.3
	Governmental Filings and Consents    37

		
	Section 4.4
	No Violations    37

		
	Section 4.5
	Compliance with Laws    37

		
	Section 4.6
	Purchaser Impediments    37

		
	Section 4.7
	Finders’ Fees    38

		
	Section 4.8
	Financial Capability    38

		
	Section 4.9
	Purchase for Own Account    38

		
	ARTICLE V
	COVENANTS    38

		
	Section 5.1
	Access; Confidentiality    38

		
	Section 5.2
	Conduct of Business    39

		
	Section 5.3
	Commercially Reasonable Efforts; Regulatory Matters; Quarterly Balance Sheets    41

		
	Section 5.4
	Tax Matters.    43

		
	Section 5.5
	Employee Matters    50

		
	Section 5.6
	Transfers of Intellectual Property; Use of Names and Marks    52

		
	Section 5.7
	Intercompany Agreements and Accounts    53

		
	Section 5.8
	Further Assurances    53

		
	Section 5.9
	Resignations    53

	
			
	 
	3
	 

703550379

TABLE OF CONTENTS
(continued)
Page

		
	Section 5.10
	Insurance    53

		
	Section 5.11
	Release of Guarantees    54

		
	Section 5.12
	Notification of Certain Matters    54

		
	Section 5.13
	Restructuring    54

		
	Section 5.14
	Run-Off Business Consulting Engagement Agreement    55

		
	Section 5.15
	Investment Assets    55

		
	Section 5.16
	Business Activities    57

		
	Section 5.17
	Available Ceded Reinsurance    57

		
	Section 5.18
	Closing Date Capital Contribution    58

		
	Section 5.19
	Additional Required Capital    58

		
	Section 5.20
	Certain Restrictions    59

		
	Section 5.21
	Non-Solicitation    60

		
	Section 5.22
	Actuarial Fees    61

		
	Section 5.23
	Fronting Matters    61

		
	Section 5.24
	Gen Re Cessions    62

		
	Section 5.25
	Collection and Sharing of Allocated Balances    62

		
	ARTICLE VI
	CONDITIONS TO CLOSING    63

		
	Section 6.1
	Conditions to the Obligations of Purchaser and Seller    63

	
			
	 
	4
	 

703550379

TABLE OF CONTENTS
(continued)
Page

		
	Section 6.2
	Conditions to the Obligations of Purchaser    63

		
	Section 6.3
	Conditions to the Obligations of Seller    64

		
	ARTICLE VII
	SURVIVAL; INDEMNIFICATION    64

		
	Section 7.1
	Survival    64

		
	Section 7.2
	Indemnification by Purchaser    65

		
	Section 7.3
	Indemnification by Seller    65

		
	Section 7.4
	Claims    66

		
	Section 7.5
	Characterization of Indemnification Payments    68

		
	Section 7.6
	Certain Indemnification Matters    68

		
	Section 7.7
	Exclusive Remedy    70

		
	Section 7.8
	Reserves    70

		
	ARTICLE VIII
	TERMINATION    70

		
	Section 8.1
	Termination    70

		
	Section 8.2
	Effect of Termination    71

		
	ARTICLE IX
	MISCELLANEOUS    71

		
	Section 9.1
	Notices    71

		
	Section 9.2
	Amendment; Modification and Waiver    72

		
	Section 9.3
	Assignment    73

	
			
	 
	5
	 

703550379

TABLE OF CONTENTS
(continued)
Page

		
	Section 9.4
	Entire Agreement    73

		
	Section 9.5
	No Third Party Beneficiaries    73

		
	Section 9.6
	Public Disclosure    73

		
	Section 9.7
	No Other Representations and Warranties; Due Investigation    73

		
	Section 9.8
	Expenses    74

		
	Section 9.9
	Disclosure Schedules    75

		
	Section 9.10
	Governing Law    75

		
	Section 9.11
	Submission to Jurisdiction    76

		
	Section 9.12
	WAIVER OF JURY TRIAL    76

		
	Section 9.13
	Counterparts    76

		
	Section 9.14
	Severability    77

		
	Section 9.15
	Specific Performance    77

		
	Section 9.16
	Seller Parent Guaranty    77

		
	Section 9.17
	Purchaser Parent Guaranty    77

	
			
	 
	6
	 

703550379

Exhibits
Exhibit 1        Form of Release
Exhibit 2        Form of Retained Business Administrative Services Agreement
Exhibit 3        Form of Retained Business Reinsurance Agreement
Exhibit 4        Form of Run-Off Business Administrative Services Agreement
Exhibit 5        Form of Run-Off Business Consulting Engagement Agreement
Exhibit 6        Form of Run-Off Reinsurance Agreement
Exhibit 7        Form of Transition Services Agreement
Exhibit 8        Forms of Surplus Note 

Schedules
Schedule 1.1(a)    Pro Forma Adjustments
Schedule 5.17(a)    Schedule of Shared Reinsurance
Schedule 5.20        Initial Management Fee Forecast
Schedule 5.23(c)    Policy Issuance Authority – Pending State Applications
Schedule 6.1(b)    Required Approvals
Schedule 7.3(a)    Indemnifiable Liabilities
Seller Disclosure Schedule
Purchaser Disclosure Schedule

703550379

This STOCK PURCHASE AGREEMENT (this “Agreement”) is dated as of October 17, 2012, by and among OneBeacon Insurance Group LLC, a limited liability company organized under the laws of the State of Delaware (“Seller”), Trebuchet US Holdings, Inc., a corporation incorporated under the laws of the State of Delaware (“Purchaser”), and solely for purposes of Section 7.3 and Article IX, OneBeacon Insurance Group, Ltd., an exempt limited liability company organized under the laws of Bermuda (“Seller Parent”), and solely for purposes of Articles II and IX Armour Group Holdings Limited, an exempt limited liability company organized under the laws of Bermuda (“Purchaser Parent”).
RECITALS:
WHEREAS, Seller owns, directly or indirectly, all of the issued and outstanding shares of capital stock of OneBeacon Insurance Company, an insurance company organized under the laws of the Commonwealth of Pennsylvania (“OneBeacon Insurance”), The Employers’ Fire Insurance Company, an insurance company organized under the laws of the Commonwealth of Massachusetts (“Employers’ Fire”), The Northern Assurance Company of America, an insurance company organized under the laws of the Commonwealth of Massachusetts (“Northern Assurance”), OneBeacon Midwest Insurance Company, an insurance company organized under the laws of the State of Wisconsin (“OneBeacon Midwest”), OneBeacon America Insurance Company, an insurance company organized under the laws of the Commonwealth of Massachusetts (“OneBeacon America”), Traders & General Insurance Company, an insurance company organized under the laws of the State of Texas (“Traders & General”), The Camden Fire Insurance Association, an insurance company organized under the laws of the State of New Jersey (“Camden Fire”), Potomac Insurance Company, an insurance company organized under the laws of the Commonwealth of Pennsylvania (“Potomac Insurance”), OneBeacon Risk Management, Inc., a Delaware corporation (“OneBeacon Risk Management”) and Houston General Insurance Company, an insurance company organized under the laws of the State of Texas (“Houston General” and, together with OneBeacon Insurance, Employers’ Fire, Northern Assurance, OneBeacon Midwest, OneBeacon America, Traders & General, Camden Fire,  Potomac Insurance and OneBeacon Risk Management, and subject to Section 1.2(a)(x), the “Acquired Companies”).
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, all of the Purchased Shares (as defined below) (the “Acquisition”), upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and upon the terms and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
Article I 
DEFINITIONS AND TERMS
Section 1.1    Definitions.  As used in this Agreement, the following terms have the meanings set forth or as referenced below:

703550379

“338 Allocation Schedule” has the meaning set forth in Section 5.4(i)(ii).
“AC SR Parties” has the meaning set forth in Section 5.17(a).
“Acceptable Investments” means (a) Cash Equivalents, (b) U.S. treasuries or (c) single-A rated (by S&P and Moody’s) corporate debt securities contained in the U.S. Corporate Index Group subset of the Barclays U.S. Aggregate Index (but excluding utilities and financial company issuers). 
“Accretion Rate” means five percent 5% per year calculated on the basis of a year of 365 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such accretion accrues.
“Acquired Companies” has the meaning set forth in the Recitals.
“Acquired Company Owned Intellectual Property” means all Intellectual Property owned or purported to be owned by an Acquired Company or any Subsidiary of an Acquired Company.
“Acquisition” has the meaning set forth in the Recitals.
“Acquisition Proposal” has the meaning set forth in Section 5.21.
“Action” means any claim, action, suit, proceeding, demand, arbitration, inquiry, audit, notice of violation, citation, summons, subpoena or investigation of any nature, whether civil, criminal, administrative, regulatory or otherwise, whether at law or in equity by or before any Governmental Authority.
“ADSP” has the meaning set forth in Section 5.4(i)(ii).
“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person, provided, however, that neither White Mountains Insurance Group, Ltd. nor any Affiliate of White Mountains Insurance Group, Ltd. shall be deemed to be an Affiliate of Seller or any Person controlled by Seller other than Seller Parent and any Person controlled by Seller Parent.  For purposes of this definition, “control” (including the terms “controlled by” and “under common control with”) with respect to the relationship between or among two (2) or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise.  Notwithstanding anything herein to the contrary, for purposes of clarity, from and after the Closing, none of the Acquired Companies shall be deemed an Affiliate of Seller.
“Agreement” has the meaning set forth in the Preamble.
“Aggregate Contribution Cap” has the meaning set forth in Section 5.19.
“AGUB” has the meaning set forth in Section 5.4(i)(ii).

- #PageNum# -    
703550379

“Ancillary Agreements” means the Release, the Retained Business Administrative Services Agreement, the Retained Business Reinsurance Agreement, the Run-Off Business Administrative Services Agreement, the Run-Off Business Consulting Engagement Agreement, the Run-Off Business Reinsurance Agreement and the Transition Services Agreement.
“Annual Statutory Financial Statements” has the meaning set forth in Section 3.7(a).
“ASIC” means Atlantic Specialty Insurance Company. 
“Bankruptcy and Equity Exceptions” has the meaning set forth in Section 3.2.
“Benefit Plans” has the meaning set forth in Section 3.11(a).
“Books and Records” means originals or copies of the books, records and documents of, or maintained by, the Acquired Companies to administer, evidence or record information relating to the business or operations of the Acquired Companies (including all contracts, computer records, general ledgers, minute books, stock ledgers and stock certificates, contract information and credit records) in the format maintained by the Acquired Companies as of the date hereof; provided, however, that, for the purposes of clarity, such Books and Records shall not include any Consolidated Tax Returns or other material commingled with material of Seller or any Affiliate of Seller (that is not an Acquired Company) and which material principally belongs to Seller or such Affiliate of Seller.
“Business Confidential Information” has the meaning set forth in Section 5.1(d).
“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in New York, New York are authorized or obligated by applicable Law to close.
“Camden Fire” has the meaning set forth in the Recitals.
“Cash Equivalents” shall mean cash, checks, money orders, short-term instruments issued by the U.S. treasury having a term to maturity of no longer than 90 days and other cash equivalents, funds in time and demand deposits or similar accounts.
“Ceded Reinsurance Recoverable” means recoverables under (a) all reinsurance treaties and agreements to which any of the Acquired Companies is a party with an inception date prior to January 1, 2001 and (b) all reinsurance treaties and contracts to which any of the Acquired Companies is a party with an inception date from, and including January 1, 2001 to, and including December 31, 2010, where reinstatements are free and unlimited.
“Claim Notice” has the meaning set forth in Section 7.4(a).
“Closing” means the closing of the purchase and sale of the Purchased Shares.
“Closing Date” has the meaning set forth in Section 2.2(a).
“Closing Purchase Price” has the meaning set forth in Section 2.1(c)(iv).

- #PageNum# -    
703550379

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.
“Collection Agent” has the meaning set forth in Section 5.25(a).
“Company Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations or condition (financial or otherwise) of the Acquired Companies (taken as a whole), or (ii) the ability of Seller to consummate the transactions contemplated hereby in accordance with the terms of this Agreement; provided, however, that any adverse effect arising out of or resulting from or attributable to any of the following shall not constitute and shall be disregarded when determining whether there has been or would reasonably be expected to be a Company Material Adverse Effect:  (a) changes or proposed changes in applicable Laws, GAAP or SAP or in the interpretation or enforcement thereof, (b) changes in general economic, business or regulatory conditions in the United States, including those generally affecting the property & casualty industry in the United States, (c) changes in United States or global financial or securities markets or conditions, including changes in prevailing interest rates, currency exchange rates or price levels or trading volumes in the United States or foreign securities markets, (d) changes in global or national political conditions (including the outbreak or escalation of war, military action, sabotage or acts of terrorism) or changes due to natural disasters, (e) the effects of the actions or omissions required of Seller under this Agreement and the Ancillary Agreements or that are taken with the consent of Purchaser, or not taken because Purchaser did not give its consent (where such consent is required), in connection with the transactions contemplated hereby and thereby, (f) the effects of any breach, violation or non-performance of any provision of this Agreement by Purchaser or any of its Affiliates, (g) the negotiation, announcement, pendency or consummation of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby, including the identity of, or the effect of any fact or circumstance relating to, Purchaser or any of its Affiliates or any communication by Purchaser or any of its Affiliates regarding plans, proposals or projections with respect to the Acquired Companies, (h) any increases in losses or loss adjustment expenses (in and of itself) of the Acquired Companies following the date of this Agreement (but not the underlying reasons therefor), (i) any change or development (in and of itself) in the credit, financial strength or other rating of the Acquired Companies or any of their Affiliates (but not the underlying reasons therefor nor causes and effects of any such change or development), (j) any failure (in and of itself) by the Acquired Company to meet any earnings, claims paid or loss development projections or forecasts (but not the underlying reasons therefor nor causes and effects of any such failure), or (k) changes with respect to the Retained Business, or (l) any event, occurrence, fact, condition or change that would be subject to a Reinsurance Dependency Adjustment, provided, further, however, that any event, occurrence, fact, condition or change referred to in any of clauses (a) – (d) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that given event, occurrence, fact, condition or change has a disproportionate effect on the Acquired Companies (taken as a whole) compared to similar companies within the industries in which they operate.
“Confidentiality Agreements” means, collectively, the Confidentiality Agreement, dated as of July 13, 2011, between Seller Parent and Armour Group Holdings Limited and the Confidentiality 

- #PageNum# -    
703550379

Agreement, dated as of July 19, 2011, between Seller Parent and the other party signatory thereto related to this Agreement.
“Consolidated Tax Returns” has the meaning set forth in Section 5.4(b)(i).
“Continued Employees” has the meaning set forth in Section 5.5(a).
“Contract” means, with respect to any Person, any written or oral agreement, contract, lease, commitment, covenant, debenture, instrument or other legally binding obligation to which such Person is a party or is otherwise subject or bound.
“Deductible” has the meaning set forth in Section 7.2(b).
“Department” means the Massachusetts Division of Insurance, the New Jersey Department of Banking and Insurance, the New York State Department of Financial Services, the Pennsylvania Insurance Department, the Texas Department of Insurance or the Wisconsin Office of the Commissioner of Insurance, as applicable.
“Deposited Investments Notice” has the meaning set forth in Section 5.15(b).
“Disclosure Schedule” has the meaning set forth in Section 9.9.
“Due Diligence Costs” has the meaning set forth in Section 9.8.
“ECO Claim” means a claim for extra-contractual obligations.
“Election Forms” has the meaning set forth in Section 5.4(i)(i).
“Electronic Data Room” means the electronic data room established by or on behalf of Seller with respect to the Acquired Companies, as the same exists as of the date of this Agreement.
“Employees” means the employees of Seller or any of its Affiliates providing services to the Acquired Companies as of the date of execution of this Agreement.
“Employers’ Fire” has the meaning set forth in the Recitals.
“Encumbrance” means any conditional sale agreement, option, first refusal, preemptive right, co-sale, tag-along, drag-along or similar right, covenant, condition, default of title, easement, encroachment, infringement, right of way, security interest, pledge, mortgage, lien, encumbrance, deed of trust, hypothecation, or any adverse interest charge, or claim of any nature whatsoever on, or with respect to, any property or property interest.
“Environmental Laws” means any applicable Law that relates to or otherwise imposes liability or standards of conduct concerning environmental protection, health and safety of persons, discharges, emissions, releases or threatened releases of any odors or Hazardous Materials into ambient air, water or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of Hazardous Materials, 

- #PageNum# -    
703550379

including the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, the Federal Water Pollution Control Act, as amended, the Clean Water Act, as amended, any so-called “Superlien” law, and any other similar federal, state or local law.
“ERISA” means the Employee Retirement Income Security Act of 1974.
“ERISA Affiliate” means any entity which is considered a single employer with Seller under Section 414(b) or (c) of the Code.
“Estimated Closing Date Balance Sheet” means the unaudited pro forma estimated combined balance sheet of the Acquired Companies as of the Closing Date after giving effect to the Pro Forma Adjustments, which pro forma estimated combined balance sheet will be prepared by Seller in good faith in accordance with SAP (except with respect to the Pro Forma Adjustments) applied on a basis consistent with the preparation of the Pro Forma Balance Sheet and delivered to Purchaser in accordance with Section 2.1(b).
“Estimated Target Statutory Capital” means the calculation of the Target Statutory Capital based on the Estimated Closing Date Balance Sheet.
“Expiration Date” has the meaning set forth in Section 7.1.
“Final Closing Date Balance Sheet” has the meaning set forth in Section 2.3(b)(vi).
 “Final Purchase Price” has the meaning set forth in Section 2.3(a).
“Final Target Statutory Capital” has the meaning set forth in Section 2.3(b)(vi).
“Fronted Policies” has the meaning set forth in Section 5.23(b)(i).
“Fronting Completion Date” has the meaning set forth in Section 5.6(c).
“Fronting Obligation” has the meaning set forth in Section 5.23(b)(i).
“Fundamental Claims” has the meaning set forth in Section 7.1.
“GAAP” means generally accepted accounting principles and practices in the United States applied consistently with prior periods and with an Acquired Company’s historical practices and methods.
“Gen Re and NICO Agreements” means (i) Adverse Development Agreement of Reinsurance No. 8888 between Potomac Insurance and General Reinsurance Company dated as of April 13, 2001; and (ii) Aggregate Loss Portfolio Reinsurance Agreement between Potomac Insurance and National Indemnity Company dated as of March 14, 2001.

- #PageNum# -    
703550379

“Governmental Authority” means any national, regional or local governmental, legislative, judicial, administrative or regulatory authority, agency, commission, body or court.
“Governmental Authorizations” means all licenses, permits (including insurance certificates of authority, licenses, permits, etc.), variances, waivers, orders, registrations, consents, certificates and other authorizations and approvals of or by a Governmental Authority.
“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
“Guarantees” has the meaning set forth in Section 5.11.
“Hazardous Material” means any (a) hazardous substance, toxic substance, hazardous waste or pollutant (as such terms are defined by or within the meaning of any Environmental Law), (b) material or substance that is regulated or controlled as a hazardous substance, toxic substance, pollutant or other regulated or controlled material, substance or matter pursuant to any Environmental Law, (c) petroleum, crude oil or fraction thereof, (d) asbestos-containing material, (e) polychlorinated biphenyls, (f) lead-based paint or (g) radioactive material.
“HIPAA” has the meaning set forth in Section 3.13(f).
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
“Houston General” has the meaning set forth in the Recitals.
“Indemnified Parties” has the meaning set forth in Section 7.3(a).
“Indemnifying Party” has the meaning set forth in Section 7.4(a).
“Indemnity Cap” has the meaning set forth in Section 7.2(b).
“Independent Accountant” has the meaning set forth in Section 2.3(b)(v).
“Initial Deductible” has the meaning set forth in Section 7.2(b).
“Initial Forecast” has the meaning set forth in Section 5.20(b)(iii).
“Insurance Contract” means any insurance policy, contract, binder or slip or reinsurance treaty, contract, binder or slip, issued, assumed or coinsured by any Acquired Company, excluding any such policy, treaty, contract, binder or slip comprising the Retained Business.
“Insurance Policies” has the meaning set forth in Section 3.23.
“Intellectual Property” means, collectively, all United States and foreign (a) patents, including continuations, divisionals, continuations-in-part, or reissues of patent applications and patents issuing thereon, (b) inventions (whether or not patentable), (c) Trademarks (whether or not registered) and goodwill associated with any of the foregoing, (d) Internet domain name 

- #PageNum# -    
703550379

registrations, (e)  copyrights (whether or not registered), including in the form of software and databases, (f)  all trade secrets and confidential business information (including those consisting of ideas, concepts, formulae, know-how, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial, business and marketing plans, and customer and supplier lists and related information), (g) registrations and applications for registration for the foregoing, and (h) tangible embodiments of any of the foregoing.
“Intercompany Account” means any intercompany account balance outstanding as of immediately prior to the Closing between (a) any of the Acquired Companies, on the one hand, and (b) Seller or any of its Affiliates (other than the Acquired Companies) or any of their respective directors, officers or employees, on the other hand.
“Intercompany Agreement” means any intercompany Contract between (a) any of the Acquired Companies, on the one hand, and (b) Seller or any of its Affiliates (other than the Acquired Companies) or any of their respective directors, officers or employees, on the other hand.
“Interim Statements” has the meaning set forth in Section 3.7(a).
“Investment Assets” means any investment assets (whether or not required by GAAP or SAP to be reflected on a balance sheet) beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by any Acquired Company, including bonds, notes, debentures, mortgage loans, real estate and all other instruments of indebtedness, stocks, partnership or joint venture interests and all other equity interests, certificates issued by or interests in trusts, derivatives and all other assets acquired for investment purposes.
“Investment Notice” has the meaning set forth in Section 5.15(a).
“Investment Purchase Date” has the meaning set forth in Section 5.15(b).
“IRS” means the Internal Revenue Service.
“Knowledge” means with respect to:  (a) Seller as it relates to any fact or other matter, the actual knowledge (after reasonable inquiry) of the natural Persons listed in Section 1.1(a) of the Seller Disclosure Schedule of such fact or matter; and (b) Purchaser as it relates to any fact or other matter, the actual knowledge (after reasonable inquiry) of the natural Persons listed in Section 1.1(b) of the Purchaser Disclosure Schedule of such fact or matter.  
“Law” means any national, regional or local law, statute, ordinance, rule, regulation, order, judgment, decree, injunction or other legally binding obligation imposed by or on behalf of a Governmental Authority.
“Lease” has the meaning set forth in Section 3.15(c).
“Liability” means any indebtedness, liability, claim, Loss, damage, deficiency or obligation of any kind, whether fixed or unfixed, choate or inchoate, liquidated or unliquidated, known or unknown, asserted or unasserted, secured or unsecured, accrued, absolute, contingent or otherwise.

- #PageNum# -    
703550379

“Licensing Period” has the meaning set forth in Section 5.23(a).
“Losses” has the meaning set forth in Section 7.2(a).
“Management Fees” has the meaning set forth in Section 5.20(b)(iii).
“Material Contract” has the meaning set forth in Section 3.14(a).
 “New York Courts” has the meaning set forth in Section 9.11.
“Northern Assurance” has the meaning set forth in the Recitals.
“Notification Date” has the meaning set forth in Section 5.15(a).
“OneBeacon America” has the meaning set forth in the Recitals.
“OneBeacon Insurance” has the meaning set forth in the Recitals.
“OneBeacon Midwest” has the meaning set forth in the Recitals.
“OneBeacon Risk Management” has the meaning set forth in the Recitals.
“Ordinary Course of Business” with respect to a Person means the ordinary course of business of such Person, consistent with past practices.
“Organizational Documents” has the meaning set forth in Section 3.3(b).
“Pension Plan” has the meaning set forth in Section 3.11(b).
“Permitted Encumbrances” means (a) any Encumbrances disclosed in the Statutory Financial Statements (including in the notes thereto), (b) liens for Taxes, assessments and other governmental charges not yet due and payable or due and being contested in good faith and for which adequate reserves have been established in accordance with GAAP, (c) mechanics’, workmen’s, repairmen’s, warehousemen’s, carriers’ or other like liens arising or incurred in the Ordinary Course of Business or pursuant to original purchase price conditional sales contracts and equipment leases with third parties entered into in the Ordinary Course of Business and for which there is no default on the part of any Acquired Company, (d) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations, (e) Encumbrances related to deposits to secure policyholders’ obligations as required by the insurance departments of the various states, (f) Encumbrances or other restrictions on transfer imposed by applicable insurance Law, (g) Encumbrances incurred or deposits made to a Governmental Authority in connection with a Governmental Authorization, (h) Encumbrances granted under securities lending and borrowing agreements, repurchase and reserve repurchase agreements and derivatives entered into in the Ordinary Course of Business, as such Encumbrances relate to Investment Assets, (i) clearing and settlement Encumbrances on securities and other investment properties incurred in the ordinary course of clearing and settlement transactions in such securities and other investment properties and holding them with custodians, (j) Encumbrances 

- #PageNum# -    
703550379

recorded against the real property described in Section 3.15(b) or the Leases and which individually or in the aggregate, would not materially interfere with or effect the ownership, present use or occupancy of the affected real property, (k) landlords’ or lessors’ liens under the Leases, and (l) Encumbrances that would not, individually or in the aggregate, reasonably be likely to materially impair the continued use, operation or value of the property to which they relate.
“Person” means an individual, a corporation, a partnership, an association, a limited liability company, a joint venture, a trust or other entity or organization, including a Governmental Authority.
“Personal Information” has the meaning set forth in Section 3.13(f).
“Policy Issuance Authority” in a particular jurisdiction means the possession by ASIC or one of its Affiliates of the Governmental Authorizations, producer appointments or relationships, form filings or approvals and rate filings or approvals required under applicable law for ASIC or one of its Affiliates to write and issue any Retained Policy in such jurisdiction, or covering risks in such jurisdiction.
“Portfolio Notice” has the meaning set forth in Section 5.15(d).
“Post-Closing Adjustment Determination Date” has the meaning set forth in Section 2.3(b)(vi)(A).
“Post-Closing Delivery Period” has the meaning set forth in Section 2.3(b)(i).
“Potomac Insurance” has the meaning set forth in the Recitals.
“Pre-Closing Seller Contribution” has the meaning set forth in Section 5.18.
“Premises” has the meaning set forth in Section 3.15(b).
“Preparing Party” has the meaning set forth in Section 5.4(b)(iii).
“Privacy Laws” has the meaning set forth in Section 3.13(f). 
“Pro Forma Adjustments” means, with respect to any balance sheet of the Acquired Companies to be prepared and delivered pursuant to this Agreement, the applicable adjustments and principles set forth on Schedule 1.1(a).
“Pro Forma Balance Sheet” means the pro forma financial statements of the Acquired Companies as of December 31, 2011 and included in Section 1.1(b) of the Seller Disclosure Schedule.
“Pro Forma Target Statutory Capital” means the calculation of the Target Statutory Capital based on the Pro Forma Balance Sheet.
“Producer Agreements” means Contracts between any Acquired Company and any agent of such Acquired Company who placed Insurance Contracts on behalf of such Acquired Company.

- #PageNum# -    
703550379

“Proposed Final Closing Date Balance Sheet” has the meaning set forth in Section 2.3(b)(i)(A).
“Proposed Final Target Statutory Capital” has the meaning set forth in Section 2.3(b)(i)(B).
“Proposed Financial Deliverables” has the meaning set forth in Section 2.3(b)(i)(B).
“Purchase Price Allocation Schedule” has the meaning set forth in Section 5.4(i)(ii).
“Purchased Shares” has the meaning set forth in Section 2.1(a).
“Purchaser” has the meaning set forth in the Preamble.
“Purchaser Disclosure Schedule” means the disclosure schedule delivered by Purchaser to Seller in connection with the execution and delivery of this Agreement.
“Purchaser Indemnified Parties” has the meaning set forth in Section 7.3(a).
“Purchaser Intercompany Agreement” has the meaning set forth in Section 5.20(b).
“Purchaser Material Adverse Effect” means a material impairment of the ability of Purchaser to perform its obligations under this Agreement.
“Purchaser Parent” has the meaning set forth in the Preamble.
“Registered Intellectual Property” has the meaning set forth in Section 3.13(a).
“Reinsurance Agreements” has the meaning set forth in Section 3.18.
“Release” means the Release to be delivered at the Closing and substantially in the form of Exhibit 1 attached hereto.
“Released Parties” has the meaning set forth in Section 5.11.
“Required Additional Capital Amount” has the meaning set forth in Section 5.19.
“Required Approvals” has the meaning set forth in Section 6.1(b). 
“Resignations” has the meaning set forth in Section 5.9.
“Restructuring” means transactions described in Section 5.13(a) of the Seller Disclosure Schedule.
“Retained Business” means the specialty property and casualty business retained by Seller or ASIC pursuant to the Retained Business Reinsurance Agreement or written by any Affiliate of Seller that is not an Acquired Company.

- #PageNum# -    
703550379

“Retained Business Administrative Services Agreement” means the Retained Business Administrative Services Agreement to be delivered at the Closing and substantially in the form of Exhibit 2 attached hereto.
“Retained Business Reinsurance Agreement” means the Amended and Restated 100% Quota Share Reinsurance Agreement (Specialty) to be delivered at the Closing and substantially in the form of Exhibit 3 attached hereto.
“Retained Liabilities” means all Liabilities and obligations of the Acquired Companies arising out of actions or omissions, or the operation of their business, at any time prior to the Closing, and relating solely to the Retained Business.
“Retained Policies” means all Insurance Contracts that are subject to the Retained Business Reinsurance Agreement.
“Reviewing Party” has the meaning set forth in Section 5.4(b)(iii).
“Run-Off Business” means the business conducted by each of the Acquired Companies as of the date hereof other than the Retained Business.
“Run-Off Business Administrative Services Agreement” means the Run-Off Business Administrative Services Agreement to be delivered at the Closing and substantially in the form of Exhibit 4 attached hereto.
“Run-Off Business Consulting Engagement Agreement” means the Run-Off Business Consulting Engagement Agreement executed in the form of Exhibit 5 attached hereto.
“Run-Off Business Reinsurance Agreement” means the Amended and Restated 100% Quota Share Reinsurance Agreement (Runoff) to be delivered at the Closing and substantially in the form of Exhibit 6 attached hereto.
“SAP” means the statutory accounting principles and practices prescribed or permitted by applicable insurance Law or the applicable Department.
 “Section 338(h)(10) Election” has the meaning set forth in Section 5.4(i)(i).
“Securities Act” means the Securities Act of 1933.
“Seller” has the meaning set forth in the Preamble.
“Seller Affiliated Group” has the meaning set forth in Section 3.10(b).
 “Seller Disclosure Schedule” means the disclosure schedule delivered by Seller to Purchaser in connection with the execution and delivery of this Agreement.
“Seller Indemnified Parties” has the meaning set forth in Section 7.2(a).

- #PageNum# -    
703550379

“Seller Marks” has the meaning set forth in Section 5.6(c).
“Seller Parent” has the meaning set forth in the Preamble.
“Seller Pari Passu Amount” has the meaning set forth in Section 5.19.
“Seller Pari Passu Note” has the meaning set forth in Section 5.19.
“Seller Priority Amount” has the meaning set forth in Section 5.19.
“Seller Priority Note” has the meaning set forth in Section 5.19.
“Seller SR Parties” has the meaning set forth in Section 5.17(a).
“Share Consideration” has the meaning set forth in Section 5.4(i)(ii).
“Shared Reinsurance” has the meaning set forth in Section 5.17(a).
“Shares” has the meaning set forth in Section 2.1(a).
“Specified Transfer Taxes” has the meaning set forth in Section 5.4(a).
“Statutory Financial Statements” has the meaning set forth in Section 3.7(a).
“Subsidiary” means with respect to any entity, any other entity as to which it owns, directly or indirectly, or otherwise controls, more than fifty percent (50%) of the voting shares or other similar interests or otherwise has the ability to elect a majority of the directors, trustees, managing members or other persons or body exercising management control thereof.
“Surety Bonds” has the meaning set forth in Section 5.11.
“Surplus Note” has the meaning set forth in Section 5.19.
“Target Statutory Capital” means an amount equal to the sum of: (a) 200% of the authorized control level risk-based capital of OneBeacon Insurance, on a consolidated and combined basis with its Subsidiaries, plus (b) the capital level of Potomac Insurance, in each case, at the relevant date of determination as determined by Seller in accordance with SAP after giving effect to the Pro Forma Adjustments (other than (i) the Pre-Closing Seller Contribution, (ii) those related to the contribution of the Seller Pari Passu Amount and the Seller Priority Amount, and (iii) the issuance of any Surplus Note).
“Tax” or “Taxes” means any and all taxes, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any Governmental Authority, which taxes shall include all net income, gross income, profits, minimum, estimated, payroll, withholding, social security, social insurance, retirement, employment, unemployment, recording, sales, use, ad valorem, value added, real or personal property, excise, franchise, premium, gross receipts, stamp, transfer, net worth, environmental, windfall profits and other taxes, fees, duties, levies, customs, 

- #PageNum# -    
703550379

tariffs, imposts, assessments, obligations and charges of the same or of a similar nature to any of the foregoing.
“Tax Contest” has the meaning set forth in Section 5.4(e)(i).
“Tax Dispute” has the meaning set forth in Section 5.4(b)(iii).
“Tax Returns” means any and all returns, reports, statements, certificates, schedules or claims for refund of or with respect to any Tax which is supplied or required to be supplied to any Governmental Authority, including any and all attachments, amendments and supplements thereto.
“Termination Date” has the meaning set forth in Section 8.1(d).
“Third Party Acquisition” has the meaning set forth in Section 5.21.
“Third Party Claim” has the meaning set forth in Section 7.4(b).
“Trademarks” means all trademarks, trade names, trade dress, service marks, assumed names, business names and logos, slogans and Internet domain names, together with all goodwill of the businesses symbolized thereby, and all current registrations and applications for any of the foregoing.
“Traders & General” has the meaning set forth in the Recitals.
“Trade Completion Certificate” has the meaning set forth in Section 5.15(e).
“Transfer Taxes” means any and all transfer, documentary, sales, use, registration, stamp, notarial, filing, recording, authorization and other similar Taxes (including penalties and interest with respect thereto).
“Underlying Allocated Account” has the meaning set forth in Section 5.25(a).
“Updated Forecast” has the meaning set forth in Section 5.20(b)(iii).
“Transition Services Agreement” means the Transition Services Agreement to be delivered at the Closing substantially in the form of Exhibit 7 attached hereto.
“Wire Transfer” means a payment in immediately available funds by wire transfer in lawful money of the United States of America to such account or accounts as shall have been designated by notice to the paying party not less than two (2) Business Days prior to the date of payment.
“XPL Claim” means a claim in excess of an underlying Insurance Contract’s limits.
Section 1.2    Interpretation
(a)    As used in this Agreement, references to the following terms have the meanings indicated:

- #PageNum# -    
703550379

(i)    To the Preamble or to the Recitals, Sections, Articles, Exhibits 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.
(ii)    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.
(iii)    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.
(iv)    To any Governmental Authority include any successor to the Governmental Authority and to any Affiliate include any successor to the Affiliate.
(v)    To any “copy” of any Contract or other document or instrument are to a true and complete copy.
(vi)    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.
(vii)    To the “date of this Agreement,” “the date hereof” and words of similar import refer to October 17, 2012.
(viii)    To “this Agreement” includes the Exhibits and Schedules (including the Purchaser Disclosure Schedule and the Seller Disclosure Schedule) to this Agreement.
(ix)    To a “willful and material breach” refers to a material breach that is a consequence of an act or failure to act undertaken by the breaching party with the knowledge (actual or constructive) that the taking of or failure to take such act would or would reasonably be expected to cause a breach of this Agreement.
(x)    To any “Acquired Company” shall exclude such Acquired Company to the extent, and from and after the moment, Seller sells or transfers the capital stock of such Acquired Company or such Acquired Company merges with another Acquired Company and therefore ceases to exist, but shall not exclude any representations, warranties or covenants made by Seller or Seller Parent pursuant to this Agreement with respect to such Acquired Company prior to such sale, transfer or merger.
(b)    Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”  The word “or” shall not be exclusive.  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 

- #PageNum# -    
703550379

a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.
(c)    Whenever the last day for the exercise of any right or the discharge of any duty under this Agreement falls on other than a Business Day, the party hereto 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.
(d)    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.
(e)    References to “party” or “parties” hereto mean Seller and/or Purchaser, unless the context otherwise requires.
(f)    References to “dollars” or “$” mean United States dollars, unless otherwise clearly indicated to the contrary.
(g)    The parties hereto 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 hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provision of this Agreement.
(h)    No summary of this Agreement prepared by or on behalf of any party hereto shall affect the meaning or interpretation of this Agreement.
(i)    All capitalized terms used without definition in the Exhibits and Schedules (including the Purchaser Disclosure Schedule and the Seller Disclosure Schedule) to this Agreement shall have the meanings ascribed to such terms in this Agreement.
ARTICLE II     
PURCHASE AND SALE
Section 2.1    Purchase and Sale
(j)    Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell or cause to be sold to Purchaser, and Purchaser shall purchase from Seller or the appropriate Affiliate of Seller, as the case may be, all of the issued and outstanding shares of capital stock of OneBeacon Insurance and Potomac Insurance (collectively, the “Purchased Shares”), free and clear of all Encumbrances (other than restrictions on transfer imposed by federal and state insurance and securities Laws).  As used in this Agreement, “Shares” means all of the issued and outstanding capital stock of the Acquired Companies.
(k)    Three (3) Business Days prior to the Closing Date, Seller shall cause to be prepared and delivered to Purchaser the Estimated Closing Date Balance Sheet, and a certificate duly executed by an authorized officer of Seller setting forth the Estimated Target Statutory Capital and the Closing 

- #PageNum# -    
703550379

Purchase Price and certifying on behalf of Seller that such calculations have been determined in good faith in accordance with the terms of this Agreement.
(l)    The aggregate purchase price to be paid by Purchaser to Seller at the Closing in consideration of the Purchased Shares shall be an amount in cash equal to:
(i)    $61,000,000;
(ii)    plus accrued accretion thereon at the Accretion Rate from (and including) December 31, 2011 to the Closing Date;
(iii)    plus (if a positive amount) or minus (the absolute value, if a negative amount), the difference of (x) the Estimated Target Statutory Capital minus (y) the Pro Forma Target Statutory Capital;
(iv)    minus eighteen million five hundred thousand dollars ($18,500,000) 
 
(subsections (i) through (iv) herein, collectively the “Closing Purchase Price”). Notwithstanding the foregoing, if the sum of subsections (i) through (iv) is a negative number, the Closing Purchase Price shall be $1.00.
Section 2.2    Closing
(a)    The Closing shall take place at the offices of Mayer Brown LLP, 1675 Broadway, New York, New York at 10:00 a.m., New York City time, on a Business Day to be specified by the parties hereto, which shall be no later than the seventh (7th) Business Day following the satisfaction or waiver (to the extent permitted by Law) of the conditions set forth in Article VI (other than conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted by Law) at or prior to the Closing of all such conditions) in accordance with this Agreement or at such other time, date and place as the parties hereto may mutually agree in writing.  The date on which the Closing occurs is referred to herein as the “Closing Date.”  The parties hereto agree that effectiveness of the Closing shall be as of 12:01 a.m., New York City time, on the Closing Date.
(b)    At the Closing, Seller shall deliver or cause to be delivered to Purchaser the following:
(i)    the executed certificate(s) described in Sections 6.2(a) and (b);
(ii)    original certificates representing the Purchased Shares duly endorsed in blank, or accompanied by stock powers duly executed in blank, in proper form for transfer on the stock transfer books of OneBeacon Insurance Company and Potomac Insurance Company;
(iii)    the duly tendered Resignations;

- #PageNum# -    
703550379

(iv)    an executed counterpart of each of the Ancillary Agreements that is to be delivered at the Closing to which Seller or any of its Subsidiaries is a party;
(v)    an executed certificate under Section 1445(b)(2) of the Code providing that neither OneBeacon U.S. Holdings, Inc. or, to the extent any Affiliate of Seller is the seller of any of the Purchased Shares pursuant to Section 2.1(a) hereof, such Affiliate is a foreign person;
(vi)    the Books and Records of the Acquired Companies to the extent such Books and Records are not already in the possession of the Acquired Companies;
(vii)    certified copies of resolutions duly adopted by the Board of Directors of Seller authorizing the execution and performance of this Agreement and the other documents contemplated hereby; and
(viii)    all such additional instruments, documents and certificates provided for by this Agreement.
(c)    At the Closing, Purchaser shall deliver or cause to be delivered to Seller the following:
(i)    the executed certificate(s) described in Sections 6.3(a) and (b);
(ii)    the Closing Purchase Price paid at the Closing by Wire Transfer or by such other means as may be agreed upon by Purchaser and Seller;
(iii)    an executed cross-receipt for the Purchased Shares delivered at the Closing;
(iv)    an executed counterpart of each of the Ancillary Agreements that is to be delivered at the Closing to which Purchaser or any of its Affiliates is a party;
(v)    certified copies of resolutions duly adopted by the Board of Directors of Purchaser authorizing the execution and performance of this Agreement and the other documents contemplated hereby; and
(vi)    all such additional instruments, documents and certificates provided for by this Agreement.
(d)    At the Closing, each party hereto shall deliver to the other party hereto copies (or other evidence) of all of its Required Approvals in satisfaction of Section 6.1(b).
Section 2.3    Post-Closing Adjustment of the Closing Purchase Price.
(a)    The Closing Purchase Price will be adjusted after the Closing in accordance with Section 2.3(b).  As used in this Agreement, “Final Purchase Price” means the Closing Purchase Price calculated assuming that reference to the Estimated Target Statutory Capital instead is to the Final Target Statutory Capital.  For all purposes of this Section 2.3, the Closing Purchase Price shall 

- #PageNum# -    
703550379

refer to the amount determined in accordance with Section 2.1(c), but without regard to the final sentence thereof.
(b)    The Final Purchase Price shall be determined and a final payment shall be made by Purchaser to Seller or by Seller to Purchaser, as the case may be, as provided in this Section 2.3(b).
(vii)    Not later than 90 days after the Closing Date (the “Post-Closing Delivery Period”), Purchaser shall prepare, or cause to be prepared, and deliver to Seller:
(A)    a combined statutory balance sheet of the Acquired Companies as of the Closing Date (including a detailed breakdown of the value of the Acquired Companies’ Investment Assets as of the Closing Date as reflected on such combined statutory balance sheet), which will be prepared in accordance with SAP (except with respect to the Pro Forma Adjustments) applied on a basis consistent with the Pro Forma Balance Sheet after giving effect to the Pro Forma Adjustments (the “Proposed Final Closing Date Balance Sheet”); and
(B)    a certificate duly executed by an authorized officer of Purchaser setting forth the calculation of the Final Target Statutory Capital (the “Proposed Final Target Statutory Capital” and together with the Proposed Closing Date Balance Sheet, the “Proposed Financial Deliverables”) and the Final Purchase Price derived from such and the other statements herein (assuming, for purposes of such certificate, that the Final Closing Date Balance Sheet will be in the form of the Proposed Final Closing Date Balance Sheet) and certifying on behalf of Purchaser that such calculation has been determined in good faith in accordance with the terms set forth in this Section 2.3(b).
If Purchaser shall fail to deliver the Proposed Financial Deliverables pursuant to this Section 2.3(b)(i) within the Post-Closing Delivery Period, Seller may, upon written notice to Purchaser delivered within 10 days after the expiration of the Post-Closing Delivery Period, prepare, or cause to be prepared, and deliver to Purchaser the Proposed Financial Deliverables within 30 days after the expiration of the Post-Closing Delivery Period, in which case, the provisions of this Section 2.3(b) shall be adjusted mutatis mutandis.  After delivery of the notice referred to in the immediately preceding sentence, Seller and a firm of independent public accountants and independent actuaries designated by Seller will be entitled to reasonable access during normal business hours to the relevant records and working papers of Purchaser and its accountants and actuaries to aid in their preparation of the Proposed Financial Deliverables.  If Purchaser shall fail to deliver the Proposed Financial Deliverables pursuant to this Section 2.3(b)(i) within the Post-Closing Delivery Period and Seller shall fail to deliver the notice referred to in the third sentence of this paragraph, the Estimated Target Statutory Capital and the Estimated Closing Date Balance Sheet, as the case may be, shall be deemed to be final, binding and conclusive on the parties.
(viii)    After delivery of the Proposed Financial Deliverables to the Seller, Seller and a firm of independent public accountants and independent actuaries designated by Seller will be entitled to reasonable access during normal business hours to the relevant records 

- #PageNum# -    
703550379

and working papers of Purchaser and its accountants and actuaries to aid in their review of the Proposed Financial Deliverables.
(ix)    The Proposed Financial Deliverables will be deemed to be accepted by and will be final, binding and conclusive on the parties except to the extent, if any, that Seller has delivered to Purchaser within 45 days after the date on which the Proposed Financial Deliverables are delivered to Seller, a written notice stating that Seller believes that the Proposed Financial Deliverables contain mathematical errors or were not prepared in accordance with the terms of this Agreement.  The written notice of objection must specify in reasonable detail (A) each and every item in the Proposed Financial Deliverables to which Seller objects, (B) the nature of any such objection, (C) the amount in question, (D) Seller’s proposed change with respect to such items, and (E) the reasons supporting Seller’s positions.
(x)    If a proposed change by the Seller is disputed by Purchaser, Seller and Purchaser shall negotiate in good faith to resolve such dispute.  If Purchaser and Seller reach agreement with respect to any disputed item, Purchaser shall revise the Proposed Financial Deliverables to reflect such agreement, and such revised and agreed Proposed Financial Deliverables will be final, binding and conclusive on the parties.
(xi)    If any such proposed change remains disputed after a period of 30 days following the date on which Seller gives Purchaser the written notice of objection, then Purchaser and Seller shall jointly engage (x) KPMG LLP, (y) if KPMG LLP has a conflict of interest with respect to such engagement that is not waived by the parties or is otherwise unable or unwilling to accept such engagement, another nationally recognized “Big Four” independent registered public accounting firm having substantial insurance and reinsurance arbitration expertise that (A) does not have a conflict of interest with respect to such engagement that is not waived by the parties and (B) is mutually acceptable to Purchaser and Seller, or (z) if no such an accounting firm is mutually acceptable to Purchase and Seller, they shall each instruct their respective accountants to select another nationally recognized independent registered public accounting firm having substantial insurance and reinsurance arbitration expertise that does not have a conflict of interest with respect to such engagement that is not waived by the parties in good faith within ten (10) days; provided that if Purchaser’s and Seller’s accountants shall not have agreed upon such an accounting firm within such ten (10) day period, within an additional five (5) days, they shall each designate such an accounting firm and one accounting firm shall be selected by lot from those two accounting firms; provided further that, if only one of Seller’s and Purchaser’s accountants shall so designate a name of an accounting firm for selection by lot, such accounting firm so designated shall be deemed selected (KPMG LLP or such other firm, the “Independent Accountant”) to resolve any remaining disputes.  When acting under this Agreement, the Independent Accountant shall be entitled to the privileges and immunities of an arbitrator.  The Independent Accountant will act as an arbitrator to determine only those issues as to which Seller has disagreed in the notice of objection duly delivered pursuant to Section 2.3(b)(iii) that are disputed by Purchaser.  Purchaser and Seller shall deliver written briefs in support of their positions to the Independent Accountant, as applicable, and to one another within 20 Business Days after the matter is submitted to the Independent Accountant.  

- #PageNum# -    
703550379

Reasonable discovery will be permitted in any such arbitration proceeding, including the right to depose or obtain interrogatories from officers, employees or other representatives of the other party to the extent such Persons are knowledgeable about, or possess information regarding, matters relevant to any disputed item.  In addition, during the review by the Independent Accountant, Purchaser and Seller shall each make available to the Independent Accountant such individuals and such information, books, records and work papers, as may be required by the Independent Accountant to fulfill its obligations under this Section 2.3(b)(v); provided, however, that the independent accountants of Seller or Purchaser shall not be obligated to make any working papers available to the Independent Accountant unless and until the Independent Accountant has signed a confidentiality and hold harmless agreement relating to such access to working papers in form and substance reasonably acceptable to such independent accountants or independent actuaries.  Purchaser and Seller shall use their commercially reasonable efforts to cause the Independent Accountant to issue its written determination regarding all disputed items within 30 days (and in any event such determination will be issued not later than 60 days) after such items are submitted for review.  In no event may the Independent Accountant’s determination of disputed items be for an amount that is outside the range of Purchaser’s and Seller’s disagreement.  The determination of the Independent Accountant will be final, binding and conclusive on Purchaser and Seller, and Purchaser shall revise the Proposed Financial Deliverables to reflect such determination.  The fees, costs and expenses of the Independent Accountant will be borne by Purchaser and Seller in a proportion equal to the aggregate amount unsuccessfully disputed by such party over the total amount in dispute and submitted to the Independent Accountant as calculated by the Independent Accountant.
(xii)    The Proposed Final Target Statutory Capital and the Proposed Final Closing Date Balance Sheet that become final, binding and conclusive on the parties pursuant to any of clauses (i), (iii), (iv) and (v) of this Section 2.3(b) are respectively referred to herein as the “Final Target Statutory Capital” and “Final Closing Date Balance Sheet.”  
(A)    If the Final Purchase Price is less than the Closing Purchase Price, Seller shall pay to Purchaser an amount equal to such shortfall, within five (5) Business Days following the date on which the Proposed Final Target Statutory Capital and the Proposed Final Closing Date Balance Sheet are finalized in accordance with any of clauses (i), (iii), (iv) and (v) of this Section 2.3(b) (“Post-Closing Adjustment Determination Date”); and
(B)    If the Final Purchase Price is more than the Closing Purchase Price, Purchaser shall cause OneBeacon Insurance to pay to Seller an amount equal to such excess, within the later of (x) five (5) Business Days following the Post-Closing Adjustment Determination Date, and (y) five  (5) Business Days following the date of receipt of approval from the Pennsylvania Department for such payment, if required.
(xiii)    Any payments required to be made by one party to another party pursuant to this Section 2.3(b) shall be offset by any payments required to be made to the first party 

- #PageNum# -    
703550379

by such other party.  Any payment required to be made pursuant to this Section 2.3(b) will be made by Wire Transfer.  Any adjustment pursuant to this Section 2.3(b) will be treated as an adjustment to the Closing Purchase Price for tax reporting purposes.
(xiv)    Purchaser covenants that until the amount that is to be paid to Seller pursuant to clause (vi)(B) of this Section 2.3(b) is paid in full, Purchaser shall (A) ensure that OneBeacon Insurance does not declare or pay any dividend, distribution or other similar payment or transfer to its shareholder(s) and (B) take all reasonable actions and measures to ensure that the Pennsylvania Department approves as promptly as practicable, and does not withdraw any approval granted for, the full payment of such amount, including making all filings required therefor within five (5) Business Days of the Post-Closing Adjustment Determination Date. 
(xv)    Purchaser’s and Seller’s rights to indemnification pursuant to Article VII will not be deemed to limit, supersede or otherwise affect, or be limited, superseded or otherwise affected by, Purchaser’s and Seller’s respective rights under this Section 2.3(b), except to the extent any Loss is reflected, reserved for or accrued on the Final Closing Date Balance Sheet.
Section 2.4    No Set-off.  Except as expressly set forth herein, from and after the Closing, neither Seller nor any of its Affiliates, on the one hand, nor Purchaser nor any of their Affiliates, on the other hand, shall have any set-off or other similar rights with respect to (a) any of the funds to be received by such party or its Affiliates pursuant to this Agreement or any Ancillary Agreement or (b) any other amounts claimed to be owed to the other party hereto or its Affiliates arising out of this Agreement or any Ancillary Agreement
ARTICLE III     
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Seller Disclosure Schedule, Seller represents and warrants to Purchaser as follows; provided that no representation or warranty is made under this Agreement with respect to the Retained Business (other than the representations set forth in Section 3.17); provided, further, that to the extent Seller sells or transfers the capital stock of any Acquired Company, or merges any Acquired Company into another Person, prior to the Closing as permitted in Section 5.13, no representation or warranty will be deemed to be made under this Agreement with respect to such Acquired Company, as the case may be, from and after the date of such sale, transfer or merger.
Section 3.1    Organization and Authority.  Seller is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware.  Seller has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and the agreements contemplated to be executed and delivered hereunder to which it is a party.
Section 3.2    Binding Effect.  The execution and delivery of this Agreement by Seller, the performance of its obligations hereunder and the consummation of the transactions contemplated 

- #PageNum# -    
703550379

hereby have been duly and validly approved by all requisite corporate action on the part of Seller and no additional corporate proceedings on the part of Seller or any Affiliate thereof or any of their respective securityholders are necessary to approve or authorize, as applicable, this Agreement, the performance of Seller’s obligations hereunder or the consummation of the transactions contemplated hereby.  Assuming the due authorization, execution and delivery by Purchaser, this Agreement constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, preference and other similar laws affecting creditors’ rights generally, and by general principles of equity (regardless of whether enforcement is sought in equity or at law) (the “Bankruptcy and Equity Exceptions”).
Section 3.3    Organization, Qualification and Authority of the Acquired Companies
(a)    Each of the Acquired Companies is an insurance company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization.  Each of the Acquired Companies (i) has all requisite corporate power and authority to own, lease or otherwise hold and operate its assets and to carry on its business as currently conducted and (ii) is duly qualified to do business and is in good standing (if applicable) as a foreign corporation in each jurisdiction where the ownership or operation of its assets or the conduct of its business requires such qualification, except, in the cases of clauses (i) and (ii) above, where the failure to have such power and authority or to be so qualified would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.
(b)    Seller has made available to Purchaser copies of the Books and Records and organizational documents of each of the Acquired Companies, in each case as amended (such organizational documents, the “Organizational Documents”).  The Acquired Companies are not in violation in any material respect of any of the provisions of their Organizational Documents.
Section 3.4    Capital Structure; Ownership of the Acquired Companies
(a)    The authorized capital stock, including the number of authorized shares and the number of issued and outstanding shares, of each of the Acquired Companies is set forth on Section 3.4(a) of the Seller Disclosure Schedule.  The Shares are the only shares of capital stock of, or other equity or voting interest in, the Acquired Companies that are issued and outstanding and are held by the Seller and the Acquired Companies as set forth in Section 3.4(a) of the Seller Disclosure Schedule.  The Shares have been duly authorized and validly issued and are fully paid and non-assessable.  Except for this Agreement, there are no preemptive or other outstanding rights, options, warrants, subscriptions, puts, calls, conversion rights or agreements or commitments of any character relating to the authorized and issued, unissued or treasury shares of capital stock, or other equity or voting interests, of any of the Acquired Companies.  The Shares have not been issued in violation of any applicable Laws or the Acquired Companies’ respective Organizational Documents or in violation of any preemptive rights of the current owners of the Acquired Companies.  None of the Acquired Companies has any debt securities outstanding that have voting rights or are exercisable or convertible into, or exchangeable or redeemable for, or that give any Person a right to subscribe for or acquire, capital stock or any other security or any other equity interests of any such Acquired Company.  There are no obligations, contingent or otherwise, to repurchase, redeem 

- #PageNum# -    
703550379

(or establish a sinking fund with respect to redemption) or otherwise acquire any Shares.  There are no shares of capital stock or other equity or voting interests of any of the Acquired Companies reserved for issuance.  Seller owns, directly or indirectly, all of the Shares, in each case of record and beneficially, free and clear of all Encumbrances (other than restrictions on transfer imposed by federal and state insurance and securities Laws).  
(b)    Except as set forth on Section 3.4(b) of the Seller Disclosure Schedule, none of the Acquired Companies has any Subsidiaries and, except for Investment Assets, none of the Acquired Companies owns, directly or indirectly, any capital stock or other equity or voting interest of any Person, has any direct or indirect equity or ownership interest in any business or is a member of or participant in any partnership, joint venture or other entity, excluding any membership or participation in guaranty funds or similar associations or organizations the Acquired Companies must participate in or by virtue of their status as licensed insurers or the nature of the Run-Off Business.  Upon delivery of certificates representing the Shares to be sold by Seller hereunder and payment therefore pursuant to this Agreement, good, valid and marketable title to such Shares, free and clear of all Encumbrances, will be transferred to the Purchaser (other than restrictions on transfer imposed by federal and state insurance and securities Laws).
Section 3.5    Filings and Consents.  No consents or approvals of, waivers from or filings or registrations with, any Governmental Authority or any third party pursuant to a Material Contract or Reinsurance Agreement are required to be made or obtained at or prior to the Closing by Seller or any Acquired Company in connection with the execution, delivery or performance by Seller of this Agreement or to consummate the transactions contemplated hereby, except for (a) the notification and report forms required, if any, to be filed under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice, (b) the approvals required, if any, under the applicable insurance laws and regulations of the States of Massachusetts, New Jersey, New York, Pennsylvania, Texas and Wisconsin, (c) the expiry of waiting periods required under other applicable insurance Laws, (d) the matters set forth on Section 3.5 of the Seller Disclosure Schedule and (e) consents, approvals, waivers, filings or registrations the failure of which to make with or obtain from the applicable Governmental Authorities or third parties would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.
Section 3.6    No Violations.  Subject to the making of the filings and registrations and receipt of the consents, approvals and waivers referred to in Section 3.5 and the expiration of related waiting periods, the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby do not and will not (a) conflict with, constitute a breach or violation of, or a default under, or give rise to any Encumbrance (other than Permitted Encumbrances) or any acceleration of remedies, penalty, increase in benefit payable or right of termination, suspension, revocation or cancellation under, or forfeiture of, as applicable, any applicable Law, Governmental Order or Governmental Authorization or any Contract of Seller or any Acquired Company, except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, or (b) constitute a material breach or violation of, or a default under, or conflict with the organizational documents of Seller or any of the Organizational Documents.

- #PageNum# -    
703550379

Section 3.7    Financial and Statutory Statements; No Undisclosed Liabilities.
(a)    Seller has made available to Purchaser prior to the date hereof copies of (i) the annual statutory financial statements of each of the Acquired Companies as of and for the years ended 2011 and 2010 (the “Annual Statutory Financial Statements”) and (ii) the quarterly statutory financial statements of each of the Acquired Companies as of and for the quarterly period ended June 30, 2012 as filed with the Departments (the “Interim Statements” and collectively with the Annual Statutory Financial Statements, the “Statutory Financial Statements”).  Except as may be indicated in the notes thereto, each of the Statutory Financial Statements (A) were derived from and consistent with the Books and Records, (B) were prepared, in all material respects, in accordance with all applicable Laws and SAP consistently applied during the periods involved and (C) present fairly, in all material respects, the statutory financial position and the statutory results of operations, capital and surplus of the applicable Acquired Company as of the respective dates and for the respective periods referred to in the Statutory Financial Statements.
(b)    The Pro Forma Balance Sheet has been prepared in accordance with SAP (except with respect to the Pro Forma Adjustments).  The Pro Forma Balance Sheet was prepared from and is consistent with the Books and Records and the Statutory Financial Statements, presents fairly in all material respects the combined pro forma financial position of the Acquired Companies as of December 31, 2011, and was prepared in conformity with SAP (except with respect to the Pro Forma Adjustments) applied on a basis consistent with its application in connection with the preparation of the Statutory Financial Statements.
(c)    Except for those Liabilities (i) that are reflected or reserved against in the Annual Statutory Financial Statements, (ii) incurred in the Ordinary Course of Business since December 31, 2011, (iii) incurred in the Ordinary Course of Business in connection with Insurance Contracts, (iv) incurred by or on behalf of an Acquired Company in connection with this Agreement, any Ancillary Agreement or the transactions contemplated hereby or thereby, (v) incurred with the consent of Purchaser or (vi) that would not individually, or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, none of the Acquired Companies has any liabilities that would be required by SAP to be reflected on an unaudited balance sheet of such Acquired Company (or disclosed in the notes thereto) (excluding any Liabilities that are reasonably apparent from the face of the disclosures set forth in the Seller Disclosure Schedule).
(d)    The loss and loss adjustment expense reserves (including incurred but not reported loss and loss adjustment expense reserves) of each Acquired Company reflected in its most recent Statutory Financial Statement filed with its domiciliary Department were determined using generally accepted actuarial standards consistently applied.
Section 3.8    Absence of Certain Changes.  Except as set forth in Sections 3.8 or 5.13(a) of the Seller Disclosure Schedule and Schedule 1.1(a), as reflected in the Interim Statements, or to the extent arising out of or relating to the transactions contemplated by this Agreement and the Ancillary Agreements, since December 31, 2011, (a) the Run-Off Business of the Acquired Companies has been operated in all material respects in the Ordinary Course of Business, (b) no Company Material Adverse Effect has occurred and (c) the Seller and the Acquired Companies have not made or allowed any action described under Sections 5.2(a) through (o); provided that for 

- #PageNum# -    
703550379

this purpose, the actions described under Section 5.2(m) shall be determined as if the word “material” were inserted immediately before the sixth, eleventh, twenty-first and seventy-second words of such Section (before taking into account the additional words added pursuant to this proviso).
Section 3.9    Litigation; Governmental Orders.
(a)    Other than as set forth in Section 3.9(a) of the Seller Disclosure Schedule, there is no Action pending or, to the Knowledge of Seller, threatened in writing against (i) any Acquired Company or its business or any of its properties or assets (other than ordinary course litigation in connection with Insurance Contracts) which would, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect or (ii) Seller or any of its Affiliates (other than the Acquired Companies) or any of their respective properties or assets, in each case, solely to the extent related to the business of the Acquired Companies, which would, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.
(b)    None of the Acquired Companies is a party or subject to any Governmental Order applicable to that Acquired Company, its business or any of its properties or assets other than those that would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect and other than any Governmental Order that is generally applicable to all Persons in businesses similar to that of the Acquired Companies.
Section 3.10    Taxes. 
(a)    All Tax Returns required to be filed by or with respect to the Acquired Companies (including any such Tax Return required to be filed by any Seller Affiliated Group) have been timely filed.  All such Tax Returns were true, correct and complete in all material respects and all Taxes owed by the Acquired Companies, whether or not shown on any such Tax Return, have been timely paid.  With respect to any taxable period for which Taxes are not yet due and owing, each of the Acquired Companies has made adequate and sufficient accruals for Taxes on the Statutory Financial Statements for such Acquired Company in accordance with SAP.  No Acquired Company is currently the beneficiary of or has requested any extension of time within which to file any Tax Return which has not yet been filed.  No claim has ever been made by any Governmental Authority in any jurisdiction where any Acquired Company does not file Tax Returns that such Acquired Company is or may be subject to taxation by, or required to file Tax Returns in, such jurisdiction.  Each of the Acquired Companies has complied in all material respects with all applicable laws relating to the payment, collection, or withholding of Taxes and the remittance thereof to the relevant Governmental Authority.
(b)    Since January 1, 2001, no Acquired Company has ever been (i) a member of any affiliated group filing or required to file a consolidated, combined, unitary, or other similar Tax Return (other than any such group of which CGU Corporation or Fund American Enterprises Holdings, Inc. were or OneBeacon U.S. Financial Services, Inc. is the common parent (a “Seller Affiliated Group”)) or (ii) a party to or bound by, nor does it have or has it ever had any obligation under, any Tax sharing or Tax allocation agreement or similar contract or arrangement (other than pursuant to customary commercial contracts not primarily related to Taxes and, in the case of any such contracts that are reasonably expected to give rise to a material amount of shared or allocated 

- #PageNum# -    
703550379

Taxes, as identified in Section 3.10(b) of the Seller Disclosure Schedule).  No Acquired Company has any liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any corresponding or similar provision of state, local, or non-United States law), as a transferee or successor, by contract, or otherwise (other than pursuant to customary commercial contracts not primarily related to Taxes and, in the case of any such contracts that are reasonably expected to give rise to a material liability of an Acquired Company, as identified in Section 3.10(b) of the Seller Disclosure Schedule). Immediately after the Closing Date, no Acquired Company will have any deferred intercompany items within the meaning of Treasury Regulations Section 1.1502-13, and at such time there will not exist any excess loss account within the meaning of Treasury Regulations Section 1.1502-19 with respect to the stock of any Acquired Company.  For United States federal income tax purposes, Seller constitutes a “disregarded entity,” owned by OneBeacon U.S. Holdings, Inc., within the meaning of Treasury Regulations Section 301.7701-3(b)(1).
(c)    Except as set forth in Section 3.10(c) of the Seller Disclosure Schedule:  (i) there are no Encumbrances with respect to Taxes upon any of the assets or properties of any of the Acquired Companies, other than Permitted Encumbrances; (ii) there are no audits, examinations, written claims or assessments regarding Taxes in process or pending or proposed against any of the Acquired Companies or any Seller Affiliated Group; (iii) there are no outstanding agreements, waivers, or arrangements extending the statutory period of limitation (or any other period during which any Tax can be assessed) applicable to any claim for, or the period for the collection or assessment of, any Taxes with respect to any Acquired Company or any Seller Affiliated Group, and there are no outstanding requests or demands to extend or waive any such period of limitation and (iv) no power of attorney with respect to Taxes has been executed or filed with any Governmental Authority by or with respect to any Acquired Company that will remain in effect after the Closing.
(d)    Section 3.10(d) of the Seller Disclosure Schedule lists all income and premium Tax Returns filed by or with respect to each Acquired Company (including any such Tax Return filed by any Seller Affiliated Group) for all taxable periods ended on or after December 31, 2009, copies of which have been made available to the Purchaser in the Electronic Data Room (which copies, in the case of any Seller Affiliated Group, are in the form of pro-forma returns for the relevant period for the Acquired Company included in such group), and indicates those Tax Returns that have been audited or subject to similar examination by a Taxing authority and those Tax Returns that, to the Knowledge of Seller, currently are the subject of such audit or examination.  Seller has delivered to the Purchaser true, correct, and complete copies of all private letter rulings, notices of proposed deficiencies, deficiency notices, closing agreements, settlement agreements, and pending ruling requests, relating to Taxes for all taxable periods ended on or after December 31, 2009 submitted, received, or agreed to by or on behalf of any Acquired Company.
(e)    No Acquired Company will be required to include any item of income in, or exclude any item of deduction from, the determination of taxable income for any taxable period (or portion thereof) after the Closing Date as a result of any (i) adjustment under Section 481 of the Code (or any similar provision of applicable state, local, or non-United States law) by reason of a change in accounting method or otherwise; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of applicable state, local, or non-United States law) or Tax-related ruling received from any Governmental Authority and  executed on or prior to the 

- #PageNum# -    
703550379

Closing Date; (iii) 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-United States law); (iv) installment sale or open transaction made on or prior to the Closing Date; (v) prepaid amount received on or prior to the Closing Date; or (vi) election under Section 108(i) of the Code.
(f)    Tax basis, loss and loss adjustment expense reserves, and unearned premium reserves for the Acquired Companies have been computed and maintained in the manner required under Sections 807, 832, and 846 of the Code and any other applicable Tax provision in all material respects.  No Acquired Company has a positive policyholder surplus account within the meaning of Section 815 of the Code, or maintains a “special loss discount account” or makes “special estimated tax payments” within the meaning of Section 847 of the Code.  No Acquired Company has ever been a life insurance company as defined in Section 816 of the Code, or has ever assumed, exchanged, administered, reinsured, or offered any policies or contracts that would constitute life insurance contracts as defined under Section 7702 of the Code or an annuity subject to Section 72 of the Code.  No Acquired Company has ever issued, assumed, reinsured, modified, exchanged, or sold any policies, contracts, or other products to customers that are intended to or have ever been intended to qualify as a “pension plan contract” within the meaning of Section 818(a) of the Code or were otherwise intended to qualify under Sections 401, 403, 408, 412 or 457 of the Code.
(g)    No Acquired Company has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code in the four (4) years prior to the date of this Agreement.
(h)    No Acquired Company has ever had a permanent establishment or other taxable presence in any foreign country, as determined pursuant to applicable foreign law and any applicable Tax treaty or convention between the United States and such foreign country.  To the Knowledge of Seller, no Acquired Company directly owns stock in any other corporation which is a passive foreign investment company within the meaning of Section 1297 of the Code or a controlled foreign corporation within the meaning of Section 957 of the Code.
(i)    No Acquired Company has participated or engaged in any “reportable transaction” within the meaning of Section 6707A of the Code or Treasury Regulations Section 1.6011-4, but excluding from such definition any transaction identified in Treasury Regulations Section 1.6011-4(b)(5).
(j)    No Acquired Company is subject to any current limitation (excluding for this purpose any such limitation arising as a result of the purchase and sale of the Purchased Shares pursuant to this Agreement) under Sections 382, 383, or 384 of the Code (or any corresponding or similar provision of state, local, or non-United States law) on its ability to utilize its net operating losses, built-in losses, credits, or other similar items.
Section 3.11    Employee Benefits.
(a)    Section 3.11(a) of the Seller Disclosure Schedule sets forth a list of each material employee benefit plan (as such term is defined in Section 3(3) of ERISA, whether or not such plans 

- #PageNum# -    
703550379

are subject to ERISA) and each other material plan, program or policy providing for equity-based compensation, bonuses, incentive compensation, retention, termination, change in control or fringe benefits, that is sponsored, maintained or contributed to by Seller or any of its ERISA Affiliates as of the date of this Agreement for the benefit of any Employee, or in which any Employee or beneficiary of an Employee otherwise participates as of the date of this Agreement, or with respect to which an Acquired Company has any liability, contingent or otherwise (collectively, the “Benefit Plans”).  Section 3.11(a) of the Seller Disclosure Schedule identifies any Benefit Plan, if any, that is maintained by any of the Acquired Companies as of the date of this Agreement.  Seller has delivered to Purchaser prior to the date hereof true and complete copies of each Benefit Plan.  Seller shall not make any material changes to any Benefit Plans after the date of this Agreement that materially increase the benefits to Employees or beneficiaries thereunder without first obtaining the written consent of Purchaser.  Section 3.11(a) of the Seller Disclosure Schedule set forth a list of each Employee.
(b)    Each Benefit Plan that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “Pension Plan”) and that is intended to be qualified under Section 401(a) of the Code, has received a favorable determination or opinion letter from the IRS or has applied to the IRS for a favorable determination letter within the applicable remedial amendment period under Section 401(b) of the Code, and there are no circumstances reasonably likely to result in the loss of the qualification of such plan under Section 401(a) of the Code.
(c)    The minimum funding standards of Section 412 of the Code have been satisfied, and neither Seller nor any ERISA Affiliate has an outstanding funding waiver.  No Acquired Company nor any ERISA Affiliate has incurred any material liability with respect to a Pension Plan under Title IV of ERISA (other than with respect to routine claims for benefits or Pension Benefit Guaranty Corporation premiums paid in the Ordinary Course of Business).  No Benefit Plan is a multiemployer plan as defined in Section 3(37) of ERISA.
(d)    Each Benefit Plan has been administered in all material respects in accordance with the terms of such plan and the provisions of any and all statutes, orders or governmental rules or regulations, including without limitation ERISA and the Code.  All contributions, premiums and other amounts due to or in connection with each Benefit Plan under the terms of the Benefits Plan or applicable law have been timely made.  There are no claims pending or, to the Knowledge of Seller, threatened in writing by or on behalf of any Benefit Plan (other than with respect to routine claims for benefits), by any Person covered thereby or otherwise.
(e)    Subject to Section 5.5(d), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, either alone or together with subsequent events, will (i) entitle any Employee to any payments (including severance pay or any increase in severance pay or other compensation upon any termination of employment after the date hereof) for which any Acquired Company or Purchaser would have any liability, (ii) accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any of the Benefit Plans for which any Acquired Company or Purchaser 

- #PageNum# -    
703550379

would have any liability or (iii) result in payments under any of the Benefit Plans that would not be deductible under Section 280G of the Code.
Section 3.12    Compliance with Laws; Governmental Authorizations.
(a)    Except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, none of the Acquired Companies (i) is in violation of any applicable Law nor (ii) has received, at any time since December 31, 2009, any written notice from any Governmental Authority regarding any actual or alleged violation of, or failure on the part of such Acquired Company to comply with, any applicable Law.
(b)    Except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, (i) each Acquired Company holds and maintains in full force and effect all material Governmental Authorizations required to conduct its business in the manner and in all such jurisdictions as it is currently conducted, including the insurance licenses from all insurance Governmental Authorities, which are set forth in Section 3.12 of the Seller Disclosure Schedule and (ii) each Acquired Company is in compliance with all such Governmental Authorizations.  None of the Acquired Companies has received, at any time since December 31, 2008, any written notice from any Governmental Authority regarding any actual or alleged violation of, or failure on the part of such Acquired Company to comply with, any term or requirement of any such material Governmental Authorization that has not been remedied.
(c)    The Acquired Companies have filed all material reports, statements, documents, registrations, filings and submissions required to be filed with any Governmental Authority, and all such reports, statements, documents, registrations, filings and submissions complied in all material respects with applicable Law in effect when filed and no material deficiencies have been asserted by, nor any material penalties imposed by, any such Governmental Authorities with respect to such reports, statements, documents, registrations, filings or submissions.
Section 3.13    Intellectual Property. 
(a)    Section 3.13(a) of the Seller Disclosure Schedule (in subsections labeled (i) and (ii) corresponding to the below paragraphs) contains a complete and accurate list of:
(i)    the Trademarks, copyrights, and patents owned by an Acquired Company or a Subsidiary of an Acquired Company that is the subject of a registration or pending application for registration and, if applicable, the jurisdictions in which such Registered Intellectual Property has been issued or registered or in which any application for such issuance or registration has been filed, the name of the applicant/registrant, the application or registration number, the filing date and the issuance/registration/grant date; and
(ii)    the domain name registrations owned by an Acquired Company or a Subsidiary of an Acquired Company and, for each such domain name, the named owner and the registrar with whom that domain name is registered.

- #PageNum# -    
703550379

The Acquired Companies and their Subsidiaries own all rights to the registered intellectual property and domain name registrations listed in Section 3.13(a)(i) and (ii) of the Seller Disclosure Schedule (collectively, the “Registered Intellectual Property”) free and clear of all Encumbrances other than Permitted Encumbrances.  The Acquired Companies and their Subsidiaries have taken reasonable steps to maintain the Registered Intellectual Property.  None of the Registered Intellectual Property has been adjudged invalid or unenforceable in whole or part.
(b)    As of the date of this Agreement, each Acquired Company owns or has rights or licenses to use, and as of the Closing Date and subject to obtaining all required consents and subject to obtaining all third party licenses and other consents required for Seller to provide or the Acquired Companies to receive services under the Transition Services Agreement, after giving effect to those transfers and assignments of Intellectual Property pursuant to Sections 5.6(a) and (b) and the services and access to and use of software and information systems that Seller is agreeing to provide under the Transition Services Agreement, each Acquired Company will own or have rights or licenses to use, the material Intellectual Property used in the business of such Acquired Company as currently conducted, free and clear of all Encumbrances other than Permitted Encumbrances, except as provided in the Transition Services Agreement.
(c)    To the Knowledge of Seller, the conduct of the business of each Acquired Company and their Subsidiaries as currently conducted does not infringe upon, misappropriate, dilute or otherwise violate the Intellectual Property rights of any third party; the Acquired Company and their Subsidiaries have not infringed upon, misappropriated, diluted, or otherwise violated the Intellectual Property rights of any third party and, subject to obtaining all required consents and subject to obtaining all third party licenses and other consents required for Seller to provide or the Acquired Companies to receive services under the Transition Services Agreement, will not infringe upon, misappropriate, or violate the Intellectual Property rights of any third party immediately following the Closing Date to the extent conducted as currently conducted (other than such changes in conduct due to the transactions contemplated herein on the Closing Date); and none of the Acquired Companies nor their Subsidiaries has received any written notice of any alleged breach, infringement, misappropriation or dilution or other violation by any Acquired Company or its Subsidiaries of the Intellectual Property rights of any third party, in each case where such breach, infringement, misappropriation or dilution is pending and not resolved and except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.  To the Knowledge of Seller, as of the date hereof, no third party is breaching, infringing upon, misappropriating or otherwise violating any Acquired Company Owned Intellectual Property and no such claims have been made or threatened in writing by any Acquired Company or Seller or their Affiliates.
(d)    After giving effect to those transfers and assignments of Intellectual Property pursuant to Sections 5.6(a) and (b) and the Transition Services Agreement and the activities contemplated by Section 5.13, except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, there is no Intellectual Property used in the business of any Acquired Company or its Subsidiaries as currently conducted that is owned by Seller or any of its Affiliates, other than the Seller Marks and software, systems and data used for the Acquired Companies.

- #PageNum# -    
703550379

(e)    The Acquired Companies have implemented policies and procedures reasonably designed to establish and preserve its ownership of the Acquired Company Intellectual Property, including the protection of trade secrets and other confidential information.
(f)    Each Acquired Company is in material compliance with any applicable privacy policies it has established.  To the Knowledge of Seller, there are no notices, claims, investigations or proceedings pending or threatened by state or federal agencies, or private parties involving notice or information to individuals that Personal Information held or stored by the Acquired Companies has been compromised, lost, taken, accessed or misused.  No Acquired Company has received any written notice regarding any violation of any Privacy Law, and, to the Knowledge of the Seller, no Acquired Company has had any data breach involving Personal Information or, if it was made aware of a data breach, has complied with all data breach notification and related obligations and has taken corrective action reasonably designed to prevent recurrence of such a data breach, except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.  All websites established or maintained by an Acquired Company that are accessible to the general public contain privacy statements advising them how their Personal Information will be used, collected, stored and protected.  “Personal Information” means any information related to an identified or identifiable natural person and does not meet the definition of de-identified as defined by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) section 164.514 (b)(2).  “Privacy Laws” shall mean any laws, statutes, rules, regulations, codes, orders, decrees, and rulings thereunder of any federal, state, regional, county, city, municipal or local government of the United States that relate to privacy, data protection or data transfer issues.   
Section 3.14    Material Contracts.
(a)    Section 3.14(a) of the Seller Disclosure Schedule lists, as of the date hereof, any Contract to which any Acquired Company is a party and that is (i) used primarily in the Run-Off Business or (ii) is a Contract under which any Acquired Company will have continuing obligations after the Closing that meets any of the following criteria and is not an Insurance Contract, Producer Agreement, reinsurance agreement, reinsurance treaty or Intercompany Agreement (each, a “Material Contract”) and that:
(i)    requires expenditures by an Acquired Company involving consideration in excess of $50,000 in any twelve (12)-month period;
(ii)    provides for payments to be received by an Acquired Company in excess of $50,000 in any twelve (12)-month period;
(iii)    relates to the incurrence by an Acquired Company of any indebtedness in an aggregate amount in excess of $50,000 during the term of the Contract;
(iv)    relates to the acquisition or disposition (whether by merger, sale or purchase of stock, sale or purchase of assets or otherwise) lease, option to sell or lease by an Acquired Company of any material assets or any material business (except for transactions involving Investment Assets);

- #PageNum# -    
703550379

(v)    restricts or limits an Acquired Company’s ability to freely engage in any business, compete with other entities, market any product or solicit employees or customers, or provides for “exclusivity” or any similar requirement;
(vi)    contains indemnifications, guarantees or keep-wells or similar undertakings made or supported by any Acquired Company;
(vii)    is a collective bargaining agreement or other Contract or arrangement with any labor union or any employee organization;
(viii)    relates to the license to an Acquired Company of any material Intellectual Property or the license from an Acquired Company of any material Intellectual Property, other than “shrink wrap” or “click through” licenses or licenses of generally-available “off the shelf” computer software or databases;
(ix)    Contract (however named) involving a sharing of profits, losses, costs or liabilities by any Acquired Company with any other Person;
(x)    power of attorney of any Acquired Company that is currently effective and outstanding;
(xi)    Contract relating to indemnification of any member, stockholder, manager, director or officer of any Acquired Company, other than the Organizational Documents; or
(xii)    is an obligation to enter into any of the foregoing.
(b)    With respect to each Material Contract, assuming the due authorization, execution and delivery thereof by the other party or parties thereto, (i) each Material Contract is a valid and binding obligation of the applicable Acquired Company and, to the Knowledge of Seller, as of the date hereof, each other party or parties thereto, in accordance with its terms and is in full force and effect, subject to the Bankruptcy and Equity Exceptions, (ii) the applicable Acquired Company is not, and, to the Knowledge of Seller, no other party thereto is in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in each of the Material Contracts and (iii) to the Knowledge of Seller, as of the date hereof, no event has occurred that would constitute a default under any Material Contract, except, with respect to the foregoing clauses (i), (ii) and (iii), where such failures to be valid and binding and in full force and effect and defaults would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect.
(c)    Copies of each Material Contract have been made available to Purchaser, except to the extent that any such Material Contract is identified as confidential in Section 3.14(a) of the Seller Disclosure Schedule.

- #PageNum# -    
703550379

(d)    For the avoidance of doubt,  Material Contracts shall not include Contracts that will be assigned, following the date hereof but prior to the Closing, to an Affiliate of the relevant Acquired Company that is not an Acquired Company.
Section 3.15    Assets; Real Property.
(a)    Each Acquired Company has good and valid title to, or a valid and binding leasehold or other interest in, all material personal property and other assets (other than the Investment Assets) reflected on the balance sheet contained in the Pro Forma Balance Sheet or thereafter acquired by such Acquired Company, except for property or other assets sold or otherwise disposed of since December 31, 2011 in the Ordinary Course of Business, free and clear of all Encumbrances, except Permitted Encumbrances.  This Section 3.15(a) does not relate to Intellectual Property, which is solely the subject of Section 3.13.
(b)    Section 3.15(b) of the Seller Disclosure Schedule sets forth a complete and accurate list, as of the date hereof, of all real property owned by the Acquired Companies (the “Premises”).
(c)    Section 3.15(c) of the Seller Disclosure Schedule sets forth a complete and accurate list, as of the date hereof, of any lease, sublease, license or occupancy agreement for real property that is primarily used in the conduct of the Run-Off Business of the Acquired Companies (any such lease, sublease, license or occupancy agreement being hereinafter referred to as a “Lease”) and Seller has delivered to Purchaser true and complete copies of each Lease.  Except for the Leases and such leases, subleases, licenses or occupancy agreements for real property that are to be assigned or terminated pursuant to Section 5.13, none of the Acquired Companies is a party to any lease, sublease, license or occupancy agreement for real property.  Assuming the due authorization, execution and delivery thereof by the other party or parties thereto, each Lease is in all material respects a valid and binding obligation of the applicable Acquired Company and, to the Knowledge of Seller, as of the date hereof, each other party or parties thereto, in accordance with its terms and is in full force and effect in all material respects, subject to the Bankruptcy and Equity Exceptions.  None of the Acquired Companies (i) owes any brokerage commissions or finders’ fees with respect to any Lease or (ii) has subleased, licensed or otherwise granted any Person the right to use or occupy any Lease or any material portion thereof, except as listed in Section 3.15(c) of the Seller Disclosure Schedule, or (iii) is in arrears in any material respect of any rent or additional rent. All construction to be performed by Seller pursuant to the terms of the Lease have been completed.
Section 3.16    Finders’ Fees.  Except for Barclays Capital Inc., whose fees will be paid by Seller, there is no investment banker, broker, financial adviser, finder or other intermediary who is or might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, based on arrangements made by or on behalf of Seller, any Acquired Company or any of their respective Affiliates. 
Section 3.17    Insurance Contracts.
(a)    All material policy and contract forms on which the Acquired Companies have issued Insurance Contracts and which are currently being used by an Acquired Company or were used by an Acquired Company for business which is still in force and all amendments and applications 

- #PageNum# -    
703550379

pertaining thereto and, to the Knowledge of Seller as of the date of this Agreement, all material marketing materials, brochures, illustrations and certificates pertaining thereto have, to the extent required by applicable Law, been approved by all applicable Governmental Authorities or filed with and not objected to by such Governmental Authorities within the period provided by applicable Law for objection and all such policy and contract forms, amendments and applications and, to the Knowledge of Seller as of the date of this Agreement, all such marketing materials, brochures, illustrations and certificates, comply with, and have been administered in all material respects in accordance with, applicable Law.  Except as set forth in Section 3.17(a) of the Seller Disclosure Schedule, all premium rates established by the Acquired Companies with respect to the Retained Business and that are required to be filed with or approved by any Governmental Authorities have been so filed or approved and the premiums charged with respect to the Retained Business conform in all material respects to the premiums so filed or approved and comply (or complied at the relevant time) in all material respects with the insurance Laws applicable thereto.
(b)    Since December 31, 2009, all insurance claims paid by any Acquired Company have in all material respects been paid in accordance with the terms of the Insurance Contract under which they arose, except for such claims for which the applicable Acquired Company has a reasonable basis to contest payment.
(c)    Except as set forth on Section 3.17(c) of the Seller Disclosure Schedule, there are no Insurance Contracts of any Acquired Company under which the holders or owners of such Insurance Contracts have any rights with respect to dividends, surplus, profits, participation or voting rights.
Section 3.18    Reinsurance.  Section 3.18 of the Seller Disclosure Schedule sets forth a list, as of the date hereof, of all treaties and agreements of ceded and assumed reinsurance of any of the Acquired Companies (where case reserves exceed $1,000,000) under which there remains any outstanding liability or available ceded reinsurance recoverable of the Acquired Companies (such listed agreements, the “Reinsurance Agreements”).  Except as would not, individually or in the aggregate, reasonable be likely to have a Company Material Adverse Effect: (a) the Reinsurance Agreements are in full force and effect in accordance with their terms (except for such agreements terminated and such terms modified as permitted under Section 5.2 hereof); (b) the applicable Acquired Company has not breached any provision of any Reinsurance Agreement or failed to meet the underwriting standards required for any business reinsured thereunder; and (c) to the Knowledge of Seller, (i) no other party to any Reinsurance Agreement is in default thereunder, (ii) no other party to any Reinsurance Agreement is the subject of a rehabilitation, liquidation, conservatorship, receivership, bankruptcy or similar proceeding and (iii) there is no Action pending or threatened under any Reinsurance Agreement.
Section 3.19    Investment Assets.  Seller has provided to Purchaser a list of the Investment Assets as of December 31, 2011.  The Acquired Companies hold good and valid title to all Investment Assets free and clear of all Encumbrances other than Permitted Encumbrances.
Section 3.20    Labor Matters.  None of the Acquired Companies is a party to, or bound by, any agreement with respect to the Employees with any labor union or any other employee organization, group or association organized for purposes of collective bargaining.  To the 

- #PageNum# -    
703550379

Knowledge of Seller, there are, and since December 31, 2009 there have been, no activities or proceedings of any labor union to organize any Employees or employees of Seller dedicated to the business of the Acquired Companies.
Section 3.21    Intercompany Agreements.  Section 3.21 of the Seller Disclosure Schedule lists all Intercompany Agreements in effect as of the date hereof.
Section 3.22    Environmental Laws.  Except as would not, individually or in the aggregate, reasonably be likely to have a Company Material Adverse Effect, (i) each Acquired Company is in compliance with all applicable Environmental Laws, and possesses and is in compliance with all permits required under such Environmental Laws for the conduct of its business and operations, (ii) no Acquired Company has received any claims or notices alleging any Liability relating to any Environmental Laws, (iii) there are and have been no conditions at any property currently, and to the Knowledge of Seller formerly, owned, leased, operated or used by any Acquired Company since December 31, 2008 that would give rise to any Liability of any Acquired Company under any Environmental Law and (iv) Seller has provided to Purchaser true and complete copies of all environmental assessments, reports and data concerning any real property currently owned, leased, operated or used by any Acquired Company within the possession or control of Seller or any Acquired Company. 
Section 3.23    Insurance.  Section 3.23 of the Seller Disclosure Schedule contains a list of all policies of fire, liability, workers’ compensation, property, casualty and other forms of insurance owned, or maintained by the Acquired Companies as of the date of this Agreement (collectively, the “Insurance Policies”).  All such Insurance Policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing Date will have been paid, and no notice of cancellation or termination has been received by any Acquired Company with respect to any such policy, except for any such Insurance Policy which is replaced or expires in accordance with its terms prior to the Closing Date.  No Acquired Company has made any claim under any Insurance Policy during the two (2) year period prior to the date of this Agreement with respect to which an insurer has, in a written notice to an Acquired Company, denied or disputed coverage and no insurer has threatened in writing to cancel any such policy.
Section 3.24    Bank Accounts.  Section 3.24 of the Seller Disclosure Schedule sets forth each of the bank accounts of the Acquired Companies and each Person with signing authority for each such account.  
ARTICLE IV     
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the Purchaser Disclosure Schedule, Purchaser represents and warrants to Seller as follows:
Section 4.1    Organization and Authority.  Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.  Purchaser has all requisite corporate power and authority to execute and deliver this Agreement and to perform its 

- #PageNum# -    
703550379

obligations hereunder and the agreements contemplated to be executed and delivered hereunder to which it is a party.
Section 4.2    Binding Effect.  The execution and delivery of this Agreement by Purchaser, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly and validly approved by all requisite corporate action on the part of Purchaser and no additional corporate proceedings on the part of Purchaser or any Affiliate thereof or any of their respective securityholders are necessary to approve or authorize, as applicable, this Agreement, the performance of Purchaser’s obligations hereunder or the consummation of the transactions contemplated hereby.  Assuming the due authorization, execution and delivery by Seller, this Agreement constitutes the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to the Bankruptcy and Equity Exceptions.
Section 4.3    Governmental Filings and Consents.  No consents or approvals of, waivers from or filings or registrations with, any Governmental Authority are required to be made or obtained at or prior to the Closing by Purchaser or any of its Affiliates in connection with the execution, delivery or performance by Purchaser of this Agreement or to consummate the transactions contemplated hereby, except for the consents, approvals, waivers, filings and registrations referred to in Section 4.3 of the Purchaser Disclosure Schedule, except as would not, individually or in the aggregate, reasonably be likely to have a Purchaser Material Adverse Effect.
Section 4.4    No Violations.  Subject to the making of the filings and registrations and receipt of the consents, approvals and waivers referred to in Section 4.3 and the expiration of related waiting periods, the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement do not and will not (a) conflict with, constitute a breach or violation of, or a default under, or give rise to any Encumbrance (other than Permitted Encumbrances) or any acceleration of remedies, penalty, increase in benefit payable or right of termination, suspension, revocation or cancellation under, or forfeiture of, as applicable, any applicable Law, Governmental Order or Governmental Authorization or Contract of Purchaser, except as would not, individually or in the aggregate, reasonably be likely to have a Purchaser Material Adverse Effect or (b) constitute a breach or violation of, or a default under, the organizational documents of Purchaser.
Section 4.5    Compliance with Laws.  Except as would not, individually or in the aggregate, reasonably be likely to have a Purchaser Material Adverse Effect, Purchaser (a) is not in violation of any applicable Law and (b) has not received, at any time since December 31, 2009, any written notice from any Governmental Authority regarding any actual or alleged violation of, or failure on the part of Purchaser to comply with, any applicable Law that has not been remedied.
Section 4.6    Purchaser Impediments.  As of the date hereof, there is no Action pending or, to the Knowledge of Purchaser, threatened in writing, or any outstanding Governmental Order, against Purchaser or any of its 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 Purchaser to promptly obtain Required Approvals (as applicable) or (ii) individually or in the aggregate, reasonably be likely to have a Purchaser Material Adverse Effect.  As of the date hereof, Purchaser has no reason to believe that 

- #PageNum# -    
703550379

any facts or circumstances related to its identity or regulatory status will impair or delay its ability to promptly obtain the Required Approvals (as applicable).  Except as would not, individually or in the aggregate, reasonably be likely to have a Purchaser Material Adverse Effect, (A) Purchaser holds and maintains in full force and effect all Governmental Authorizations required to conduct its business in the manner and in all such jurisdictions as it is currently conducted, (B) Purchaser is in compliance with all such Governmental Authorizations and (C) Purchaser has not received, at any time since December 31, 2009, any written notice from any Governmental Authority regarding any actual or alleged violation of, or failure on the part of Purchaser to comply with, any term or requirement of any such Governmental Authorization that has not been remedied.  Since December 31, 2011, no Purchaser Material Adverse Effect has occurred.
Section 4.7    Finders’ Fees.  There is no investment banker, broker, financial advisor, finder or other intermediary who is or might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, based on arrangements made by or on behalf of Purchaser or its Affiliates.
Section 4.8    Financial Capability.  Purchaser, as of the Closing Date, will have sufficient funds to complete the Acquisition on the terms and subject to the conditions set forth in this Agreement and to consummate the other transactions contemplated by this Agreement and the Ancillary Agreements.
Section 4.9    Purchase for Own Account.
(k)    Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act.
(l)    Purchaser is acquiring the Purchased Shares for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Purchased Shares.  Purchaser agrees that the Purchased Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and any applicable state securities laws, except pursuant to an exemption from such registration under such Laws.
(m)    Purchaser is able to bear the economic risk of holding the Purchased Shares for an indefinite period, including a complete loss of its investment in the Purchased Shares, and has knowledge and experience in financial and business matters such that it is capable of evaluating the risks of an investment in the Purchased Shares.
ARTICLE V     
COVENANTS
Section 5.1    Access; Confidentiality.
(c)    Prior to the Closing, Seller shall permit Purchaser and its representatives to have reasonable access, during regular business hours and upon reasonable advance notice to Seller, to the Books and Records to the extent not prohibited by applicable Law, for any reasonable business 

- #PageNum# -    
703550379

purpose relating to this Agreement; provided that any Books and Records or other information that is subject to an attorney-client or other legal privilege or obligation of confidentiality or non-disclosure shall not be made so accessible; provided, further, that Seller shall, upon the request of Purchaser, use commercially reasonable efforts to obtain the applicable consent for the disclosure of such Books and Records that are subject to such obligation of confidentiality or non-disclosure.  Such access shall be at Purchaser’s sole cost and expense and may not unreasonably interfere with the conduct of Seller’s or its Affiliates’ businesses.
(d)    Purchaser acknowledges that the information and access provided to it pursuant to Section 5.1(a) shall be subject to the terms and conditions of the Confidentiality Agreements.  As of the Closing, Purchaser’s obligations under the Confidentiality Agreements related to (i) non-use, non-disclosure and return or destruction of Evaluation Material (as defined in the Confidentiality Agreements) to the extent related to the Acquired Companies shall terminate and (ii) non-solicitation and any applicable non-hire provisions shall terminate with respect to the Employees.  All other provisions of the Confidentiality Agreements shall remain in full force and effect in accordance with their terms.
(e)    Following the Closing Date, without limiting the obligations of Purchaser to provide access pursuant to Section 2.3(b)(i), to the extent not prohibited by applicable Law, Purchaser shall (i) permit Seller and its representatives, during regular business hours and upon reasonable advance notice to Purchaser, the right to examine and make copies of the Books and Records for any reasonable business purpose relating to this Agreement or any Ancillary Agreement, including the preparing or examination of Seller’s and its Affiliates’ regulatory and Tax filings and financial statements and the conduct of any third party litigation or dispute resolution (not involving Purchaser or any of its Affiliates), or regulatory dispute, whether pending or threatened, concerning the business of the Acquired Companies prior to the Closing; and (ii) maintain the Books and Records for the foregoing examination and copying for a period of not less than ten (10) years following the Closing Date.  Access to the Books and Records shall be at Seller’s sole cost and expense and may not unreasonably interfere with the conduct of Purchaser’s or its Affiliates’ businesses.
(f)    From and after the Closing, Seller shall not, and shall cause each of its Affiliates and such Affiliates’ officers, directors, employees and professional advisers not to, disclose to any other Person any Business Confidential Information; provided that Seller and such Affiliates may disclose Business Confidential Information (i) to the extent required by law, in any report, statement, testimony or other submission to any Governmental Authority or (ii) in order to comply with any law, or in response to any summons, subpoena or other legal process or formal or informal investigative demand issued to Seller or its Affiliates in the course of any litigation, investigation or administrative proceeding; provided, further, that, if Seller or any of its Affiliates become legally compelled by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar judicial or administrative process to disclose any such Business Confidential Information, Seller shall, to the extent reasonably practicable, provide Purchaser with prompt prior written notice of such requirement and cooperate with Purchaser to obtain a protective order or similar remedy to cause such Business Confidential Information not to be disclosed, including interposing all available objections thereto.  In the event that such protective order or other similar remedy is not obtained, Seller and its Affiliates shall furnish only that portion of Business Confidential Information that has 

- #PageNum# -    
703550379

been legally compelled.  For purposes of this Section 5.1(d), “Business Confidential Information” means all non-public information disclosed prior to the Closing by Seller to Purchaser that is related to the Run-Off Business.
Section 5.2    Conduct of Business.  During the period from the date of this Agreement until the Closing or earlier termination of this Agreement, except as otherwise expressly contemplated or permitted by, or necessary to effectuate the transactions contemplated by, this Agreement (including Sections 5.3, 5.4, 5.6, 5.13 and 5.14) or the Ancillary Agreements, as set forth on Section 5.2 of the Seller Disclosure Schedule, as required by applicable Law, Governmental Order, fiduciary obligations or existing contractual obligations or with the prior written consent of Purchaser (which consent shall not be unreasonably withheld, delayed or conditioned), Seller shall cause the Acquired Companies to conduct their respective businesses in the Ordinary Course of Business and cause each Acquired Company to not: 
(c)    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 or purchase, redeem or repurchase any shares of its capital stock or other equity interest;
(d)    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;
(e)    split, combine, subdivide or reclassify any of its capital stock or other equity interest;
(f)    (i) except in the Ordinary Course of Business, incur any indebtedness, except for indebtedness the aggregate amount of which does not exceed the amount set forth in Section 5.2(d)(i) of the Seller Disclosure Schedule or indebtedness incurred under existing Intercompany Agreements or (ii) make any loans, advances or capital contributions to, or investments in, any other Person, other than investments made in the Ordinary Course of Business in accordance with its investment policies;
(g)    amend its Organizational Documents;
(h)    other than in the Ordinary Course of Business, modify or amend in any material respect or terminate any of the Material Contracts or waive, release or assign any material rights or claims thereunder or enter into any Contract which would, if entered into prior to the date hereof, have been a Material Contract;
(i)    either (i) terminate or modify or amend in any material respect any of the Reinsurance Agreements identified in Section 5.2(g) of the Seller Disclosure Schedule, or waive, release or assign any material rights or claims thereunder or enter into any Contract which would, if entered into prior to the date hereof, have been a Reinsurance Agreement or (ii) other than in the Ordinary Course of Business, modify or amend in any material respect or terminate any other treaty or agreement of ceded or assumed reinsurance of any of the Acquired Companies, or waive, release or assign any material rights or claims thereunder, other than in the Ordinary Course of Business;

- #PageNum# -    
703550379

(j)    voluntarily adopt a plan of complete or partial liquidation or rehabilitation or authorize or undertake a dissolution, rehabilitation, consolidation, restructuring, recapitalization or other reorganization;
(k)    make any material change in its underwriting, reinsurance, claims administration, pricing, reserving or accounting practices or policies, except as required by GAAP or SAP or changes in the interpretation or enforcement thereof;
(l)    acquire or dispose (by merger, consolidation or acquisition or disposition of stock or other equity interest or of assets) of any Person or business or division thereof other than investments made in the Ordinary Course of Business in accordance with its investment policies;
(m)    pay, settle, release or forgive any Action or waive any right thereto in excess of the individual and aggregate amounts set forth in Section 5.2(k) of the Seller Disclosure Schedule (in each case with respect to any Action, determined net of any insurance coverage or reserves in respect of such Action), other than the settlement of claims in connection with Insurance Contracts in the Ordinary Course of Business;
(n)    except in the Ordinary Course of Business, (i) grant or provide any severance or termination payments or benefits to any Employee, (ii) increase the compensation, bonus opportunity or other benefits of, or make any new equity awards to, any Employee or (iii) adopt or amend any Benefit Plan;
(o)    change, revoke or make any Tax election, file any amended Tax Return or claim for refund, adopt or change any method of Tax accounting or accounting period, settle, compromise, or file any appeal with respect to any Tax liability or refund, consent to or file any appeal with respect to any claim or assessment relating to Taxes, or consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment (other than any request in the ordinary course of business to extend the initial due date for any Tax Return not yet filed);
(p)    enter into any Intercompany Agreements; or
(q)    enter into any Contract with respect to any of the foregoing.
This Section 5.2 shall not apply to, and shall not require any act or omission by Seller in respect of, the Retained Business.
Section 5.3    Commercially Reasonable Efforts; Regulatory Matters; Quarterly Balance Sheets.  From the date of this Agreement until Closing, the parties agree as follows:
(a)    Subject to the terms and conditions of this Agreement, Purchaser and Seller agree to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective, as soon as practicable after the date of this Agreement, the transactions contemplated by this Agreement and the Ancillary Agreements, including using commercially reasonable efforts to (i) lift or rescind any injunction or restraining order or other Governmental Order adversely affecting the ability of the 

- #PageNum# -    
703550379

parties hereto to consummate the transactions contemplated hereby and thereby and (ii) defend any litigation or other proceeding seeking to enjoin, prevent or delay the consummation of the transactions contemplated hereby and thereby or seeking material damages.  Notwithstanding the foregoing, except as otherwise required by this Agreement, Seller shall not be obligated to take any action, or omit to take any action, that would, individually or in the aggregate, reasonably be expected to impair or interfere with the ability of Seller and its Affiliates (including the Acquired Companies) to conduct their respective businesses substantially in the manner conducted as of the date hereof.
(b)    Subject to the terms and conditions of this Agreement, Purchaser and Seller shall, and shall cause their respective Affiliates to, use commercially reasonable efforts to (i) take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal and regulatory requirements which may be imposed on such party or its Affiliates with respect to the transactions contemplated by this Agreement (including those set forth on Section 5.13(a) of the Seller Disclosure Schedule) and the Ancillary Agreements and, subject to the conditions set forth in Article VI, to consummate the transactions contemplated by this Agreement and the Ancillary Agreements and (ii) obtain (and to cooperate with the other party hereto to obtain) any consent, authorization, order or approval of, any exemption by, or any waiver from, any Governmental Authority and any consent or approval of, or waiver from, any third party under any Material Contract that is required to be obtained by Purchaser, Seller or any of their respective Affiliates in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, including the Required Approvals.  Seller and Purchaser shall each be solely responsible for their respective costs of making or obtaining any such consents, authorizations, orders, approvals, exemptions or waivers that it is responsible for pursuant to the terms of this Agreement; provided that neither Seller nor the Acquired Companies shall be required to make any payment to any Governmental Authority or third party in connection therewith unless such payment is advanced by Purchaser (other than as is required to effect the Restructuring).  Neither Purchaser nor Seller shall take or cause to be taken an action that it is aware or reasonably should be aware would have the effect of delaying, impairing or impeding the receipt of any consent, authorization, order or approval of, any exemption by, or any waiver from, any Governmental Authority, including any Required Approvals.
(c)    Without limiting the generality of the foregoing, (i) Purchaser will make a “Form A” filing within thirty (30) days from the date hereof with the Commonwealths of Massachusetts and Pennsylvania with respect to the transactions contemplated by this Agreement and the Ancillary Agreements, (ii) Purchaser will make a “Form E” or similar pre-acquisition notice filing within forty-five (45) days from the date hereof in each state requiring such notice with respect to the transactions contemplated by this Agreement and the Ancillary Agreements, (iii) if necessary, the parties hereto shall make the HSR Act filing with the Federal Trade Commission and the Antitrust Division of the Department of Justice within ten (10) Business Days from the date hereof and (iv) the parties hereto shall promptly (but in any event within ten (10) Business Days from the date hereof) make all other filings or submissions required with respect to other Required Approvals.  If a filing is required, then Purchaser and Seller will each request early termination of the waiting period with respect to the Acquisition under the HSR Act.  Each of Seller and Purchaser shall have responsibility for any filing fees or other costs associated with the filings made by it or its Affiliates.

- #PageNum# -    
703550379

(d)    Purchaser and Seller shall have the right to review in advance, and to the extent practicable each will consult the other on, in each case subject to applicable Law, any material filing made with, or written materials submitted to, any Governmental Authority in connection with the transactions contemplated by this Agreement or any Ancillary Agreement.  The parties hereto agree that they will consult with each other with respect to the obtaining of all applications, filings, registrations, notifications, permits, consents, approvals, waivers and authorizations of all Governmental Authorities necessary or advisable to consummate the transactions contemplated by this Agreement or any Ancillary Agreement and each party hereto will keep the other apprised of the status of such matters.  The party hereto responsible for any such action shall promptly deliver to the other party hereto evidence of the filing or making of all applications, filings, registrations, notifications, permits, consents, approvals, waivers and authorizations relating thereto, and any supplement, amendment or item of additional information in connection therewith.
(e)    Purchaser and Seller shall (i) furnish each other and, upon request, any Governmental Authority, any information or documentation concerning themselves, their Affiliates, directors, officers, securityholders and financing sources and the transactions contemplated hereunder or under the Ancillary Agreements and such other matters as may be requested, and (ii) make available their respective personnel and advisers 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 and the Ancillary Agreements.
(f)    Purchaser and Seller shall promptly advise each other upon receiving any written communication from any Governmental Authority whose consent or approval is required for consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, including promptly furnishing each other copies thereof, and shall promptly advise each other when any communication from any Governmental Authority, wherever in writing or orally, causes such party hereto to believe that there is a reasonable likelihood that any Required Approval will not be obtained or that the receipt of any such approval will be materially delayed or conditioned or that an application for such approval will have to be refiled or supplemented.
(g)    Except with respect to Taxes, none of Purchaser, on the one hand, or Seller or any Acquired Company, on the other hand, shall participate or permit any of their officers or any other representatives or agents to participate in any live or telephonic meeting with any Governmental Authority in respect of any filings, approval process, investigation or other inquiry (other than for routine or ministerial matters) relating to the transactions contemplated by this Agreement or the Ancillary Agreements unless it consults with the other in advance and, to the extent permitted by Law or by such Governmental Authority, gives the other party hereto the opportunity to attend and participate thereat.
(h)    Until the Closing Date, not later than 45 days following the end of each calendar quarter ending prior to the Closing Date, Seller shall prepare and deliver to Purchaser a combined statutory balance sheet of the Acquired Companies as of the final day of the immediately preceding calendar quarter (including a detailed breakdown of the value of the Acquired Companies’ Investment Assets as of such date as reflected on such combined statutory balance sheet), which 

- #PageNum# -    
703550379

will be prepared in accordance with SAP (except with respect to the Pro Forma Adjustments) applied on a basis consistent with the Pro Forma Balance Sheet after giving effect to the Pro Forma Adjustments.
Section 5.4    Tax Matters. 
(a)    Transfer Taxes.  Except as set forth below for Specified Transfer Taxes, each of Seller and Purchaser shall be liable for and shall hold the other party harmless from and against the timely payment of fifty percent (50%) of all Transfer Taxes, if any, arising out of or in connection with the transactions contemplated by this Agreement and the Ancillary Agreements.  Seller shall be liable for and shall hold Purchaser harmless from and against the timely payment of all Transfer Taxes, if any, arising out of or in connection with any Section 338(h)(10) Election or any of the transactions described in Sections 5.6, 5.7, or 5.13 of this Agreement (the “Specified Transfer Taxes”).  Each of Seller and Purchaser shall cooperate in preparing and filing when due all necessary documentation and Tax Returns with respect to such Transfer Taxes and shall execute and deliver all instruments and certificates reasonably required to obtain the benefit of any available exemptions from or reductions in any such Transfer Taxes or to enable the other party to comply with any filing requirements relating to any such Transfer Taxes.
(b)    Tax Returns.  Except as otherwise provided in Section 5.4(a):
(i)    Seller shall prepare and timely file, or cause to be prepared and timely filed, (x) all consolidated, unitary, combined, or similar Tax Returns that include any Acquired Company and Seller or any Affiliate of Seller (other than any Acquired Company) (the “Consolidated Tax Returns”) for any Taxable period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) ending on or before the Closing Date, and (y) all other Tax Returns for the Acquired Companies that are due (giving effect to any applicable extensions) after the Closing Date for any Taxable period that ends on or before the Closing Date, and shall timely pay all Taxes required to be paid with respect to such Tax Returns.  All such Tax Returns shall be prepared in accordance with the past custom and practice of the Acquired Companies (except to the extent otherwise required by applicable Law).
(ii)    Purchaser shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns (other than any Consolidated Tax Returns) that are required to be filed by the Acquired Companies (giving effect to any applicable extensions) after the Closing Date for Taxable periods that begin on or before the Closing Date and end after the Closing Date.  Purchaser shall, subject to Section 5.4(c) and the provisions of Article VII, timely pay all Taxes reflected on such Tax Returns.  All such Tax Returns shall be prepared in accordance with the past custom and practice of the Acquired Companies (except to the extent otherwise required by applicable Law).
(iii)    For each Tax Return to which the provisions of Section 5.4(b)(i) or 5.4(b)(ii) apply, the party responsible for preparing or causing to be prepared such Tax Return (the “Preparing Party”) shall provide a copy of such Tax Return (in the case of any Consolidated Tax Return, only pro forma Tax Returns of the Acquired Companies included in such Consolidated Tax Return for the period covered by such Consolidated Tax Return 

- #PageNum# -    
703550379

and used in preparing such Consolidated Tax Return shall be provided) to the other party (the “Reviewing Party”) not later than thirty (30) Business Days prior to the due date (including any extension thereof) for the filing of such Tax Return.  The Reviewing Party shall have the right to review and comment on such Tax Return prior to the filing of such Tax Return, and shall provide the Preparing Party with written notice of any objections it has with respect to such Tax Returns (a “Tax Dispute”) within ten (10) Business Days of the delivery of such Tax Return. In the event that a Tax Dispute notice is not timely delivered by any Reviewing Party, such party shall be deemed to have consented to the filing of the applicable Tax Return in the form provided to such Reviewing Party.  In the event of the timely delivery by any Reviewing Party of a Tax Dispute notice, the parties shall in good faith attempt to resolve any such dispute for a period of five (5) Business Days following the date on which the Preparing Party was notified of the Tax Dispute in order to permit the timely filing of such Tax Return.  If such dispute is not settled within such time period, the parties shall promptly submit all such remaining disputed matters to the Independent Accountant for resolution in a timely manner so that such Tax Return may be timely filed. If the Independent Accountant is unable to make a determination with respect to any disputed issue within five (5) Business Days before the due date (including extensions) for the filing of the Tax Return in question, then the Preparing Party may file such Tax Return on the due date (including extensions) therefor without such determination having been made and without the consent of the Reviewing Party; provided, however, that such Tax Return shall incorporate such changes as have at the time of such filing been agreed to by the parties pursuant to this Section 5.4(b)(iii).  Notwithstanding the filing of such Tax Return, the Independent Accountant shall make a determination with respect to any disputed issue, and the amount of Taxes, if any, with respect to which Seller or Purchaser may be responsible pursuant to this Section 5.4 and Article VII with respect to the filing of  such Tax Return shall be calculated consistently with such determination. The decision by the Independent Accountant shall be final and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses relating to the Independent Accountant pursuant to this Section 5.4(b)(iii) shall be borne equally by both parties.
(iv)    For purposes of clarity and not to impose any additional obligation on any party, nothing in this Section 5.4(b) shall excuse either party from its responsibility for its share, as determined in accordance with this Section 5.4 and Article VII, of any Taxes if the amount of Taxes as ultimately determined (on audit or otherwise) for the periods covered by any Tax Return to which this Section 5.4(b) applies exceeds the amount initially determined under this Section 5.4(b).
(v)    Purchaser shall not withdraw, repudiate, amend, refile or otherwise modify, or cause or permit to be withdrawn, repudiated, amended, refiled or otherwise modified, any Tax Return filed by an Acquired Company for any taxable year or period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) ending on or before the Closing Date without the written consent of Seller, which consent shall not be unreasonably withheld; it being understood that any withholding of consent by Seller due to an effect of such action on a Consolidated Tax Return shall be deemed reasonable hereunder.

- #PageNum# -    
703550379

(c)    Straddle Period Tax Liabilities.
(i)    Upon the written request of Purchaser setting forth in detail the computation of the amount owed, Seller shall pay to Purchaser, no later than three (3) Business Days prior to the due date for the applicable Tax Return, the Taxes for which Seller is liable pursuant to Section 5.4(c)(ii) but which are payable with any Tax Return to be filed by Purchaser pursuant to Section 5.4(b)(ii), to the extent such Taxes exceed the liabilities for such Taxes taken into account in the calculation of the Final Target Statutory Capital and the Final Purchase Price, pursuant to Section 2.3.
(ii)    Where it is necessary for purposes of this Agreement to apportion between Seller and Purchaser the Taxes of an Acquired Company for a taxable year or period beginning on or before, and ending after, the Closing Date, such liability shall be apportioned between the period deemed to end at the close of the Closing Date and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that (x) Taxes (such as real or personal property Taxes) imposed on a periodic basis with respect to the assets of the Acquired Companies shall be allocated on a daily basis and (y) Taxes imposed on the basis of gross premiums shall be allocated based upon the amount of premium written as of the Closing Date.  Seller shall be liable for the portion of such Taxes apportioned to the period deemed to end at the close of the Closing Date.
(d)    Assistance and Cooperation.  After the Closing Date, (i) Purchaser shall (and shall cause its Affiliates to) assist Seller in preparing and filing any Tax Returns that Seller is responsible for preparing and filing in accordance with Section 5.4(b)(i), (ii) Seller shall (and shall cause its Affiliates to) assist Purchaser in preparing and filing any Tax Returns that Purchaser is responsible for preparing and filing in accordance with Section 5.4(b)(ii) and (iii) Purchaser and Seller shall (and shall cause their respective Affiliates to) reasonably cooperate in preparing for any audits of, or disputes with any Governmental Authority regarding, any Tax Returns filed by any Acquired Company.  Such assistance and cooperation shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by any Taxing authority (for the avoidance of doubt, no copies of Consolidated Tax Returns shall be provided). Each party and its Affiliates shall make its employees available on a basis mutually convenient to both parties to provide explanations of any documents or information provided hereunder. Purchaser and Seller shall each retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Acquired Companies for taxable periods (or portions thereof, as determined in accordance with Section 5.4(c)(ii)) ending on or before the Closing Date until the later of (i) the expiration of the statute of limitations of the Taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified in writing of such extensions for the respective Tax periods, or (ii) three (3) years following the due date (without extension) for such returns. None of the Seller, on the one hand, or Purchaser or the Acquired Companies, on the other hand, shall dispose of any such materials unless it first offers in writing to the other party the right to take possession of such materials at such other party’s sole expense and the other party fails to accept such offer within fifteen (15) Business Days of the offer being made. Any information 

- #PageNum# -    
703550379

obtained under this Section 5.4(d) shall be kept confidential except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting a Tax contest or as otherwise may be required by applicable law.
(e)    Audits.
(i)    After the Closing, Purchaser shall promptly notify Seller in writing of the receipt by Purchaser or any of the Acquired Companies of any written notice from any Governmental Authority of any inquiry, claim, assessment, audit, or similar event with respect to the Taxes of an Acquired Company related to any Taxable period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) ending on or before the Closing Date (a “Tax Contest”); provided that the delay or failure of Purchaser to notify Seller in accordance with the immediately preceding sentence shall not relieve Seller of its obligations under this Section 5.4 or Article VII with respect to any Taxes related to such Tax Contest, except to the extent (and only to the extent) that Seller is materially prejudiced by such delay or failure.
(ii)    In the case of any Tax Contest, Seller shall have the right, upon written notice to Purchaser delivered not later than fifteen (15) Business Days following its receipt of notice of such Tax Contest, to participate in or assume the defense of and control the conduct of such Tax Contest at its own expense through counsel of its own choosing (which counsel shall be reasonably satisfactory to Purchaser); provided that Purchaser shall be entitled to participate in any such Tax Contest with respect to which Seller has timely notified it of its intent to control the conduct of such Tax Contest with counsel of its own choice at its own expense.  Notwithstanding the foregoing, if Purchaser reasonably concludes that counsel selected by Seller with respect to any such Tax Contest controlled by Seller has a material conflict of interest because of the availability of different or additional defenses to any such Tax Contest to Purchaser or other facts, such that the conflict of interest cannot be resolved to the reasonable satisfaction of Purchaser by the consent of Purchaser and Seller to joint representation, then Purchaser shall have the right to select separate counsel, reasonably satisfactory to Seller, to participate in the defense of such action on its behalf; and the reasonable fees and expenses of Purchaser’s counsel shall be at the expense of Seller.  If Seller does not assume the defense and control of any such Tax Contest as set forth above, or if Seller fails to take reasonable steps necessary to defend actively and diligently any such Tax Contest after notifying Purchaser of its assumption and control of any such Tax Contest, Purchaser may assume such defense, and the reasonable fees and expenses of its attorneys will be covered by the indemnity provided for in this Section 5.4 and in Article VII upon determination of Seller’s indemnity obligations related to such Tax Contest.  In the event of a Tax Contest that involves issues relating to a potential adjustment for which Seller has the right to control the conduct of such Tax Contest that also involves separate issues relating to a potential adjustment for which Seller does not have the right to control the conduct of such Tax Contest, Purchaser shall have the right, at its expense, to control the Tax Contest with respect to the latter issues.

- #PageNum# -    
703550379

(iii)    Neither Purchaser nor Seller shall enter into any compromise or agree to settle any claim pursuant to any Tax Contest which would adversely affect the other party for such year or a subsequent or prior year without first obtaining the written consent of the other party, which consent may not be unreasonably withheld or delayed.  For the purpose of clarity, this Section 5.4(e), and not Section 7.4, shall control with respect to any Tax Contests.
(f)    Carrybacks.  Purchaser and Seller agree that the Acquired Companies may not carry back any post-closing net operating loss, post-closing loss from operations, post-closing credit, or any other post-closing Tax attribute of the Acquired Companies to any taxable year or period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) that ends on or before the Closing Date without the written consent of Seller, which consent may not be unreasonably withheld, it being understood that any withholding of consent by Seller due to an effect of such action on a Consolidated Tax Return shall be deemed reasonable hereunder.
(g)    Tax Sharing.  As of the Closing Date, Seller shall cause the Acquired Companies’ participation in all Tax allocation and Tax sharing agreements and arrangements between Seller and its Affiliates (other than the Acquired Companies), on the one hand, and the Acquired Companies, on the other hand, to be terminated as of the Closing Date; and the Acquired Companies shall not be bound thereby or have any further obligations or liabilities thereunder at any time thereafter.
(h)    Tax Refunds.  Upon receipt, Purchaser shall promptly forward to Seller any refund (whether direct or indirect through a right of set-off or credit) of Taxes of any Acquired Company, and any interest received thereon, with respect to any taxable year or period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) ending on or before the Closing Date, but only to the extent such refund was not taken into account as an asset in the calculation of Final Target Statutory Capital and the Final Purchase Price pursuant to Section 2.3; provided, however, that any such Tax refund that is attributable to a carryback of any Acquired Company’s loss, credit, or other Tax attribute from a taxable period or portion thereof beginning after the Closing Date shall not be required to be paid to the Seller hereunder and shall be and remain the property of the entity receiving the benefit of such refund.
(i)    Section 338(h)(10) Election.
(xiii)    Election.  Purchaser shall join with OneBeacon U.S. Financial Services, Inc.; the common parent of the U.S. Consolidated federal income tax group that includes OneBeacon U.S. Holdings, Inc., Seller, and OneBeacon Insurance, in making an election under Section 338(h)(10) of the Code (and any election corresponding to Section 338(h)(10) of the Code under foreign, state or local laws) (a “Section 338(h)(10) Election”) with respect to the purchase and sale of the Shares of OneBeacon Insurance, and each party shall provide to the other party the reasonably necessary information to permit the Section 338(h)(10) Election to be made.  Seller shall prepare any United States federal, state, local, or non-U.S. Tax forms (and any required attachments) required to make the Section 338(h)(10) Election (collectively, the “Election Forms”) consistently with the Purchase Price Allocation Schedule and the 338 Allocation Schedule (as defined below), and shall submit the Election Forms to Purchaser not later than fifteen (15) days prior to the proposed filing 

- #PageNum# -    
703550379

date of the Section 338(h)(10) Election, for Purchaser’s review and comment.  Seller shall make such reasonable revisions to the Election Forms as are requested by Purchaser following such review.
(xiv)    Allocation of Final Purchase Price.  Seller shall allocate the Final Purchase Price between the Purchased Shares of OneBeacon Insurance and Potomac Insurance (the “Share Consideration”) and deliver to Purchaser a schedule setting forth the Share Consideration within thirty (30) days after the determination of the Final Purchase Price pursuant to Section 2.3 (the “Purchase Price Allocation Schedule”). If within twenty (20) days of receipt of the Purchase Price Allocation Schedule, Purchaser notifies Seller in writing that Purchaser objects to one or more items reflected on the Purchase Price Allocation Schedule, Seller and Purchaser shall negotiate in good faith to resolve such dispute.  If Seller and Purchaser fail to resolve any such dispute within fifteen (15) days of Seller’s receipt of Purchaser’s notice, the parties shall submit the dispute for resolution to the Independent Accountant, and the Independent Accountant’s resolution of the dispute shall be final and binding on both parties and shall be deemed to amend the Purchase Price Allocation Schedule.  Notwithstanding the foregoing, the parties agree that in no event shall the Purchase Price Allocation Schedule allocate to either OneBeacon Insurance or Potomac Insurance a Share Consideration of less than zero.  The Share Consideration (together with assumed liabilities, if any) will be used in determining the “aggregate deemed sales price” (as defined in Treasury Regulation section 1.338-4) (the “ADSP”) and the “adjusted gross-up basis” (as defined in Treasury Regulation section 1.338-5) (“AGUB”) for the Section 338(h)(10) Election, which shall be allocated among the assets of OneBeacon Insurance, in accordance with Treasury Regulation section 1.338-6 and section 1.338-7.  Seller shall determine the ADSP and AGUB and deliver to Purchaser such calculation and an allocation of the ADSP and AGUB among the assets of OneBeacon Insurance within ninety (90) days after the parties have determined a final Purchase Price Allocation Schedule (the “338 Allocation Schedule”).  The 338 Allocation Schedule shall be subject to the dispute resolution mechanics described above with respect to the Purchase Price Allocation Schedule. The allocation of the 338 Allocation Schedule, as agreed upon by Purchaser and Seller or determined by the Independent Accountant shall be final and binding upon the parties.  Each of Purchaser and Seller shall bear all fees and costs incurred by it in connection with the determination of the 338 Allocation Schedule, except that the fees of the Independent Accountant shall be borne by the parties in accordance with Section 2.3(b)(v).  Seller and Purchaser shall timely file the Election Forms in accordance with the 338 Allocation Schedule as finalized, and, except as set forth below with respect to a revised 338 Allocation Schedule, the parties agree not to take any position inconsistent with the 338 Allocation Schedule for Tax reporting purposes, upon examination of any Tax Return, in any refund claim, or in any litigation, investigation or otherwise, unless otherwise required by a determination (within the meaning of Section 1313(a) of the Code or any similar provision of state, local, or non-U.S. applicable Tax law).  In the event that any adjustment to the purchase price for the Shares of OneBeacon Insurance is required to be made as a result of indemnification under Article VII or otherwise, Seller shall prepare or cause to be prepared in a reasonable manner, and shall provide to Purchaser, a revised Purchase Price Allocation Schedule and a revised 338 Allocation Schedule reflecting such adjustment.  Such revised schedules shall be subject to review and resolution 

- #PageNum# -    
703550379

of timely raised disputes in the same manner as the initial similar schedules.  To the extent required, each of Seller and Purchaser shall file all Tax Returns (including a revised IRS Form 8883) in a manner consistent with such schedules as so revised and finalized and shall not (except pursuant to any further revision to such schedules in accordance with this Section 5.4(i)) take any position inconsistent with such schedules for any Tax reporting purposes, upon examination of any Tax Return, in any refund claim, or in any litigation, investigation or otherwise, unless otherwise required by a determination (within the meaning of Section 1313(a) of the Code or any similar provision of state, local or non-U.S. applicable Tax law).
(j)    Except as provided in Section 5.4(i)(i), no election pursuant to Section 338 of the Code (or any corresponding election under foreign, state or local laws) shall be made with respect to the Acquired Companies.
Section 5.5    Employee Matters.
(e)    Seller has disclosed in writing to Purchaser in Section 5.5(a) of the Seller Disclosure Schedule prior to the execution of this Agreement the position and salary of each Employee as of the date hereof.  On or before the date which is six (6) weeks prior to the Closing Date, Purchaser shall provide Seller with written notice of the name, position and salary of each Employee which Purchaser agrees to, or to cause an Affiliate of Purchaser to, make offers of employment to on an “at-will” basis, such Employees who accept offers of employment with Purchaser or an Affiliate of Purchaser, collectively, the “Continued Employees”.  Seller shall, and shall cause its Affiliates to, reasonably cooperate with  Purchaser to:  (i) make the Employees available in connection with Purchaser’s hiring process prior to the Closing Date; (ii) two (2) weeks prior to Closing, provide Purchaser with all necessary information, including employment and payroll data, in the format maintained by Seller immediately prior to the Closing, regarding all Continued Employees in order to effect a smooth transition to Purchaser’s employment, benefits, payroll and other systems and processes and (iii) send communications to Continued Employees with respect to any transition-related matters, including but not limited to Purchaser’s hiring process and employee benefits; such reasonable cooperation to continue for up to twelve (12) months after the Closing Date.  Notwithstanding the foregoing, and for the avoidance of doubt, Seller and Purchaser agree that Seller is not obligated to and will not provide any human resources services pursuant to the Transition Services Agreement.
(f)    Neither Purchaser nor any of its Affiliates (including the Acquired Companies) shall be obligated to continue to employ any Continued Employee for any specific period of time following the Closing Date, subject to applicable law.  Nothing in this Agreement shall prohibit or restrict Seller or its Affiliates from terminating the employment of any Employee for cause prior to the Closing.
(g)    Purchaser agrees that it will cause Employees to be provided with compensation and benefits (excluding equity incentive plans and any defined benefit pension plans) that are substantially comparable in the aggregate to those provided to Continued Employees immediately prior to the date of this Agreement. Notwithstanding the generality of the foregoing, Purchaser agrees that for a period of not less than two (2) years following the Closing Date, it will cause the 

- #PageNum# -    
703550379

Continued Employees to be provided with severance benefits that are no less favorable than those provided to the Continued Employees by the Seller immediately prior to the date hereof as set forth in Section 5.5(c) of the Seller Disclosure Schedule.  In the event Seller pays any severance benefits to an Employee and Purchaser, any subsidiary of Purchaser or any third party on behalf of Purchaser, including a temporary staffing agency, rehires such Employee within one year following the Closing Date, Purchaser shall promptly reimburse Seller for any severance payments made with respect to such Employee and in any event within thirty (30) days following the date any such Employee is rehired.
(h)    After the Closing Date, Seller shall remain responsible for (i) any and all wages, salaries and other cash compensation (including, without limitation, accrued vacation leave and sick leave, bonuses, commissions and other incentive-based cash compensation) payable to the Employees for periods on and prior to the Closing, (ii) any severance, retention bonus or change in control payment, if any, payable to any of the Employees that become due or owed as a result of the consummation of the transactions contemplated by this Agreement, and (iii) any and all Liabilities relating to or arising in connection with the Benefit Plans, including but not limited to any incentive bonuses of Seller.  For the avoidance of doubt, Seller shall make payments, if any, to participants in the 2012 Run-Off Operations Incentive Plan and the 2010-2012 Long-Term Incentive Plan awards pursuant to the terms thereof on or before March 31, 2013.  Notwithstanding the first sentence of this Section 5.5(d), Purchaser agrees that it will assume Seller’s obligations to pay the 2012-2013 retention awards with respect to Continued Employees, as set forth on the schedule of such awards provided by Seller to Purchaser prior to the date hereof.  In addition, Seller agrees that it shall adopt a 2013 Run-Off Operations Incentive Plan and grant 2013-2014 retention awards on substantially similar terms to the 2012 Run-Off Operations Incentive Plan and 2012-2013 retention awards, respectively, and will consult with Purchaser on the terms of said plan and awards and Purchaser agrees to assume the obligations of Seller under such plan and awards at the Closing.
(i)    Purchaser shall take reasonable efforts to cause any Continued Employees who become participants in any benefit plan or program of Purchaser or any of its Affiliates to be given credit under such plans and programs for purposes of eligibility, vesting and the determination of the level of benefits thereunder (but not for purposes of benefit accrual under defined benefit plans), for all service recognized by Seller or the Acquired Companies under analogous Benefit Plans, except to the extent that such credit would result in a duplication of benefits for the same period of service.
(j)    Prior to the Closing Date, Seller shall take and shall cause its Affiliates to take all actions necessary to cause each Acquired Company to cease to be a participating employer in all employee benefit plans and policies sponsored or maintained by Seller and its Affiliates (other than the Acquired Companies) in accordance with the terms of such employee benefit plans and policies, and to transfer sponsorship of each Benefit Plan that is sponsored or maintained by an Acquired Company to an Affiliate of Seller (other than the Acquired Companies) with such actions to be effective as of the Closing Date.  As of the Closing Date, all Employees shall cease to accrue further benefits under the Benefit Plans sponsored or maintained by Seller and its Affiliates (other than the Acquired Companies) for which any Acquired Company or Purchaser would reasonably be expected to have any liability and shall commence participation in the employee benefit plans and policies 

- #PageNum# -    
703550379

sponsored and maintained by Purchaser or any of its Affiliates in accordance with the terms and conditions of such employee benefit plans. Purchaser shall, or shall cause the Acquired Companies to, provide the Continued Employees with coverage under a group health plan within the meaning of Section 4980B of the Code, including medical, dental and health coverage, as of the Closing Date.  Purchaser shall use commercially reasonable effort, or shall cause its Affiliates to use commercially reasonable effort, as applicable, to (i) waive any preexisting condition limitations otherwise applicable to Employees and their eligible dependents under any plan of Purchaser or any of its Affiliates that provides health benefits in which Continued Employees may be eligible to participate following the Closing, to the extent waived or satisfied with respect to such employees as of the Closing under the analogous Benefit Plan, (ii) grant each of the Continued Employees credit under any plan of Purchaser or any of its Affiliates that provides health benefits, for the year during which the Closing occurs, for any deductibles, co-insurance payments and out-of-pocket expenses already incurred by such Employees for such year under the plans of Seller or its Affiliates and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a Employee on or after the Closing, in each case to the extent such Employee had satisfied any similar limitation or requirement under an analogous Benefit Plan prior to the Closing.  Purchaser shall take all steps reasonably necessary to permit each Continued Employee who receives an eligible rollover distribution (as defined in Section 402(c)(4) of the Code) from Seller’s 401(k) Plan, if any, to roll such eligible rollover distribution, including any associated loans, as part of any lump sum distribution to the extent permitted by Seller’s 401(k) Plan into an account under the 401(k) savings plan maintained by Purchaser or its Affiliates.
(k)    Purchaser shall indemnify the Seller Indemnified Parties from any Losses incurred by or asserted against any of the Seller Indemnified Parties to the extent, arising or resulting from the actions or omissions of Purchaser or any of its Affiliates in the solicitation, recruitment, failure to hire or hiring of the Continued Employees, or Purchaser’s or any of its Affiliates’ failure to make an offer of continuing employment to the Continued Employees as contemplated by this Section 5.5; provided that with respect to the foregoing sentence, Purchaser shall not be liable for any Losses resulting from the actions or omissions of Seller or any of its Affiliates except to the extent taken on behalf of Purchaser or its Affiliates.
(l)    Seller shall indemnify the Purchaser Indemnified Parties from any Losses incurred by or asserted against any of the Purchaser Indemnified Parties arising or resulting from the Benefit Plans sponsored by Seller and its Affiliates.
(m)    Nothing in this Agreement shall be construed to confer on any Person, other than the parties hereto, their successors and permitted assigns, any right to enforce the provisions of this Section 5.5 or be construed as an amendment of any Benefit Plan or any employee benefit plan maintained by Purchaser or its Affiliates.
Section 5.6    Transfers of Intellectual Property; Use of Names and Marks
(a)    All Intellectual Property designated on Section 5.6(a) of the Seller Disclosure Schedule shall be assigned by the applicable Acquired Company to Seller or one of its Affiliates, with such assignee assuming all obligations thereunder, prior to the Closing in a form reasonably acceptable to Seller and Purchaser.

- #PageNum# -    
703550379

(b)    All Intellectual Property designated on Section 5.6(b) of the Seller Disclosure Schedule shall be assigned by Seller or one of its Affiliates (other than the Acquired Companies) to an Acquired Company, with such Acquired Company assuming all future obligations thereunder, prior to the Closing in a form reasonably acceptable to Seller and Purchaser.
(c)    From the Closing Date through the date of expiration of the Licensing Period, as such period may be extended pursuant to Section 5.23(a) (such date, the “Fronting Completion Date”), Purchaser shall cause each Acquired Company not to make any change in its corporate name to the extent that, under applicable Law, such change would require any policy or contract form on which such Acquired Company issues Insurance Contracts and which is currently being used by such Acquired Company (including all amendments and applications pertaining thereto) or any marketing materials, brochures, illustrations and certificates pertaining thereto to be approved by any Governmental Authority or filed with and not objected to by any Governmental Authority within the period provided by applicable Law for objection.  Except as set forth in this Section 5.6(c), no later than the sixtieth day following the Fronting Completion Date, Purchaser shall cause each Acquired Company to cease use in all respects (including replacing or removing from signage, advertising materials and other materials) of the Trademarks owned by Seller or its Affiliates set forth in Section 5.6(c) of the Seller Disclosure Schedule, or any Trademarks derivative thereof or confusingly similar thereto (collectively, the “Seller Marks”).  Notwithstanding the foregoing, neither Purchaser nor the Acquired Companies shall develop new materials bearing the Seller Marks.  Notwithstanding anything to the contrary in the foregoing, Purchaser and the Acquired Companies shall also be entitled to refer to the name of Seller or its Affiliates indefinitely as required by applicable Law, or as reasonably necessary in regulatory filings, or otherwise in a non-promotional manner solely for purposes of historical reference.
Section 5.7    Intercompany Agreements and Accounts.  Except as otherwise provided in this Agreement or set forth in Section 5.7 of the Seller Disclosure Schedule, and excluding the Ancillary Agreements:
(c)    all Intercompany Agreements shall be terminated and discharged without any further liability or obligation thereunder and deemed to be void and of no further force and effect, effective immediately prior to the Closing; and
(d)    Seller shall, and shall cause its Affiliates to, take such action and make such payments as may be necessary so that as of immediately prior to the Closing, the Acquired Companies, on the one hand, and Seller and its Affiliates (other than the Acquired Companies), on the other hand, settle, discharge, offset, pay, repay, terminate or extinguish in full all Intercompany Accounts.  For purposes of this Section 5.7, Intercompany Agreements shall mean any intercompany Contracts between (a) any of the Acquired Companies, on the one hand, and (b) Seller, any of its Affiliates, White Mountains Insurance Group, Ltd., any Affiliate of White Mountains Insurance Group, Ltd. (in each case, other than the Acquired Companies), or any of their respective officers or employees, on the other hand.
Section 5.8    Further Assurances.  At any time from and after the Closing Date, Seller and Purchaser shall, and Purchaser shall cause the Acquired Companies (or their successors) to, promptly execute, acknowledge and deliver any additional documents, instruments or conveyances 

- #PageNum# -    
703550379

reasonably requested by Seller or Purchaser, as the case may be, and necessary for Seller or Purchaser, as the case may be, to satisfy their respective obligations hereunder.
Section 5.9    Resignations.  Seller shall cause the officers and directors of each of the Acquired Companies, to the extent specified in writing by Purchaser at least three (3) Business Days prior to the Closing Date, to resign such position or positions, and to relinquish any authority with respect to bank accounts described in Section 3.24 of this Agreement, effective as of the Closing (the “Resignations”).
Section 5.10    Insurance.  Purchaser acknowledges and agrees that all Insurance Policies for the Acquired Companies under policies of Seller and its Affiliates shall terminate as of the Closing and following the Closing, no claims may be brought or maintained against any policy of Seller or its Affiliates in respect of the Acquired Companies regardless of whether the events underlying such claim arose or were first discovered prior to or following the Closing.
Section 5.11    Release of Guarantees.  Prior to the Closing, Seller and Purchaser shall cooperate and shall use their respective commercially reasonable efforts to, effective as of the Closing, (a) terminate or cause to be terminated, or cause Purchaser or one of its Affiliates to be substituted in all respects for Seller and any of its Affiliates (other than the Acquired Companies) (collectively, the “Released Parties”) in respect of all liabilities and obligations of the Released Parties under any guarantee of or relating to liabilities or obligations (including under any Material Contract, Contract or letter of credit) of the Acquired Companies and listed in Section  5.11 of the Seller Disclosure Schedule (collectively, the “Guarantees”), and (b) cause Purchaser or one of its Affiliates to have surety bonds (and any necessary collateral, indemnity or other agreements associated therewith) issued on behalf of Purchaser or one of its Affiliates in replacement of all surety bonds (and all collateral, indemnity and other agreements associated therewith) issued on behalf of the Released Parties for the benefit of the Acquired Companies and listed in Section 5.11 of the Disclosure Schedule (collectively, the “Surety Bonds”).  In the case of the failure to do so by the Closing, then, Seller and Purchaser shall continue to cooperate and use their respective commercially reasonable efforts as described in the preceding sentence, and Purchaser shall (i) indemnify the Released Parties for any and all liabilities or obligations arising from such Guarantees and Surety Bonds and (ii) not permit the Acquired Companies or their Affiliates to (A) renew or extend the term of or (B) increase its obligations under, or transfer to another third party, any Material Contract, Contract or letter of credit or other liability or obligation for which any Released Party is or would reasonably be expected to be liable under such Guarantee or Surety Bond.  To the extent that any Released Party has performance obligations under any such Guarantee or Surety Bond, Purchaser shall use its commercially reasonable efforts to (I) fully perform or cause to be fully performed such obligations on behalf of such Released Party or (II) otherwise take such action as reasonably requested by Seller so as to place such Released Party in the same position as if Purchaser, and not such Released Party, had performed or were performing such obligations.
Section 5.12    Notification of Certain Matters.  Seller, on the one hand, and Purchaser, on the other hand, shall give prompt notice to the other of the occurrence, or failure to occur, of any event or the existence of any condition that has resulted in or would reasonably be expected to result in the failure of any of the conditions set forth in Sections 6.2(a) and 6.2(b) or Sections 6.3(a) and 

- #PageNum# -    
703550379

6.3(b), respectively; provided, however, that the delivery of notice pursuant to this Section 5.12 shall not be deemed to amend or modify this Agreement or any Schedule hereto or limit or otherwise affect the remedies available hereunder to the other Party.
Section 5.13    Restructuring.
(d)    Seller shall, and shall cause its Affiliates (including the Acquired Companies) to use commercially reasonable efforts to, prior to the Closing Date, take any and all actions necessary or incidental to effect the Restructuring described in Section 5.13(a) of the Seller Disclosure Schedule.
(e)    Following the Closing Date, Purchaser and Seller shall cooperate with each other (and Purchaser shall cause its Subsidiaries to cooperate) in order to fully effectuate any part of the Restructuring not previously completed.  Neither party shall be required by this Section 5.13 to take any action that would unreasonably interfere with the conduct of its business or unreasonably disrupt its normal operations (or, in the case of Purchaser, including those of the Acquired Companies).
Section 5.14    Run-Off Business Consulting Engagement Agreement.  As of the date of this Agreement, Purchaser and Seller shall, subject to applicable Law, execute and deliver the Run-Off Business Consulting Engagement Agreement.  
Section 5.15    Investment Assets.
(d)    Prior to the Closing, Seller shall use commercially reasonable efforts to cause each of the Acquired Companies (other than OneBeacon Insurance) to sell, transfer or exchange all of their investment assets, other than those on deposit with Governmental Authorities, for Cash Equivalents, it being agreed that Seller shall have no obligation to cause any of the Acquired Companies to sell investment assets pursuant to this Section 5.15 at a price below the price that an unaffiliated and willing purchaser would pay and an unaffiliated and willing seller would accept, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.  Prior to the Closing and subject to Section 5.15, Seller shall use commercially reasonable efforts to cause  OneBeacon Insurance’s investment assets to consist of Acceptable Investments, other than those on deposit with Governmental Authorities; provided, however, that Purchaser may, upon written notice (the “Investment Notice”) (which notice may be in the form of electronic mail or facsimile) delivered to Seller no later than 9:00 a.m., NYCT, six (6) Business Days prior to the Closing Date (the “Notification Date”), request that Seller cause OneBeacon Insurance to hold at the Closing a portfolio consisting of Cash Equivalents and up to $100 million fair market value (based on then current market price) of other Acceptable Investments (the “Maximum Investment Notice Amount”) as specified in the Investment Notice; provided further that any such Investment Notice shall include the specific name, requested par amount, CUSIP and stated final maturity date of each of such non-cash Acceptable Investments requested by Purchaser, the aggregate par amount of all such non-cash Acceptable Investments (not to exceed the Maximum Investment Notice Amount) and Purchaser’s preferred order of priority of purchase of such Acceptable Investments.  The failure by Purchaser to deliver the Investment Notice by the applicable time set forth in this Section 5.15(a) shall be deemed to be a waiver of the right of Purchaser to deliver such notice.

- #PageNum# -    
703550379

(e)    After the execution of this Agreement and prior to Closing, to the extent that any investment asset of an Acquired Company (other than OneBeacon Insurance) on deposit with a Governmental Authority shall mature, be prepaid or redeemed or otherwise converted to cash, Seller shall cause such Acquired Company following delivery of cash payable on or with respect to such maturity, purchase, redemption or conversion to cause such cash to remain on deposit with the applicable Governmental Authority or, if required by applicable Law, to invest such cash in investment assets with maturities of the greater of (i) thirty (30) days or less and (ii) the minimum tenor required by the applicable Governmental Authority; provided, that such investments comply with applicable Law.  If Purchaser delivers to Seller a written notice as to investment of maturing deposited investment assets of OneBeacon Insurance (the “Deposited Investments Notice”), then, to the extent that any investment asset of OneBeacon Insurance on deposit with a Governmental Authority shall mature, be prepaid or redeemed or otherwise converted to cash on or after the date that is ten (10) Business Days following receipt of such Deposited Investments Notice, Seller shall cause OneBeacon Insurance, following delivery of cash payable on or with respect to such maturity, purchase, redemption or conversion, to cause an amount of such cash specified in the Deposited Investment Notice, up to a maximum of $25,000,000, to remain on deposit with the applicable Governmental Authority or, if required by applicable Law, to invest such cash in investment assets with maturities of the greater of (i) thirty (30) days or less and (ii) the minimum tenor required by the applicable Governmental Authority; provided, that such investments comply with applicable Law.
(f)    In the event Purchaser shall have delivered an Investment Notice in accordance with the terms of Section 5.15(a), then, on the first Business Day immediately following the Notification Date (the “Investment Purchase Date”), Seller shall use commercially reasonable efforts to cause the investment portfolio of OneBeacon Insurance  as of the close of business on the Investment Purchase Date and subject to the settlement of all unsettled trades to consist of Cash Equivalents and Acceptable Investments as designated in the Investment Notice; provided that (i) Seller shall have no obligation to cause any of the Acquired Companies to sell investment assets pursuant to this Section 5.15 at a price below the price that an unaffiliated and willing purchaser would pay and an unaffiliated and willing seller would accept, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts; (ii) Seller shall have no obligation to cause any of the Acquired Companies to sell assets on deposit with Governmental Authorities; and (iii) Seller shall have no obligation to cause OneBeacon Insurance to purchase Acceptable Investments pursuant to this Section 5.15 at a price in excess of the price that an unaffiliated and willing purchaser would pay and an unaffiliated and willing seller would accept, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.  Furthermore, purchases of each Acceptable Investment pursuant to the Investment Notice will be made in lots of $3 million par value, with any residual cash amount below the Maximum Investment Notice Amount to remain in Cash Equivalents.  To the extent that on the Investment Purchase Date, Seller is unable to cause OneBeacon Insurance to purchase any of the specified securities in the amount and of the type specified in the Investment Notice, in each case, subject to any applicable limitations set forth in this Section 5.15, then the Seller  will instead cause OneBeacon Insurance to deliver Cash Equivalents in the same amount, again subject to any applicable limitations set forth in this Section 5.15.  

- #PageNum# -    
703550379

(g)    Purchaser acknowledges and agrees that (i) Seller shall not be required to cause any of the Acquired Companies to purchase, nor shall Seller be liable for not causing any Acquired Companies to purchase, any security that any such Acquired Company is not permitted to hold pursuant to applicable Law, and (ii) the purchase of any security by any of the Acquired Companies as contemplated by this Section 5.15 shall be subject to the availability of such security in an open market.
(h)    By no later than 3:00 p.m., NYCT, on the Business Day immediately following the Investment Purchase Date, Seller shall deliver a certificate (the “Portfolio Notice”) (which notice may be in the form of electronic mail or facsimile) to Purchaser setting forth the investment assets in the investment portfolio of  OneBeacon Insurance and the amount of such assets in such portfolio after giving effect to the trades executed on the Investment Purchase Date pursuant to this Section 5.15, which portfolios shall be held by OneBeacon Insurance as of the Closing (subject to any market fluctuations of the investment assets contained in such portfolio that may occur prior to the Closing and the settlement of all unsettled trades).
(i)    No later than 9:00 a.m., NYCT, on the Business Day immediately preceding the Closing Date Seller shall deliver a certificate (the “Trade Completion Certificate”) (which notice may be in the form of electronic mail or facsimile) to Purchaser (i) confirming that the last of the purchases or sales that Seller shall have caused to be made as contemplated by Section 5.15(c) shall have been finally settled (or failed to be settled) in accordance with applicable marketplace rules, (ii) certifying that Seller has complied with its obligations under this Section 5.15 in all material respects.
(j)    Seller shall be responsible for any Taxes owed in respect of gains realized on the sale of assets pursuant to this Section 5.15.
Section 5.16    Business Activities.  From the Closing Date through the date that is the later of (i) ninety (90) days after the Fronting Completion Date and (ii) the date on which the Surplus Notes issued pursuant to Section 5.19 are repaid in full, Purchaser shall not, and shall cause each of the Acquired Companies to not, market, issue or agree to issue any new Insurance Contracts other than pursuant to the Retained Business Reinsurance Agreement and the Retained Business Administrative Services Agreement.
Section 5.17    Available Ceded Reinsurance
(a)    Following the Closing, all reinsurance treaties and agreements with respect to treaty years 2001 and prior and the Gen Re and NICO Agreements shall be for the sole and exclusive benefit of the Acquired Companies, and the reinsurance treaties and agreements with respect to treaty years 2002 through 2010 set forth on Schedule 5.17(a) (“Shared Reinsurance”) shall be shared as between the Seller and its Subsidiaries, on the one hand, and the Acquired Companies, on the other hand, as set forth in this Section 5.17; provided, however, that any facultative reinsurance agreements shall continue to be available solely for the risks covered thereunder and shall be for the sole and exclusive benefit of the parties holding such risks.  As used in this Section 5.17, the “Seller SR Parties” refers to the Seller and/or one of its Subsidiaries that have a claim under the 

- #PageNum# -    
703550379

Shared Reinsurance, and the “AC SR Parties” refers to one or more Acquired Companies that have a claim under the Shared Reinsurance.
(b)    For any Shared Reinsurance with free and unlimited reinstatement layers, (i) if only one or more Seller SR Parties or one or more AC SR Parties have losses arising out of an occurrence, then such claimant(s) shall submit the proofs or payment of loss and shall recover under the Shared Reinsurance; and (ii) if both Seller SR Parties and AC SR Parties have losses arising out of an occurrence, then the Seller SR Parties and the AC SR Parties shall share proportionally in the retention and the limit of liability under the Shared Reinsurance based on the percentage that each Seller SR Party’s or AC SR Party’s loss bears to the combined losses of the Seller SR Parties and AC SR Parties under the relevant occurrence.  The parties acknowledge and agree that sharing of the retention and limit of liability under the Shared Reinsurance as set forth herein might result in a party not collecting the entire amount of the losses that it might otherwise have been able to collect if it were a sole claimant under the Shared Reinsurance.
(c)    For any Shared Reinsurance that does not have free and unlimited reinstatement layers, (i) the retention and limit of liability shall be allocated between the Seller SR Parties and the AC SR Parties based on the chronological timing of submission of a proof of payment of loss covered under the Shared Reinsurance, such that the Seller SR Parties and AC SR Parties may continue to submit proofs of payment of loss but shall be responsible for any reinstatements until the relevant Shared Reinsurance has been exhausted; (ii) in the event that (x) proofs of payment of loss are submitted simultaneously by one or more Seller SR Parties and one or more AC SR Parties or (y) both Seller SR Parties and AC SR Parties have losses arising out of an occurrence, the Seller SR Parties and the AC SR Parties shall share proportionally in the retention, the limit of liability and the payment for reinstatements under the Shared Reinsurance in accordance with clause (ii) of Section 5.17(b).
(d)    Following the Closing, the Seller SR Parties and the AC SR Parties shall be responsible for the submission of their own respective notices, requests, claims, demands or other communications for losses covered under the Shared Reinsurance and for their own respective billing and collection for any recoverable amounts under the Shared Reinsurance; provided, however, that each party shall provide to the other party copies of any notices, requests, claims, demands or other communications sent or received with respect to the Shared Reinsurance (including, but not limited to, claims submissions and settlement documents), concurrently if sent by a party or promptly after receipt.  The parties shall cooperate with and shall promptly execute, acknowledge and deliver any additional documents, instruments or conveyances reasonably requested by the other party in order to share in the Shared Reinsurance as provided in this Section 5.17.  The parties acknowledge and agree that their ability to recover under the Shared Reinsurance shall be subject to the terms and conditions of such Shared Reinsurance.
Section 5.18    Closing Date Capital Contribution.  On the Closing Date, but prior to Closing, if the Closing Purchase Price, as calculated pursuant to Section 2.1(c) and disregarding any adjustment to the Closing Purchase Price pursuant to the final sentence of Section 2.1(c), is a negative number, Seller shall contribute an amount of Cash Equivalents equal to the absolute value of such negative amount to OneBeacon Insurance (the “Pre-Closing Seller Contribution”).

- #PageNum# -    
703550379

Section 5.19    Additional Required Capital.  In the event that the Pennsylvania Department requires that capital contributions be made into OneBeacon Insurance (either by virtue of a requirement to increase reserves or a requirement to increase surplus, or both), such that the aggregate amount of Cash Equivalents and Investment Assets of OneBeacon Insurance, on a consolidated basis with its Subsidiaries, after giving effect to such capital contributions, shall exceed, as of Closing, the aggregate amount of Cash Equivalents and Investment Assets of OneBeacon Insurance, on a consolidated basis with its Subsidiaries, contemplated by the Estimated Closing Date Balance Sheet (such excess amount referred to herein as the “Required Additional Capital Amount”), then the provisions of this Section 5.19 shall apply.  Seller shall contribute to OneBeacon Insurance (i) an amount of Cash Equivalents (the “Seller Pari Passu Amount”) equal to the lesser of (x) fifty percent (50%) of the Required Additional Capital Amount or (y) the Pre-Closing Seller Contribution; and (ii) if the Required Additional Capital Amount exceeds two times the Seller Pari Passu Amount, an amount of Cash Equivalents of such excess, up to a maximum of $30 Million (the “Seller Priority Amount”).  Notwithstanding the foregoing, in no event shall the aggregate amount that Seller is obligated to contribute to OneBeacon Insurance pursuant to this Section 5.19 exceed an amount equal to 45% of the combined statutory surplus of the Acquired Companies as of Closing, after giving effect to the contributions contemplated by this Section 5.19 (such amount, the “Aggregate Contribution Cap”), it being agreed that in the event the Aggregate Contribution Cap would be exceeded, the Seller Priority Amount shall be reduced first, followed (if necessary) by the Seller Pari Passu Amount, as necessary to reduce Sellers aggregate required contribution pursuant to this Section 5.19 to the Aggregate Contribution Cap.  In consideration of each amount, if any, contributed by Seller pursuant to this Section 5.19, OneBeacon Insurance will issue a surplus note to Seller, which surplus note(s) shall be substantially in the applicable form attached hereto as Exhibit 8 (each, a “Surplus Note”).  The Surplus Note, if any, issued in consideration of the Seller Pari Passu Amount (the “Seller Pari Passu Note”), will be subordinated to the Surplus Note, if any, issued in consideration of the Seller Priority Amount (the “Seller Priority Note”).
Section 5.20    Certain Restrictions
(a)    Without limiting Section 2.3(b)(viii), Purchaser covenants that (i) for so long as the Seller Priority Note is outstanding, it will ensure that OneBeacon Insurance does not declare or make any dividends, distributions or other similar payments or transfers to its shareholder(s) and (ii) for so long as the Seller Pari Passu Note is outstanding, it will ensure that OneBeacon Insurance does not declare or make any dividends, distributions or other similar payments or transfers to its shareholder(s) except to the extent that such payments are made on a pari passu basis with payments of principal and interest on the Seller Pari Passu Note, as provided therein.
(b)    The following shall apply in relation to any intercompany agreement entered into at or following Closing between any of the Acquired Companies and any of Purchaser or Purchaser’s Affiliates that contemplates payments being made by any Acquired Company to Purchaser or Purchaser’s Affiliate (such agreement or agreements, collectively, the “Purchaser Intercompany Agreement”) for so long as any Surplus Note remains outstanding:
(i)    Such Purchaser Intercompany Agreement shall provide that such payments thereunder are to be determined based upon the actual cost of the services provided 

- #PageNum# -    
703550379

(excluding board and bureau expenses), plus 15%.  Purchaser shall obtain Seller’s prior written consent to any proposed modification of such 15% margin.  
(ii)    The services to be provided pursuant to such Purchaser Intercompany Agreement shall be consistent with those set forth on Schedule 5.20 hereto.
(iii)    Schedule 5.20 hereto sets forth Purchaser’s current forecast of the amounts to be charged pursuant to the Purchaser Intercompany Agreement (the “Management Fees”) during the periods set forth therein (the “Initial Forecast”).  Beginning with September 30, 2017, not later than September 30 of each calendar year, Purchaser will provide Seller with an updated forecast of the Management Fees to be charged pursuant to the Purchaser Intercompany Agreement during the next subsequent calendar year (each, an “Updated Forecast”).  Each such Updated Forecast shall be prepared by Purchaser in good faith using reasonable assumptions.  In no event shall any such Updated Forecast contemplate an increase in the Management Fees associated with any of the categories of services and expenses contemplated on Schedule 5.20 above the actual Management Fees associated with such category charged during the prior calendar year, unless such increase beyond actual Management Fees is attributable to regulatory requirements, accounting changes or other events outside Purchaser’s control.
(iv)    In no event shall the Management Fees charged by Purchaser pursuant to the Purchaser Intercompany Agreement exceed (A) during any period contemplated in Schedule 5.20, the forecasted Management Fees contemplated for such period therein, plus the acceptable variance specified for such period therein, or (B) for any calendar year covered by any Updated Forecast, the total Management Fees forecasted therein, plus thirty percent (30%).
(v)    Purchaser shall, and shall cause its Affiliates to, maintain complete and accurate books and records of the services provided pursuant to any such Purchaser Intercompany Agreement, the costs of such services and the amounts charged to the Acquired Companies in respect of such services, in order to permit Seller to verify Purchaser’s and its Affiliates adherence to the cost structure contemplated by this Section 5.20(b).  Purchaser shall permit, and shall cause its applicable Affiliates to permit, Seller to audit such books and records not more than twice per calendar year upon reasonable prior written notice from Seller and shall make such books and records available to Seller for such purpose in electronic format to the extent reasonably practicable.  
(vi)    In the event that any such audit reveals that the Acquired Companies have, pursuant to any such Purchaser Intercompany Agreement, been charged Management Fees that, in the aggregate, exceed the amounts contemplated by clause (iv) of this Section 5.20(b), then (i) Purchaser and its Affiliate(s) shall refund the amount in excess of such permissible amount to the applicable Acquired Compan(ies) as soon as practicable and (ii) until the full amount to be so refunded is refunded to the Acquired Compan(ies), any Management Fees owing by the Acquired Companies pursuant to any such Purchaser Intercompany Agreements shall be offset against, and reduced by, the remaining amount to be so refunded.

- #PageNum# -    
703550379

Section 5.21    Non-Solicitation.  As an inducement to Purchaser to enter into this Agreement, and in consideration of the time and expense which it has devoted and will devote to the transactions contemplated hereby, prior to the Closing or the earlier termination of this Agreement, neither the Seller, any Affiliate of Seller nor any of their respective officers, directors, members, managers, representatives, agents, advisors or personnel shall directly or indirectly initiate, solicit, encourage, entertain, negotiate, accept or discuss any proposal, inquiry, indication of interest or offer (an “Acquisition Proposal”) to acquire all or any portion of any Acquired Company, whether by merger, consolidation, purchase of stock, share exchange, purchase of assets (including purchase of any of the Runoff Business), tender offer or otherwise (a “Third Party Acquisition”), or provide any nonpublic information to any third party in connection with an Acquisition Proposal or proposed Third Party Acquisition, or enter into any Contract or understanding requiring Seller to abandon, terminate or fail to consummate the transactions contemplated under this Agreement.  Seller shall notify Purchaser promptly after receipt of any Acquisition Proposal.
Section 5.22    Actuarial Fees.  Seller shall be solely responsible for the fees of the actuarial firm hired by Seller in connection with the “Form A” application submitted to the Commonwealth of Pennsylvania in connection with the Acquisition.
Section 5.23    Fronting Matters.
(a)    Licensing Period.  To the extent that ASIC or one of its Affiliates does not have Policy Issuance Authority to write some or all of the Retained Policies in one or more jurisdictions, ASIC or one of its Affiliates shall use its commercially reasonable efforts to obtain such Policy Issuance Authority as promptly as possible and in any event no later than one year following the Closing Date (the “Licensing Period”); provided, however, that as to any jurisdictions with respect to which ASIC and/or its Affiliates shall have submitted to the applicable Governmental Authorities, before the end of the Licensing Period, all filings, notices or other submissions necessary to obtain Policy Issuance Authority, the Licensing Period shall be extended as to such jurisdictions until the earlier of (i) 180 days or (ii) 90 days following the date on which ASIC or one of its Affiliates acquire Policy Issuance Authority in such jurisdictions.
(b)    Fronting Obligation.
(i)    During the Licensing Period, to the extent that ASIC or one of its Affiliates does not have Policy Issuance Authority to write any Retained Policy directly in one or more jurisdictions (including any existing policies that are subject to renewals during the Licensing Period), Purchaser shall cause the applicable Acquired Companies to write the Retained Policies on behalf of ASIC or one of its Affiliates in such jurisdictions (“Fronted Policies”).  The applicable Acquired Companies’ obligation to write such Fronted Policies (the “Fronting Obligation”) in any particular jurisdiction and for any particular product or line of business shall terminate at the earlier of (i) the date on which ASIC or one of its Affiliates acquires Policy Issuance Authority in such jurisdictions for such product or line of business or (ii) the end of the Licensing Period.  The Fronting Obligation shall only apply during the Licensing Period and only to Retained Policies that are reinsured and administered under, and subject to, the terms and conditions of the Retained Business Reinsurance Agreement.  

- #PageNum# -    
703550379

The Administrator (as defined in the Retained Business Administrative Services Agreement) shall be responsible for the administration of all aspects of the Fronted Policies subject to, and in accordance with, the terms and conditions of the Retained Business Administrative Services Agreement.
(ii)    To the extent that, on and after the Closing Date, ASIC or one of its Affiliates has Policy Issuance Authority in any jurisdictions where the applicable Acquired Companies have not yet obtained approval from the Governmental Authorities to withdraw from writing or renewing the Retained Business and such approval is required under applicable Law in order to effectuate such withdrawal, the applicable Acquired Companies’ Fronting Obligation shall also include the obligation, as requested by ASIC or one of its Affiliates, to write Retained Policies in any such jurisdictions until the applicable Acquired Companies obtain the requisite approval to withdraw from such jurisdictions.  Seller shall be responsible for all reasonable out of pocket costs and expenses for obtaining the requisite approval to withdraw for the applicable Acquired Companies and shall undertake and assist with all filings and other actions necessary with respect thereto.  
(c)    Licensing Efforts.  ASIC and its Affiliates have filed applications and related filings in various jurisdictions seeking Policy Issuance Authority for the Retained Business in those jurisdictions, as set forth and described in Schedule 5.23(c), and ASIC and its Affiliates will continue to use their commercially reasonable efforts between the date of this Agreement and the Closing Date to complete those filings and obtain the requested Policy Issuance Authority; provided, however, that the parties agree to cooperate with each other in good faith to provide additional information regarding the status of any rate and form filings related to ASIC or one of its Affiliates’ Policy Issuance Authority.
Section 5.24    Gen Re Cessions.  Following the date hereof until the Closing, Seller shall cause Potomac Insurance not to cede any Run-Off Business under the Adverse Development Agreement of Reinsurance No. 8888 between Potomac Insurance and General Reinsurance Company dated as of April 13, 2001, unless Seller has obtained Purchaser’s prior consent therefor (which consent shall not be unreasonably withheld, delayed or conditioned).
Section 5.25    Collection and Sharing of Allocated Balances.  
(a)    Following the Closing Date, unless the parties mutually agree to do otherwise based on operational implications identified prior to Closing, the account or receivable underlying each Allocated Balance (as described in Schedule 1.1(a)), a portion of which is reflected on the Final Closing Date Balance Sheet, shall be collected (or caused to be collected by one of its Affiliates) by (i) Seller, if the majority of the Underlying Allocated Account (as defined below) with respect to such Allocated Balance shall be allocated to Seller and its Affiliates, or (ii) Purchaser, if the majority of such Underlying Allocated Account shall be allocated to the Acquired Companies, in each case based upon the allocation methodology set forth in Schedule 1.1(a).  The party who is responsible for collecting the account or receivable underlying an Allocated Balance (an “Underlying Allocated Account”) pursuant to the preceding sentence is herein referred to as the “Collection Agent” with respect to such Underlying Allocated Account.  

- #PageNum# -    
703550379

(b)    Upon receipt of any amount on account of an Underlying Allocated Account by any party hereto or one of its Affiliates, the recipient thereof shall pay a portion of such amount received to Seller, if the recipient is the Purchaser or one of its Affiliates, or to OneBeacon Insurance, if the recipient is Seller or one of its Affiliates.  In each case the amount payable to Seller or OneBeacon Insurance shall be based upon the proportional share of the Underlying Allocated Account that shall have been allocated to Seller and its Affiliates or the Acquired Companies, as applicable, in connection with the determination of the Final Closing Date Balance Sheet.
(c)    Each party hereto shall use commercially reasonable efforts to collect all Underlying Allocated Accounts as to which it shall be the Collection Agent.      
ARTICLE VI     
CONDITIONS TO CLOSING
Section 6.1    Conditions to the Obligations of Purchaser and Seller.  The obligations of the parties hereto to effect the Closing are subject to the satisfaction (or waiver by each party hereto) as of the Closing of the following conditions:
(r)    No Injunction or Prohibition.  No Governmental Authority of competent jurisdiction shall have enacted, enforced or entered any Law or final and non-appealable Governmental Order that is in effect on the Closing Date and prohibits the consummation of the Closing.
(s)    Required Approvals.  The approvals and consents of Governmental Authorities set forth on Schedule 6.1(b) (the “Required Approvals”) shall have been obtained and any waiting period applicable thereto shall have terminated or otherwise expired.  
(t)    Restructuring.  Those Restructuring actions identified on Section 5.13 of the Seller Disclosure Schedule as being conditions to Closing shall have completed, or completed in all material respects, as indicated on such Section 5.13 of the Seller Disclosure Schedule.
Section 6.2    Conditions to the Obligations of Purchaser.  The obligation of Purchaser to effect the Closing is subject to the satisfaction (or waiver by Purchaser) as of the Closing of the following conditions:
(i)    Representations and Warranties.  The representations and warranties of Seller set forth in Article III shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent they expressly refer to a specified date, in which case they shall be true and correct as though made on and as of such specified date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have a Company Material Adverse Effect; provided, that, those representations and warranties that are qualified by references to “material,” “materiality” or “Company Material Adverse Effect” shall be deemed to not include such qualifications, provided, further, that, notwithstanding any of the foregoing, the representations and warranties set forth in each of Sections 3.1, 3.2, 3.3(a), 3.4(a) and 3.16 shall be true and correct in all material respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent they expressly refer to a specified date, in which case they shall be true and correct as 

- #PageNum# -    
703550379

though made on and as of such specified date).  Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of Seller.
(j)    Covenants.  The covenants and agreements of Seller set forth in this Agreement to be performed or complied with at or prior to the Closing shall have been duly performed or complied with in all material respects.  Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of Seller.
(k)    Endorsement No. 1 effective October 12, 2012 to the Adverse Development Agreement of Reinsurance No. 8888 between Potomac Insurance and General Reinsurance Company dated as of April 13, 2001 shall be in full force and effect.
(l)    Seller shall have made the Pre-Closing Seller Contribution, if required pursuant to Section 5.18.
Section 6.3    Conditions to the Obligations of Seller.  The obligations of Seller to effect the Closing are subject to the satisfaction (or waiver by Seller) as of the Closing of the following conditions:
(k)    Representations and Warranties.  The representations and warranties of Purchaser set forth in Article IV shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent they expressly refer to a specified date, in which case they shall be true and correct as though made on and as of such specified date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have a Purchaser Material Adverse Effect; provided, that, those representations and warranties that are qualified by references to “material,” “materiality” or “Purchaser Material Adverse Effect” shall be deemed to not include such qualifications, provided, further, that, notwithstanding any of the foregoing, the representations and warranties set forth in each of Sections 4.1, 4.2 and 4.7 shall be true and correct in all material respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent they expressly refer to a specified date, in which case they shall be true and correct as though made on and as of such specified date).  Seller shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of Purchaser.
(l)    Covenants.  The covenants and agreements of Purchaser set forth in this Agreement to be performed or complied with at or prior to the Closing shall have been duly performed or complied with in all material respects.  Seller shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of Purchaser.
ARTICLE VII     
SURVIVAL; INDEMNIFICATION
Section 7.1    Survival.  All of the representations and warranties of Seller and Purchaser contained in this Agreement and all claims and causes of action with respect thereto shall terminate on the date that is fifteen (15) months from the Closing Date (the “Expiration Date”), except that the representations and warranties contained in (a) Sections 3.1 (Organization and Authority), 3.2 

- #PageNum# -    
703550379

(Binding Effect), 3.3(a) (Organization, Qualification and Authority of the Acquired Companies), 3.4 (Capital Structure; Ownership of the Acquired Companies), 3.16 (Finders’ Fees), 4.1 (Organization and Authority), 4.2 (Binding Effect) and 4.7 (Finders’ Fees) shall survive indefinitely or until the latest date permitted by applicable Law and (b) Sections 3.10 (Taxes), 3.22 (Environmental) shall survive the Closing until sixty (60) days after the expiration of the applicable statute of limitations (the representations, warranties and covenants set forth in clauses (a) and (b) hereof, the “Fundamental Claims”).  All of the covenants and agreements of Seller and Purchaser contained in this Agreement which, by their terms, are to be performed or complied with in their entirety at or prior to the Closing, and all claims and causes of action with respect thereto, shall terminate immediately following the Closing.  All of the covenants and agreements of Seller and Purchaser contained in this Agreement which, by their terms, are to be performed or complied with in whole or in part following the Closing, and all claims and causes of action with respect thereto, shall survive for the period provided in such covenants and agreements, if any, or until performed in accordance with their terms.  If a Claim Notice shall have been given pursuant to and in accordance with the terms of this Agreement within the applicable survival period, the representations, warranties, covenants and agreements that are the subject of such indemnification claim shall survive with respect to such indemnification claims until such claim has been finally and fully resolved (but solely for purposes of the resolution of such particular claim) in accordance with the terms of this Agreement.
Section 7.2    Indemnification by Purchaser.
(m)    Subject to Sections 7.2(b) and 7.6, from and after the Closing, Purchaser shall and shall cause the Acquired Companies to defend, indemnify, reimburse and hold harmless Seller, its Affiliates, and, if applicable, their respective directors, officers, employees, agents, representatives and successors in interest (the “Seller Indemnified Parties”) from any damages, claims, losses, liabilities, judgments, settlements, assessments, demands, awards and expenses (including reasonable attorneys’ fees and expenses) (collectively, “Losses”) incurred or suffered by or asserted against any of the Seller Indemnified Parties, to the extent arising out of or resulting from (i) any breach of any representation or warranty made by Purchaser contained in Article IV, (ii) any breach of any covenant or agreement of Purchaser contained in this Agreement which, by its terms, is to be performed or complied with in whole or in part following the Closing, (iii) any liability for the Purchaser’s share of Transfer Taxes, if any, to which the provisions of Section 5.4(a) apply, and (iv) any ECO Claim or XPL Claim related to any action taken or any action not taken by Purchaser under Section 5.14, or by Seller and its Affiliates (including the Acquired Companies) at the direction of Purchaser, under Section 5.14, or any claim related to any action taken or not taken under Purchaser’s assumed control in bad faith or in violation of Section 5.14.
(n)    No Claim Notice may be submitted by any Seller Indemnified Party with respect to any Losses arising out of or resulting from Section 7.2(a)(i), nor shall Purchaser be required to indemnify any Seller Indemnified Party against any such Loss in respect of such Claim Notice, unless the aggregate amount to be paid out in respect of any such Claim Notice exceeds $25,000 (the “Initial Deductible”); provided, however, that any series of Losses relating to the same facts and circumstances will be aggregated for purposes of determining whether such Losses exceed the Initial Deductible.  Purchaser shall be liable to the Seller Indemnified Parties for any Losses arising 

- #PageNum# -    
703550379

out of or resulting from Section 7.2(a)(i) that exceed the Initial Deductible solely to the extent such Losses, in the aggregate, would exceed $200,000 (the “Deductible”), and then only for the amount of such excess, up to an aggregate maximum amount equal to $10,000,000 (the “Indemnity Cap”).  Notwithstanding the foregoing, Losses arising out of or resulting from the Fundamental Claims and fraud shall not be subject to the Deductible or the Indemnity Cap.
Section 7.3    Indemnification by Seller.
(n)    Subject to Sections 7.3(b) and 7.6, from and after the Closing, Seller shall defend, indemnify, reimburse and hold harmless Purchaser, the Acquired Companies, their respective Affiliates and, if applicable, their respective directors, officers, employees, agents, representatives and successors in interest (the “Purchaser Indemnified Parties” and, collectively with the Seller Indemnified Parties, the “Indemnified Parties”) from any Losses incurred or suffered by or asserted against any of the Purchaser Indemnified Parties, to the extent arising out of or resulting from (i) any breach of any representation or warranty made by Seller contained in Article III, (ii) any breach of any covenant or agreement of Seller contained in this Agreement which, by its terms, is to be performed or complied with in whole or in part following the Closing, (iii) any liability for (w) Taxes of any Acquired Company for any taxable year or period (or portion thereof, determined in accordance with Section 5.4(c)(ii)) that ends on or before the Closing Date (other than Transfer Taxes, if any, to which the provisions of Section 5.4(a) apply), except (A) to the extent a liability for such Taxes was taken into account in the calculation of the Final Target Statutory Capital and the Final Purchase Price pursuant to Section 2.3, and (B) for the avoidance of doubt, to the extent such Taxes were already paid by Seller pursuant to Section 5.4(b)(i) or Section 5.4(c)(i), (x) the Seller’s share of Transfer Taxes, if any, to which the provisions of Section 5.4(a) apply, (y) any Taxes resulting from the making of any Section 338(h)(10) Election or any of the actions described in Sections 5.6, 5.7, or 5.13 of this Agreement, and (z) any Taxes of any other Person imposed on any of the Acquired Companies by reason of Treasury Regulations Section 1.1502-6 (or any corresponding or similar provision of federal, state, local, or non-United States law), as a transferee or successor, by contract, or otherwise which Taxes relate to an event or transaction occurring before the Closing (iv) Retained Liabilities, (v) Retained Policies and (vi) any and all items set forth on Schedule 7.3(a) hereto.
(o)    No Claim Notice may be submitted by any Purchaser Indemnified Party with respect to any Losses arising out of or resulting from Section 7.3(a)(i), nor shall Seller be required to indemnify any Purchaser Indemnified Party against any such Loss in respect of any such Claim Notice, unless the aggregate amount to be paid out in respect of such Claim Notice exceeds the Initial Deductible; provided, however, that any series of Losses relating to the same facts and circumstances will be aggregated for purposes of determining whether such Losses exceed the Initial Deductible.  Seller shall be liable to the Purchaser Indemnified Parties for any Losses arising out of or resulting from Section 7.3(a)(i) that exceed the Initial Deductible solely to the extent such Losses, in the aggregate, would exceed the Deductible, and then only for the amount of such excess, up to an aggregate maximum amount equal to the Indemnity Cap.  Notwithstanding the foregoing, Losses arising out of or resulting from the Fundamental Claims or fraud shall not be subject to the Deductible or the Indemnity Cap.

- #PageNum# -    
703550379

Section 7.4    Claims
(d)    An Indemnified Party shall give to the party from whom indemnification is sought (the “Indemnifying Party”) written notice of any matter that such Indemnified Party has determined has given or could give rise to a right of indemnification hereunder (a “Claim Notice”).  The Claim Notice shall be given within thirty (30) days after the Indemnified Party becomes aware of the facts indicating that a claim for indemnification may be warranted and (i) shall state in reasonable detail the nature of the claim, (ii) identify all sections of this Agreement which form the basis for such claim, (iii) with respect to Third Party Claims, attach copies of all material written evidence thereof to the date of such notice, and (iv) set forth the estimated amount of the Losses, if known, that have been or may be sustained by an Indemnified Party relating to such claim.  Notwithstanding the foregoing, the delay or failure of any Indemnified Party to give a Claim Notice shall not relieve the Indemnifying Party of its obligations under this Article VII, except to the extent (and only to the extent) that the Indemnifying Party is materially prejudiced by the delay or failure to give such Claim Notice.
(e)    If a Claim Notice relates to a claim, action, suit, proceeding or demand asserted by a Person who is not a party hereto or its Affiliate (or a successor thereof), including a claim, action, suit, proceeding or demand asserted by a Governmental Authority which could give rise to a right of indemnification hereunder (a “Third Party Claim”), the Indemnifying Party may at its own expense, through counsel of its own choosing (which counsel shall be reasonably satisfactory to the Indemnified Party), assume the defense and investigation of such Third Party Claim; provided that any Indemnified Party shall be entitled to participate in any such defense with counsel of its own choice at its own expense.  If the Indemnifying Party elects to assume the defense and investigation of such Third Party Claim, it shall, no later than thirty (30) days following its receipt of the Claim Notice notify the Indemnified Party in writing of its assumption of the defense and investigation of such Third Party Claim.  Notwithstanding any of the foregoing, if the Indemnified Party shall have reasonably concluded that counsel selected by the Indemnifying Party has a material conflict of interest because of the availability of different or additional defenses to such Indemnified Party or other facts that the conflict of interest cannot be resolved to the reasonable satisfaction of the Indemnified Party by the consent of the Indemnifying Party and the Indemnified Party to the joint representation, then such Indemnified Party shall have the right to select separate counsel, reasonably satisfactory to the Indemnifying Party, to participate in the defense of such action on its behalf; and the reasonable fees and expenses of the Indemnified Party’s counsel shall be at the expense of the Indemnifying Party.  If the Indemnifying Party fails to take reasonable steps necessary to defend actively and diligently the action or proceeding 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 fees and expenses of its attorneys will be covered by the indemnity provided for in this Article VII upon determination of the Indemnifying Party’s indemnity obligations.  The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, delayed or conditioned, settle or compromise any pending or threatened Third Party Claim (whether or not the Indemnified Party is an actual or potential party to such action or claim) or consent to the entry of any judgment (A) which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a written unconditional release from all Liability in respect of such Third 

- #PageNum# -    
703550379

Party Claim or (B) which involves any injunctive relief (or any other relief) against the Indemnified Party with respect to such action or claim other than the payment of monetary damages.  If the Indemnifying Party does not notify the Indemnified Party within thirty (30) days following its receipt of the Claim Notice that it will assume the defense and investigation of such Third Party Claim, then the Indemnifying Party shall have the right to participate in any such defense at its sole cost and expense.  The Indemnified Party may not compromise or settle any Third Party Claim without the prior written consent of the Indemnifying Party, unless the sole relief granted is equitable relief for which the Indemnifying Party would have no liability or to which the Indemnifying Party would not be subject.  The Indemnified Party and the Indemnifying Party shall make reasonably available to each other and their respective agents and representatives all relevant business records and other documents 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 each of the Indemnifying Party and the Indemnified Party shall use its commercially reasonable efforts to assist, and to cause the employees and counsel of such party to assist, in the defense of such Third Party Claim.
Section 7.5    Characterization of Indemnification Payments.  Unless otherwise required by applicable Law, all indemnification payments made by Seller or Purchaser under this Article VII shall be treated for all Tax purposes as adjustments to the Final Purchase Price.
Section 7.6    Certain Indemnification Matters
(n)    Purchaser and Seller agree that Losses hereunder shall be limited to actual monetary damages only and shall not include punitive, incidental, consequential, special, indirect or treble damages or damages based on loss of future revenue, profits or income, loss of business reputation or opportunity, diminution of value or on any type of multiple (other than any Losses of Indemnified Party with respect thereto arising from any Third Party Claim).
(o)    Any Indemnified Party shall use commercially reasonable efforts to mitigate the amount of its Losses upon and after becoming aware of any facts or circumstances that would reasonably be expected to result in any Losses that are indemnifiable hereunder.  In the event an Indemnified Party fails to take such commercially reasonable efforts, then notwithstanding anything to the contrary in this Agreement, the Indemnifying Party shall not be required to indemnify the Indemnified Party for such portion of Losses that would reasonably have been avoided if the Indemnified Party had taken such commercially reasonable efforts.
(p)    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.
(q)    The amount of any Losses incurred or sustained by an Indemnified Party shall be reduced (i) by any amount received by such Indemnified Party or its Affiliates with respect thereto under any insurance coverage relating thereto (other than insurance coverage provided by an Affiliate of such Indemnified Party), (ii) by any amount received by such Indemnified Party or its Affiliates with respect thereto from any non-Affiliated Person alleged to be responsible for any Losses or (iii) by the amount of any currently available Tax benefit realized by the Indemnified 

- #PageNum# -    
703550379

Party (or any Affiliate thereof) arising from the incurrence or payment of such Loss; provided, however, that this clause (iii) shall not apply to any Losses incurred or sustained by or with respect to any Acquired Company with respect to which a Section 338(h)(10) Election is made or any Subsidiary thereof.  For the purposes of this Section 7.6(d), a Tax benefit shall be currently available to the extent that it results in a refund of or actual reduction in Tax with respect to the taxable period in which the Loss is incurred or indemnification is paid, or in any prior taxable period, or on any Tax Return with respect thereto.  The Indemnified Parties shall use commercially reasonable efforts to collect any amounts available under third party insurance policies or recoverable from non-Affiliated Persons with respect to Losses sustained by such Indemnified Party, provided that the pursuit of any such recovery shall not be a precondition to payment by the Indemnifying Party.  If the Indemnified Party or its Affiliates receive any amounts under applicable third party insurance policies, or from any non-Affiliated Person alleged to be responsible for any Losses, 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 an amount equal to such recovered amount (less any expense incurred by such Indemnified Party in connection with obtaining such recovery) up to the amount received by the Indemnified Party or its Affiliates from the Indemnifying Party.
(r)    In determining whether a representation, warranty (other than those representations and warranties set forth in Sections 3.7(a) and 3.7(b)), covenant or agreement has been breached for purposes of the Seller Indemnifying Parties’ obligations to indemnify the Purchaser Indemnified Parties under Section 7.3 and the Purchaser’s obligations to indemnify the Seller Indemnified Parties under Section 7.2 and determining the amount of any Losses, “materiality”, “Purchaser Material Adverse Effect”, “Company Material Adverse Effect” and other similar materiality qualifiers contained in any such representation, warranty, covenant or agreement shall be disregarded.  The right to indemnification, payment of Losses or any other remedy based on the breach of any representations, warranties, covenants or agreements will not be affected by any investigation conducted with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or agreement; provided that the party claiming such right to indemnification, payment or remedy, did not have knowledge (or should have known) of such breach on the date hereof.  Notwithstanding the foregoing, the express waiver of any condition based upon the accuracy of any representation or warranty set forth in Section 6.2 or Section 6.3 or the performance of or compliance with any covenant will not affect the right of Purchaser or Seller, as the case may be, to indemnification, payment of Losses or other remedy based upon such waiver.   
(s)    No Losses may be claimed hereunder by an Indemnified Party to the extent that such Losses have been taken into account in the calculation of the Final Target Statutory Capital and the Final Purchase Price pursuant to Section 2.3.
(t)    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 Claim Notice, such Indemnifying Party shall be subrogated to all rights of the Indemnified Party with respect to the claim to which such indemnification relates, provided, however, that the Indemnifying Party shall only be subrogated to the extent of any amount paid by it pursuant to this Article VII in connection with such claim.  Such Indemnified Party shall cooperate with such Indemnifying Party in a 

- #PageNum# -    
703550379

reasonable manner, and at the cost of such Indemnifying Party, in presenting any subrogated right, defense or claim.
(u)    The Indemnified Parties are intended third party beneficiaries of this Article VII and may specifically enforce its terms.
(v)    In the event any Action for indemnification under this Article VII has been finally determined, the amount of such final determination shall be paid if the Indemnified Party is a (i) Seller Indemnified Party, by Purchaser and the Acquired Companies to the Seller Indemnified Party, and (ii) Purchaser Indemnified Party, by Seller to the Purchaser Indemnified Party, in each case upon demand by Wire Transfer.  An Action, and the liability for and amount of damages therefor, shall be deemed to be “finally determined” for purposes of this Article VII when the parties hereto have so determined by mutual agreement or, if disputed, when a final and non-appealable Governmental Order has been entered with respect to such Action.
Section 7.7    Exclusive Remedy.  From and after the Closing, the indemnification provisions in this Article VII shall be, in the absence of fraud, the sole and exclusive remedy for any breach of any representation or warranty or any covenant or agreement contained in this Agreement or in any certificate or instrument delivered pursuant to this Agreement, other than breaches of Sections 5.1(b) and (c), Sections 5.6(c) and (d), Section 5.12 and this Article VII, for which the remedy of specific performance is preserved pursuant to Section 9.15.  
Section 7.8    Reserves.  Notwithstanding anything to the contrary in this Agreement or the Ancillary Agreements, Purchaser acknowledges and agrees that neither Seller nor any of its Affiliates makes any representation or warranty (express or implied), and nothing contained in this Agreement, any Ancillary Agreement or any other agreement, document or instrument to be delivered in connection with the transactions contemplated hereby or thereby is intended or shall be construed to be a representation or warranty (express or implied) of Seller or any of its Affiliates, with respect to:  (a) the adequacy or sufficiency of the reserves or reinsurance of any Acquired Company; (b) the effect of the adequacy or sufficiency of the reserves or reinsurance of any Acquired Company on any “line item” or asset, liability or equity amount; (c) the future experience or profitability arising from the business of the Acquired Companies or that the reserves of any Acquired Company have been or will be adequate or sufficient for the purposes for which they were established or that the reinsurance recoverables taken into account in determining the amount of such reserves will be collectible.  
ARTICLE VIII     
TERMINATION
Section 8.1    Termination.  This Agreement may be terminated, and the transactions contemplated hereby abandoned, at any time prior to the Closing:
(o)    by written agreement of Purchaser and Seller;
(p)    by Purchaser if (i) any of the conditions set forth in Sections 6.1 or 6.2 shall have become incapable of fulfillment and shall not have been waived by Purchaser or (ii) if Seller breaches 

- #PageNum# -    
703550379

or fails to perform in any material respect its agreements or covenants contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Sections 6.1 or 6.2 and (B) cannot be or has not been cured by the earlier of (x) thirty (30) days after the giving of written notice to the Seller of such breach and (y) the Termination Date;
(q)    by the Seller if (i) any of the conditions set forth in Sections 6.1 or 6.3 shall have become incapable of fulfillment and shall not have been waived by the Seller or (ii) if Purchaser breaches or fails to perform in any material respect its agreements or covenants contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Sections 6.1 or 6.3 and (B) cannot be or has not been cured by the earlier of (x) thirty (30) days after the giving of written notice to Purchaser of such breach and (y) the Termination Date;
(r)    by Purchaser or Seller, by giving written notice of such termination to the other, if the Closing shall not have occurred on or prior to December 31, 2013 unless the failure of the Closing to occur results from the failure of the party hereto seeking to terminate this Agreement to materially perform any of its obligations under this Agreement required to be performed by it at or prior to the Closing; provided that such date may be extended by no more than ninety (90) days by either Seller or Purchaser upon delivery of written notice to the other, if the Closing shall not have occurred as a result of the conditions set forth in Section 6.1(b) having failed to be satisfied; provided, however, that such extension right will not be available to any party whose failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Closing to occur on or before such date (the “Termination Date”); or
(s)    by Purchaser or Seller, by giving written notice of such termination to the other, if a Governmental Authority of competent jurisdiction shall have enacted, enforced or entered any Law or a final and non-appealable Governmental Order shall be in effect that prohibits the consummation of the Closing; provided, however, that the party hereto seeking to terminate this Agreement shall have used commercially reasonable efforts to have any such Law declared invalid or inapplicable or Governmental Order vacated.
Notwithstanding the foregoing, the right to terminate this Agreement pursuant to this Section 8.1 shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner or whose failure to fulfill its obligations shall have proximately caused the occurrence of the failure of the transactions contemplated hereby to be consummated.
Section 8.2    Effect of Termination.  If this Agreement is terminated in accordance with Section 8.1, this Agreement shall thereafter become void and have no effect, and neither party hereto shall have any liability to the other party hereto or such other party’s Affiliates, directors, officers, shareholders, partners, agents or employees in connection with this Agreement, except that (a) the obligations of the parties hereto contained in the Confidentiality Agreements and in this Section 8.2 and in Article IX shall survive and (b) termination will not relieve either party hereto from liability for a breach of this Agreement or fraud prior to such termination or impair the right of any party to compel specific performance by any other party of its obligations under this Agreement.

- #PageNum# -    
703550379

ARTICLE IX     
MISCELLANEOUS
Section 9.1    Notices.  All notices, requests, claims, demands or other communications hereunder shall be deemed to have been duly given and made if in writing and (a) at the time personally delivered if served by personal delivery upon the party for whom it is intended, (b) at the time received if delivered by registered or certified mail (postage prepaid, return receipt requested) or by a national courier service (delivery of which is confirmed), or (c) upon confirmation if sent by facsimile; in each case to the Person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Person:
to Seller:
OneBeacon Insurance Group LLC 
601 Carlson Parkway 
Minnetonka, MN 55305 
Telephone: (952) 852-6731
(952) 852-6024 
Facsimile:  (888) 353-6247
(888) 862-8724 
Attention:  Maureen A. Phillips
Senior Vice President and General Counsel
    
with a copy (which shall not constitute notice to Seller for the purposes of this Section 9.1) to:
Mayer Brown LLP  
71 South Wacker Drive  
Chicago, Illinois  60606 
Telephone:  (312) 782-0600 
Facsimile:  (312) 701-7711 
Attention:     Edward S. Best

- #PageNum# -    
703550379

to Purchaser:  
Armour Group Holdings Limited 
Chevron House, Ground Floor 
11 Church Street
Hamilton HM 11
Bermuda
P.O. Box HM 66, Hamilton HM AX 
Telephone:    (441) 292-9774 
Facsimile:     (441) 292-9711 
Attention:      Pauline Richards
Chief Operating Officer

with a copy (which shall not constitute notice to Purchaser for the purposes of this Section 9.1) to:
Edwards Wildman Palmer LLP 
20 Church Street
Hartford, CT 06103
Telephone:      (860) 541-7762 
Facsimile:     (888) 325-9468 
Attention:      Charles R. Welsh
Section 9.2    Amendment; Modification and Waiver.  Any provision of this Agreement may be amended, modified or waived if, and only if, such amendment, modification or waiver is in writing and signed, in the case of an amendment, by the parties hereto, or in the case of a waiver, by the party hereto against whom the waiver is to be effective.  No failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 9.3    Assignment.  Neither this Agreement nor any of the rights, interests or obligations under it may be directly or indirectly assigned, delegated, sublicensed or transferred by either of the parties hereto, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the other party, and any attempted or purported assignment in violation of this Section 9.3 will be null and void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 9.4    Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, except for the Confidentiality Agreements which will remain in full force and effect until the Closing and which, from and after the Closing, shall remain in full force and effect except to the extent otherwise provided in Section 5.1(b).

- #PageNum# -    
703550379

Section 9.5    No Third Party Beneficiaries.  Except as provided in Section 7.6(h), nothing expressed or implied in this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities upon any Person other than the parties hereto and their respective heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 9.6    Public Disclosure.  The parties hereto shall agree on the form and content of any initial press release and, except with the prior written consent of the other party hereto (which consent shall not be unreasonably withheld, delayed or conditioned), shall not issue any other press release or other public statement or communication with respect to this Agreement, the Ancillary Agreements or the transactions contemplated hereby and thereby; provided that the parties hereto may, without the prior written consent of the other party hereto, issue such communication or make such public statement (a) as may be required by applicable Law or stock exchange rules and, if practicable under the circumstances, after reasonable prior consultation with the other party hereto, or (b) to enforce its rights under this Agreement or any Ancillary Agreement.
Section 9.7    No Other Representations and Warranties; Due Investigation
(g)    Except for the representations and warranties contained in this Agreement, none of Seller and its Affiliates, nor any of their respective directors, officers, employees, agents or representatives, makes or has made any other representation or warranty on behalf of Seller or otherwise in respect of the Acquired Companies, including as to the accuracy or completeness of any of information (including any projections, estimates or other forward-looking information) provided (including set forth in the Electronic Data Room, or provided in any management presentations, information memoranda, supplemental information or other materials) or otherwise made available by or on behalf of Seller or as to the probable success or profitability of the Acquired Companies.  Seller expressly disclaims any and all other representations and warranties, whether express or implied.
(h)    Except for the representations and warranties contained in Article IV, neither Purchaser or its Affiliates, nor any of their respective directors, officers, employees, agents or representatives, makes or has made any other representation or warranty on behalf of Purchaser.  Purchaser expressly disclaims any and all other representations and warranties, whether express or implied.
(i)    Purchaser has conducted its own independent review and analysis of the business, operations, technology, assets, liabilities, results of operations, financial condition and prospects of the Acquired Companies and Purchaser believes that it has had reasonable and sufficient access to the personnel, properties, premises and Books and Records related thereto for this purpose.
Section 9.8    Expenses.  Except as otherwise expressly provided in this Agreement or in any Ancillary 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 Ancillary Agreements and the transactions contemplated hereby and thereby shall be borne by the party incurring such expenses; provided, however, that Purchaser shall bear the HSR Act filing fee, if any; provided, further, that in the event that (a) the Closing does not occur as a result of the parties’ failure to obtain the Required Approvals as they relate to the applicable change of 

- #PageNum# -    
703550379

control or “Form A” filings contemplated by Section 6.1(b) (subject to Purchaser’s compliance with Sections 5.3(b) and (c)(i)) and (b) this Agreement is terminated by Purchaser as a consequence thereof in compliance with Section 8.1(c), Seller shall reimburse Purchaser for seventy-five percent (75%) of Purchaser’s reasonable fees and expenses for third party actuaries, attorneys, accountants and tax consultants documented in reasonable detail and incurred by Purchaser in connection with this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby between September 17, 2012 through the date of termination of this Agreement (the “Due Diligence Costs”) in an aggregate amount not to exceed $750,000 less any amount paid by Seller or its Affiliate pursuant to or in relation to that certain letter agreement, dated June 22, 2012, among Seller, Purchaser Parent and the other party thereto (it being understood that this proviso shall have no further effect following the Closing).  To the extent that Seller terminates this Agreement in violation of Section 8.1, the conditions to Closing set forth in Article VI can be satisfied and Purchaser remains willing and able to consummate the transactions contemplated by this Agreement, Seller shall reimburse Purchaser for one hundred percent (100%) of the Due Diligence Costs.  To the extent that Purchaser terminates this Agreement in violation of Section 8.1, the conditions to Closing can be satisfied and Seller remains willing and able to consummate the transactions contemplated by this Agreement, Purchaser shall remain liable for and pay one hundred percent (100%) of the Due Diligence Costs.  The allocation of the Due Diligence Costs set forth herein shall be in addition to any other reimbursement or remedy that may be available at law or in equity as a consequence of a party’s wrongful termination of this Agreement.  At the option of Seller, any Due Diligence Costs owing by Seller to Purchaser pursuant to this Section 9.8 may be netted against any amount owing by Purchaser to Seller pursuant to the Run-Off Business Consulting Engagement Agreement.  
Section 9.9    Disclosure Schedules.  Disclosures on the Purchaser Disclosure Schedule or the Seller Disclosure Schedule (each, a “Disclosure Schedule”) shall be arranged in sections corresponding to the numbered and lettered sections of this Agreement, and any disclosure set forth on any section of a Disclosure Schedule shall be deemed to be disclosed by the party hereto delivering such Disclosure Schedule for all sections of this Agreement and all other sections of such Disclosure Schedule to the extent that it is reasonably apparent on its face from a reading of such disclosure that such disclosure is applicable to such other sections of this Agreement or such other sections of such Disclosure Schedule.  The headings contained in a Disclosure Schedule are for convenience of reference only and shall not be deemed to modify or influence the interpretation of the information contained in such Disclosure Schedule or this Agreement.  Except as otherwise expressly required by this Agreement, the inclusion of any information in any section of a Disclosure Schedule shall not be deemed to be an admission or acknowledgment by the party hereto delivering such Disclosure Schedule or otherwise imply that such information is required to be listed in any section of such Disclosure Schedule or that any such matter rises to a Purchaser Material Adverse Effect or Company Material Adverse Effect, as applicable, or is material to or outside the Ordinary Course of Business.  Matters reflected in a Disclosure Schedule are not necessarily limited to matters required by this Agreement to be reflected in such Disclosure Schedule.  Such additional matters are set forth for informational purposes and do not necessarily include other matters of a similar nature.  All references in a Disclosure Schedule to the enforceability of agreements with third parties, the existence or non-existence of third-party rights, the absence of breaches or defaults by third parties, or similar matters or statements, are intended only to allocate rights and risks between Purchaser and Seller and were not intended to be admissions against interests (with respect to third parties), 

- #PageNum# -    
703550379

give rise to any inference or proof of accuracy, be admissible against any party to this Agreement by any Person who is not a party to this Agreement, or give rise to any claim or benefit to any Person who is not a party to this Agreement.  The disclosure in a Disclosure Schedule of any allegation, threat, notice or other communication shall not be deemed to include disclosure of the truth of the matter communicated.  In addition, with respect to third parties, the disclosure of any matter in a Disclosure Schedule is not to be deemed an admission that such matter actually constitutes noncompliance with, or a violation of applicable Law, any Governmental Order or Governmental Authorization or Contract or other topic to which such disclosure is applicable.  In no event shall the disclosure of matters disclosed in a Disclosure Schedule be deemed or interpreted to broaden a representation, warranty, obligation, covenant, condition or agreement of the party hereto delivering such Disclosure Schedule except to the extent provided in this Agreement.  No reference in a Disclosure Schedule shall by itself be construed as an admission or indication that a Contract or other document is enforceable or currently in effect except to the extent provided in this Agreement.  Where a Contract or other document is referenced, summarized or described in a Disclosure Schedule, such reference, summary or description does not purport to be a complete statement of the terms or conditions of such Contract or other document and such reference, summary or description is qualified in its entirety by the specific terms and conditions of such Contract or other document.
Section 9.10    Governing Law.  This Agreement and its enforcement will be governed by, and interpreted in accordance with, the laws of the State of New York applicable to agreements made and to be performed entirely within such state without regard to the conflicts of law provisions thereof.
Section 9.11    Submission to Jurisdiction.  Subject to Section 2.3, each party to this Agreement hereby submits to the exclusive jurisdiction of (a) the United States District Court for the Southern District of New York sitting in the Borough of Manhattan or (b) if such court does not have jurisdiction, any state court located in the Borough of Manhattan, including in the case of subclauses (a) and (b) above, any appellate courts therefrom (the “New York Courts”) for any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof or any transactions contemplated by this Agreement.  Each party to this Agreement hereby irrevocably and unconditionally waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such proceedings brought in such court.  Each of the parties hereto irrevocably and unconditionally waives and agrees not to plead or claim in any such court (i) that it is not personally subject to the jurisdiction of the New York Courts for any reason other than the failure to serve process in accordance with applicable Law, (ii) that it or its property is exempt or immune from jurisdiction of the New York Courts or from any legal process commenced in the New York Courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iii) to the fullest extent permitted by applicable Law that (A) the suit, action or proceeding in the New York Courts is brought in an inconvenient forum, (B) the venue of such suit, action or proceeding is improper and (C) this Agreement, or the subject matter hereof, may not be enforced in or by the New York Courts.

- #PageNum# -    
703550379

Section 9.12    WAIVER OF JURY TRIAL.  EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY FOR ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH, TERMINATION OR VALIDITY THEREOF OR ANY TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NEITHER THE OTHER PARTY HERETO NOR ITS REPRESENTATIVES, AGENTS OR ATTORNEYS HAVE REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH PARTY HERETO UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH PARTY HERETO MAKES THIS WAIVER VOLUNTARILY AND (D) EACH PARTY HERETO HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS OF THIS SECTION 9.12.  ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 9.13    Counterparts.  This Agreement may be executed in one or more counterparts, each of which will be deemed to constitute an original, but all of which shall constitute one and the same agreement, and may be delivered by facsimile or other electronic means intended to preserve the original graphic or pictorial appearance of a document.
Section 9.14    Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  If any provision of this Agreement, or the application thereof to any Person or any circumstance, is found by a court or other Governmental Authority of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.  If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable.
Section 9.15    Specific Performance.  Subject to Section 7.7, the parties hereto agree that irreparable harm would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms on a timely basis or were otherwise breached.  It is accordingly agreed that, subject to Section 7.7, without posting bond or other undertaking, the parties hereto shall be entitled to injunctive or other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.  In the event that any such action is brought in equity to enforce the provisions of this Agreement, no party hereto will allege, and each party hereto hereby waives the defense or counterclaim, that 

- #PageNum# -    
703550379

there is an adequate remedy at law.  The parties hereto further agree that (a) by seeking any remedy provided for in this Section 9.15, a party hereto shall not in any respect waive its right to seek any other form of relief that may be available to such party hereto under this Agreement and (b) nothing contained in this Section 9.15 shall require any party hereto to institute any action for (or limit such party’s right to institute any action for) specific performance under this Section 9.15 before exercising any other right under this Agreement.
Section 9.16    Seller Parent Guaranty.  From and after the Closing Date, Seller Parent irrevocably guarantees the full and punctual performance by Seller of its obligations pursuant to Section 7.3; provided, however, that Seller Parent’s maximum aggregate liability under this Section 9.16 shall under no circumstance exceed the maximum aggregate amount for which Seller is liable to Purchaser and its Affiliates (reduced by any amount already paid by Seller). Seller Parent agrees that its obligations hereunder shall be unconditional irrespective of any circumstances which might otherwise constitute a legal or equitable discharge of a surety or a guarantor, and further agrees that it shall not be necessary to institute or exhaust remedies or causes of action against Seller as a condition of the obligations of Seller Parent hereunder.
Section 9.17    Purchaser Parent Guaranty.  From and after the date hereof, Purchaser Parent irrevocably guarantees the full and punctual performance by Purchaser of its obligations to consummate the transactions contemplated hereby and pay the purchase price as set forth in Article II; provided, however, that Purchaser Parent’s maximum aggregate liability under this Section 9.17 shall under no circumstance exceed the maximum aggregate amount for which Purchaser is liable to Seller and its Affiliates (reduced by any amount already paid by Purchaser).  Purchaser Parent agrees that its obligations hereunder shall be unconditional irrespective of any circumstances which might otherwise constitute a legal or equitable discharge of a surety or a guarantor, and further agrees that it shall not be necessary to institute or exhaust remedies or causes of action against Purchaser as a condition of the obligations of Purchaser Parent hereunder.  
(The remainder of this page is intentionally left blank.)

- #PageNum# -    
703550379

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
ONEBEACON INSURANCE GROUP LLC
By: _________________________
Name:
Title:
TREBUCHET US HOLDINGS, INC.
By: _________________________
Name:
Title:
Solely for purposes of Section 7.3 and Article IX,
ONEBEACON INSURANCE GROUP, LTD.
By: _________________________
Name:
Title:

703550379

Solely for purposes of Article II and Article IX,
ARMOUR GROUP HOLDINGS LIMITED
By: _________________________
Name:
Title:

703550379

EXHIBIT 1
FORM OF RELEASE
Please see attached

703550379

EXHIBIT 2
FORM OF RETAINED BUSINESS ADMINISTRATIVE SERVICES AGREEMENT
Please see attached

703550379

EXHIBIT 3
FORM OF RETAINED BUSINESS REINSURANCE AGREEMENT
Please see attached

703550379

EXHIBIT 4
FORM OF RUN-OFF BUSINESS ADMINISTRATIVE SERVICES AGREEMENT
Please see attached

703550379

EXHIBIT 5
FORM OF RUN-OFF BUSINESS CONSULTING ENGAGEMENT AGREEMENT
Please see attached

703550379

EXHIBIT 6
FORM OF RUN-OFF REINSURANCE AGREEMENT
Please see attached

703550379

EXHIBIT 7
FORM OF TRANSITION SERVICES AGREEMENT
Please see attached

703550379

EXHIBIT 8
FORMS OF SURPLUS NOTE
Please see attached

703550379

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00209-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00209-of-00352.parquet"}]]