Document:

fprx-ex101_18.htm

Exhibit 10.1

March 6, 2020 

 

Via Email

 

Mr. William R. Ringo

 

Re: Executive Severance Benefit Plan, effective November 20, 2019 (the “Plan”)

 

Dear Bill,

 

Five Prime Therapeutics, Inc. adopted the Plan to provide our officers with severance benefits in certain events. You understand and agree that you will not be a “Covered Employee” as that term is defined in the Plan because you serve as our interim Chief Executive Officer.  Please sign below to indicate this understanding and agreement and that you expressly waive any right to benefits under the Plan.

 

Sincerely,

 

Five Prime Therapeutics, Inc.

 

/s/ Peder Jensen

 

Peder Jensen

Compensation and Management Development Committee Chairman

 

 

Agreed:

 

 

 

/s/ William R. Ringo___________March 10, 2020______________

William R. RingoDate

Five Prime Therapeutics, Inc. • 111 Oyster Point Boulevard • South San Francisco, CA 94080 • Phone (415) 365-5600 • Fax (415) 365-5601

www.fiveprime.compra20200331ex101a01

                                                        EXECUTION VERSION                      AGREEMENT AND PLAN OF ACQUISITION                                  BY AND AMONG                         PROASSURANCE CORPORATION,                    PRA PROFESSIONAL LIABILITY GROUP, INC.                                       AND                     NORCAL MUTUAL INSURANCE COMPANY                           43126503 v1 

 

                                                                                                             TABLE OF CONTENTS                                                                         Page No.   ARTICLE 1 DEFINITIONS ............................................................................................................2         1.1   Definition of Certain Terms; Interpretation .............................................................2        1.2   Index of Other Defined Terms .................................................................................7   ARTICLE 2 PLAN OF CONVERSION .......................................................................................12         2.1   NORCAL Plan of Conversion ...............................................................................12        2.2   Approval of the Plan of Conversion ......................................................................13   ARTICLE 3 OFFER TO PURCHASE SHARES ..........................................................................14         3.1   The Offer ................................................................................................................14        3.2   Purchase Price of NORCAL Common Stock ........................................................16        3.3   Reverse Stock Split ................................................................................................19   ARTICLE 4 THE CLOSING.........................................................................................................19         4.1   Closing ...................................................................................................................19        4.2   Exchange Agent .....................................................................................................19        4.3   Exchange Procedures .............................................................................................20        4.4   Deposit of Funds ....................................................................................................22        4.5   Effective Time of the Plan of Conversion .............................................................23        4.6   Purchase of NORCAL Common Stock by PRA....................................................23        4.7   Conversion and Exchange Procedures ...................................................................24        4.8   Payment of the Contingent PRA Consideration ....................................................24        4.9   Undistributed Exchange Fund................................................................................25        4.10  Withholding ...........................................................................................................25   ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF NORCAL. ................................25         5.1   Corporate Organization ..........................................................................................25        5.2   Subsidiaries ............................................................................................................26        5.3   Corporate Affairs ...................................................................................................27        5.4   Capitalization .........................................................................................................27        5.5   Authority; No Violation; Consents and Approvals ................................................28        5.6   Insurance Reports...................................................................................................29        5.7   Financial Statements; Financial Reporting ............................................................31        5.8   Broker’s Fees .........................................................................................................32        5.9   Absence of Certain Changes or Events ..................................................................32        5.10  Legal Proceedings and Judgments .........................................................................33        5.11  Insurance ................................................................................................................34        5.12  Taxes and Tax Returns...........................................................................................34        5.13  Employee Plans; Labor Matters .............................................................................36                                      i  43126503 v1 

 

      5.14  Employees ..............................................................................................................40        5.15  Compliance with Applicable Law .........................................................................41        5.16  Certain Contracts ...................................................................................................43        5.17  Investments and Interest Rate Risk Management Instruments ..............................44        5.18  Intellectual Property/Social Media ........................................................................45        5.19  Real Property; Environmental Liability .................................................................46        5.20  Personal Property ...................................................................................................48        5.21  Insurance Matters ...................................................................................................48        5.22  No Investment Company .......................................................................................52        5.23  Privacy and Data Security ......................................................................................52        5.24  Non-Reliance .........................................................................................................54   ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PRA ..........................................54         6.1   Corporate Organization ..........................................................................................55        6.2   Authority; No Violation; Consents and Approvals. ...............................................55        6.3   SEC Reports; Financial Statements .......................................................................56        6.4   Broker’s Fees .........................................................................................................58        6.5   Absence of Certain Changes or Events ..................................................................58        6.6   Compliance with Applicable Law .........................................................................58        6.7   Financial Ability ....................................................................................................59   ARTICLE 7 COVENANTS ..........................................................................................................59         7.1   Conduct  of  Businesses  of  NORCAL  Prior  to  the  Purchase              Effective Time .......................................................................................................59        7.2   NORCAL Forbearances .........................................................................................60        7.3   PRA Forbearances .................................................................................................62        7.4   NORCAL Subsidiaries, Directors and Officers .....................................................62   ARTICLE 8 ADDITIONAL AGREEMENTS ..............................................................................62         8.1   Regulatory Matters.................................................................................................63        8.2   Access to Information; Financial Reporting ..........................................................66        8.3   Special  Meeting  of,  and  Recommendation  to,  Eligible              Policyholders..........................................................................................................68        8.4   Exemption from Registration of NORCAL Common Stock .................................69        8.5   Closing Date Disclosure Schedule .........................................................................69        8.6   Additional Agreements ..........................................................................................69        8.7   Negotiations with Other Parties .............................................................................70        8.8   Directors’ and Officers’ Indemnification and Insurance .......................................71        8.9   [Reserved] ..............................................................................................................72        8.10  Employee Plans ......................................................................................................72        8.11  ProAssurance Board of Directors ..........................................................................75   ARTICLE 9 CONDITIONS PRECEDENT ..................................................................................75         9.1   Conditions to Each Party’s Obligation ..................................................................75                                         ii  43126503 v1 

 

      9.2   Conditions to Obligation of PRA ...........................................................................76        9.3   Conditions to Obligation of NORCAL ..................................................................77   ARTICLE 10 TERMINATION AND AMENDMENT ................................................................77         10.1  Termination ............................................................................................................77        10.2  Effect of Termination .............................................................................................79        10.3  Amendment ............................................................................................................79        10.4  Extension; Waiver ..................................................................................................79        10.5  Liquidated Damages; Termination Fee ..................................................................80   ARTICLE 11 GENERAL PROVISIONS .....................................................................................80         11.1  Non-survival of Representations, Warranties and Agreements .............................80        11.2  Expenses ................................................................................................................80        11.3  Notices ...................................................................................................................81        11.4  Further Assurances.................................................................................................82        11.5  Assignment; No Third Party Beneficiaries ............................................................82        11.6  Presumptions ..........................................................................................................82        11.7  Exhibits and Schedules ..........................................................................................82        11.8  Interpretation ..........................................................................................................82        11.9  Counterparts ...........................................................................................................83        11.10 Entire Agreement ...................................................................................................83        11.11 Governing Law; Submission to Jurisdiction ..........................................................83        11.12 Severability ............................................................................................................84        11.13 Publicity .................................................................................................................84        11.14 Specific Performance .............................................................................................84                                          iii  43126503 v1 

 

                  AGREEMENT AND PLAN OF ACQUISITION         THIS AGREEMENT AND     PLAN OF ACQUISITION (the “Agreement”), dated as  of  February 20, 2020, by and among PROASSURANCE CORPORATION, a Delaware corporation  (“ProAssurance”), PRA PROFESSIONAL LIABILITY GROUP, INC., a Delaware corporation  (“PRA  Professional”,  and  together  with  ProAssurance,  collectively,  “PRA”)  and  NORCAL  MUTUAL INSURANCE COMPANY, a California mutual insurance company (“NORCAL”).                                   WITNESSETH:         WHEREAS,   ProAssurance  is  an  insurance  holding  company  that  provides,  through  insurance subsidiaries, professional liability insurance, liability insurance for medical technology  and life sciences risk and workers’ compensation insurance and PRA Professional is a wholly  owned  subsidiary  of  ProAssurance  that  serves  as  a  holding  company  for  ProAssurance’s  insurance subsidiaries that provide professional liability insurance;         WHEREAS,  NORCAL  is  a  mutual  insurance  company  that  provides,  directly  and  through its subsidiaries, medical professional liability insurance throughout the United States;         WHEREAS, the Board of Directors of NORCAL (“NORCAL Board”) has, by at least  two-thirds of the NORCAL Board, adopted the Plan of Conversion (as  defined in Section 2.1  below),  pursuant  to  which  NORCAL  will  be  converted  (the  “Conversion”)  from  a  mutual  insurance company to a stock insurance company and renamed NORCAL Insurance Company  (“NORCAL  INC.”)  pursuant  to  Section  4097  et  seq.  of  the  California  Insurance  Code  (“CA  Insurance Code”);         WHEREAS, the Plan of Conversion provides that each of NORCAL’s Policyholders has  the right to elect to receive in the Conversion (i) a contribution certificate, (ii) cash, or (iii) shares  of common stock of NORCAL INC. in exchange for their membership interests as policyholders  of NORCAL, in accordance with and subject to the terms and conditions of this Agreement and  the Plan of Conversion;         WHEREAS, PRA desires to acquire control of NORCAL INC. on the terms and subject  to the conditions set forth in this Agreement;         WHEREAS, in  furtherance thereof and pursuant  to  this  Agreement, ProAssurance has  agreed to cause PRA Professional to offer to purchase all of the outstanding shares of NORCAL  Common Stock immediately after the Conversion for the PRA Consideration on the terms and  subject to the conditions set forth in this Agreement; and         WHEREAS, the Board of Directors of ProAssurance (the “PRA Board”) has determined  that  it  is  in  the  best  interests  of  PRA  for  PRA  to  acquire  NORCAL  through  the  transactions  provided  for  in  this  Agreement  and  the  NORCAL  Board  has  determined  that  it  is  in  the  best  interests  of  NORCAL  and  its  policyholders  for  PRA  to  acquire  NORCAL  through  the  transactions provided for in this Agreement.         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants,  representations,                                         1  43126503 v1 

 

warranties and agreements contained in this Agreement, and intending to be legally bound by  this Agreement, the parties to this Agreement agree as follows:                                    ARTICLE 1                                  DEFINITIONS         1.1   Definition of Certain Terms; Interpretation.  The terms defined in this Section  1.1, whenever used in  this  Agreement (including in  the NORCAL Disclosure Schedule or the  PRA Disclosure Schedule), shall have the respective meanings indicated below for all purposes  of  this  Agreement  (each  such  meaning  to  be  equally  applicable  to  the  singular  and  the  plural  forms of the respective terms so defined).         The following terms, as used in this Agreement, have the meanings that follow:         “Action” means  any  claim, action, cause of action, demand, lawsuit, arbitration, audit,  proceeding, litigation, citation, summons or subpoena (whether civil, criminal, administrative or  regulatory) whether at law or in equity.         “Adoption Date” means February 18, 2020.         “Affiliate” means with respect to any specified Person, any other Person that at the time  of  determination  directly,  or  indirectly  through  one  or  more  intermediaries,  Controls,  or  is  Controlled by, or is under common Control with, such specified Person.         “Applicable  Law” means  all  laws,  published  rules,  statutes,  regulations,  codes  and  judgments, injunctions, orders, decrees, licenses, permits and all other binding requirements of  Governmental Authorities applicable to the Person, place and situation in question.         “Business  Day” means  any  day  other  than  a  Saturday,  Sunday  or  other  day  on  which  banking  institutions  in  the  State  of  California  are  required  or  authorized  by  law  or  executive  order to be closed.         “Code” means the United States Internal Revenue Code of 1986, as amended.         “Control” means,  as  to  any  Person,  the  power  to  direct  or  cause  the  direction  of the  management and policies of such Person, whether through the ownership of voting securities, by  contract  or  otherwise.   The  terms  “Controlled  by,”  “under  common  Control  with”  and  “Controlling” shall have correlative meanings.         “Conversion Statutes” means the provisions of CA Insurance Code Section 4097 et seq.  applicable to the conversion of a mutual insurance company to a stock insurance company, but  excluding the provisions applicable to the organization of a mutual holding company.         “Eligible Policyholder” means, at any time prior to the Closing Date, a person who is a  Policyholder on the Adoption Date and, at any time on or after the Closing Date, a person who is  a Policyholder on both the Adoption Date and the Closing Date.  For the avoidance of doubt, a  person who is a Policyholder on the Adoption Date and who terminates or non-renews his, her or                                         2  43126503 v1 

 

its Policy (as defined in the Plan of Conversion) prior to the Closing Date will not be an Eligible  Policyholder and will not be entitled to receive Conversion Consideration even if such person  timely  submits  an  election  to  receive  the  Conversion  Consideration  pursuant  to  the  Plan  of  Conversion.         “Employee  Plan” means  any  “employee  benefit  plan,”  as  defined  in  Section  3(3)  of  ERISA; any employment, severance or similar service agreement, plan, arrangement or policy;  any other plan or arrangement providing for compensation, bonuses, profit-sharing, stock option  or  other  equity-related  rights  or  other  forms  of  incentive  or  deferred  compensation,  vacation  benefits, insurance (including any self-insured arrangements), medical, dental or vision benefits,  disability  or  sick  leave  benefits,  life  insurance,  employee  assistance  program,  workers’  compensation, supplemental unemployment benefits, severance benefits and post-employment or  retirement  benefits  (including  compensation,  pension,  insurance  or  medical  benefits);  or  any  loan; in each case including plans or arrangements, both written and oral, covering or extended  to any current or former director, officer, manager, employee or independent contractor.         “Environmental Laws” means any federal, state, local or foreign law (including common  law)  treaty,  judicial  decision,  regulation,  rule,  judgment,  order,  decree,  injunction,  permit  or  binding governmental restriction or requirement relating to protection of the environment or to  pollutants,  contaminants,  wastes  or  chemicals  or  any  toxic,  radioactive,  ignitable,  corrosive,  reactive or otherwise hazardous substances, wastes or materials.         “Environmental  Permits” means,  with respect  to  any  Person,  all  permits,  licenses,  franchises, certificates, approvals and other similar authorizations of Governmental Authorities  required by Environmental Laws and affecting, or relating in any way to, the business of such  Person or any of such Person’s Subsidiaries, as currently conducted.         “ERISA” means  the Employee Retirement  Income Security  Act  of 1974, as  amended,  and the regulations promulgated thereunder.         “ERISA Affiliate” means any Person that, together with NORCAL, would be treated as a  single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.         “Exchange Act” means the Securities Exchange Act of 1934, as amended.         “Governmental Authority” means any United States federal, state or local or any supra- national  or  non-U.S.  governmental,  political  subdivision,  governmental,  regulatory  or  administrative  authority,  instrumentality,  agency,  body  or  commission,  self-regulatory  organization or any court, tribunal, or judicial or arbitral body.         “Insurance  Laws” means  all  Applicable  Laws  applicable  to  the  business  of  insurance  and  the  regulation  of  insurance  holding  companies,  whether  domestic  or  foreign,  and  all  applicable  orders  and  directives  of  Governmental  Authorities  and  market  conduct  recommendations resulting from market conduct examinations of Insurance Regulators.         “Insurance Regulators” means all Governmental Authorities regulating the business of  insurance under the Insurance Laws.                                         3  43126503 v1 

 

      “Intellectual  Property” means  all  trademarks,  service  marks,  logos,  domain  names,  corporate  names  and  registrations  and  applications  for  registration  thereof,  copyrights  and  registrations  and  applications  for  registration  thereof,  computer  software  (including  computer  software  used  in  insurance  operations  or  for  accounting  operations),  data  and  documentation,  trade secrets and confidential business information (including financial, marketing and business  data, pricing and cost information, business and marketing plans, and customer and supplier lists  and  information),  other  proprietary  rights,  and  copies  and  tangible  embodiments  thereof  (in  whatever form or medium).         “Knowledge of NORCAL” means the actual knowledge of any person listed on Exhibit A  after reasonable inquiry of such person’s direct reports.         “Knowledge of PRA” means the actual knowledge of any person listed on Exhibit B after  reasonable inquiry of such person’s direct reports.         “Lien” means,  with  respect  to  any  property  or  asset  (real  or  personal,  tangible  or  intangible), any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in  respect of such property or asset.  For purposes of this Agreement, a Person shall be deemed to  own subject to a Lien any property or asset that it has acquired or holds subject to the interest of  a  vendor  or  lessor  under  any  conditional  sale  agreement,  capital  lease  or  other  title  retention  agreement relating to such property or asset.         “Material Adverse Effect” means, with respect to NORCAL and PRA, as the case may  be,  a  material  adverse  effect  on  the  business,  assets,  properties,  operations,  or  condition  (financial or otherwise) of such party and its Subsidiaries taken as a whole; provided that any  adverse change or effect arising out of or resulting from or attributable to the following shall be  excluded  in  any  determination  of  Material  Adverse  Effect:   (i)  any  circumstance,  change  or  effect  (including  international  events  such  as  acts  of  terrorism  or  war)  affecting  generally  companies  operating  in  the  medical  professional  liability  insurance  business;  (ii)  any  circumstance, change or effect affecting generally the United States or world economy or capital,  credit  or  financial  markets  generally,  including  changes  in  interest  or  exchange  rates;  (iii)  changes or prospective changes in laws, rules or regulations or accounting or actuarial practices  or  principles  or  any  change  in  the  interpretation  or  enforcement  thereof  by  a  Governmental  Authority;  (iv)  the  execution  or  announcement  of  or  the consummation  of  the  transactions  contemplated by this Agreement or the Plan of Conversion (including the adverse effect of any  loss  or  threatened  loss  of,  or  disruption  or  threatened  disruption  in,  any  customer,  reinsurer,  policyholder,  supplier,  and/or  vendor  relationships  or  loss  of  personnel  resulting  from  such  execution, announcement or consummation); (v) actions taken or omitted by such party at the  direction of, or with the prior written consent of, the other party;  (vi) the effect of any action  taken by the other party or its  Affiliates  with  respect  to  the transactions contemplated by this  Agreement;  (vii)  compliance  with  the  terms  of,  or  the  taking  of  any  action  required  by,  this  Agreement; (viii) the effect of any breach, violation or non-performance of any provision of this  Agreement by the other party or its Affiliates; (ix) any action taken in connection with obtaining  regulatory or third party approvals, licenses or consents or any event, change or effect resulting  therefrom; (x) any acts of war (whether or not declared), armed hostilities, sabotage or terrorism  occurring after the date of this Agreement or the continuation, escalation or worsening of any  such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of                                         4  43126503 v1 

 

this Agreement; (xi) any earthquakes, hurricanes, floods or other natural disasters, acts of God,  pandemics  or  force  majeure  events;  (xii)  any  change  in  NORCAL’s  credit  rating  or  financial  strength rating (including AM Best rating)  or any failure by any party or its Affiliates to meet  any  projections,  estimates  or  budgets  for  any  period  prior  to,  on  or  after  the  date  of  this  Agreement  (other  than  facts  underlying  such  failure);  (xiii)  any  deterioration  in  the  business,  financial condition (including statutory surplus) and/or prospects of any party or its Affiliates to  the extent it relates to or arises out of circumstances or conditions existing as of the date of this  Agreement that were known by, or disclosed to, the other party as of or prior to the date of this  Agreement,  including  those  matters  set  forth  in  the  Disclosure  Schedule  or  (xiv)  any  Action  initiated  or  threatened  on  or  after  the  date  hereof  by  any  policyholders  of  NORCAL  against  NORCAL, any of its Affiliates or any of their respective directors or officers arising out of this  Agreement  or  the  transactions  contemplated  hereby.   Notwithstanding  the  foregoing,  with  respect to clauses (i), (ii), (iii), (x) or (xi) above, any adverse change or effect may be taken into  account in determining whether or not there has been a “Material Adverse Effect” to the extent  that NORCAL or PRA, as the case may be, and its respective Subsidiaries (taken as a whole) are  disproportionately affected thereby as compared to other participants in the industries or markets  in which NORCAL or PRA, as the case may be, operate.         “Multiemployer Plan” means a plan as defined in ERISA Section 3(37).         “NORCAL Disclosure Schedule” means the disclosure schedule delivered by NORCAL  to  PRA  on  the  date  of  this  Agreement,  which  such  disclosure  schedule  will  be  arranged  in  paragraphs  corresponding  to  the  lettered  and  numbered  paragraphs  contained  in  Article  5;  provided, however, (i) that each exception set forth in such disclosure schedule shall be deemed  disclosed for purposes  of all representations and warranties  if such exception shall  reasonably  appear  from  the  substance  of  the  exception  to  be  applicable  to  any  such  representations  or  warranties in Article 5, and (ii) the mere inclusion of an exception in such disclosure schedule  shall not be deemed an admission by NORCAL that such exception represents a material fact,  event or circumstance or would result in a material adverse effect, material adverse change or  Material Adverse Effect on NORCAL.         “NORCAL  Privacy  and  Data  Policies” means  all  of  NORCAL’s  and  the  NORCAL  Subsidiaries’ internal or public-facing policies, notices, and statements concerning the privacy,  security, or Processing of Personal Information in effect as of the date hereof or that have been in  effect in the past three years.         “Permitted Lien” means (i) any Liens included in the NORCAL Disclosure Schedules;  (ii) statutory Liens for current Taxes or other governmental charges not yet due and payable or  the  amount  or  validity  of  which  is  being  contested  in  good  faith by  appropriate  Actions  of  NORCAL or its Affiliates; (iii) mechanics’, carriers’, workers’, repairers’ and similar statutory  Liens  arising  or  incurred  in  the  ordinary  course  of  business;  and  (iv)  zoning,  entitlement,  building  and  other  land  use  regulations imposed  by  any  Governmental  Authority  having  jurisdiction over owned real property which are not violated by the current use and operation of  the owned real property.         “Person” means  an  individual,  corporation,  partnership  (general  or  limited),  limited  liability company, association, trust or other entity or organization, including any Governmental                                         5  43126503 v1 

 

Authority.         “Personal  Information” means  any  information  that  identifies  or,  alone  or  in  combination with any other information, could reasonably be used to identify, locate, or contact  a natural Person, including name, street address, telephone number, email address, identification  number issued by a Governmental Authority, credit card number, bank information, customer or  account number, online identifier, device identifier, IP address, browsing history, search history,  or  other  website,  application,  or  online  activity  or  usage  data,  location  data,  biometric  data,  medical  or  health  information,  or  any  other  information  that  is  considered  “personally  identifiable  information,”  “personal  information,”  or  “personal  data”  under  applicable  Privacy  Laws.         “Policyholder” means a Person who (i) holds a policy of insurance issued by NORCAL,  other than a reinsurance contract or reporting endorsement and (ii) by the records of NORCAL  and by its articles of incorporation or bylaws, is deemed to be a holder of a membership interest  in NORCAL as of an applicable date.         “PRA  Disclosure  Schedule” means  the  disclosure  schedule  delivered  by  PRA  to  NORCAL  on  the  date  of  this  Agreement, which  such  disclosure  schedule  will  be  arranged  in  paragraphs  corresponding  to  the  lettered  and  numbered  paragraphs  contained  in  Article  6;  provided, however, (i) that each exception set forth in such disclosure schedule shall be deemed  disclosed for purposes  of all representations and warranties  if such exception shall  reasonably  appear  from  the  substance  of  the  exception  to  be  applicable  to  any  such  representations  or  warranties in Article 6, and (ii) the mere inclusion of an exception in such disclosure schedule  shall not be deemed an admission by PRA that such exception represents a material fact, event or  circumstance or would result in a material adverse effect, material adverse change or Material  Adverse Effect on PRA.          “Privacy  Laws” means  all  Applicable  Laws  concerning  the  privacy,  security,  or  Processing  of  Personal  Information,  including,  as  applicable,  data  breach  notification  laws,  consumer  protection  laws,  laws  concerning  requirements  for  website  and  mobile  application  privacy policies and practices, Social Security number protection laws, and data security laws,  and  laws  concerning  email,  text  message,  or  telephone  communications.  Without  limiting  the  foregoing, Privacy Laws include: the Federal Trade Commission Act, the Telephone Consumer  Protection  Act,  the  Telemarketing  and  Consumer  Fraud  and  Abuse  Prevention  Act,  the  Controlling  the  Assault  of  Non-Solicited  Pornography  and  Marketing  Act  of  2003,  the  Children’s  Online  Privacy  Protection  Act,  the  California  Consumer  Privacy  Act  of  2018,  the  Computer  Fraud  and  Abuse  Act,  the  Electronic  Communications  Privacy  Act,  the  Fair  Credit  Reporting Act,  the Fair  and Accurate Credit Transaction Act,  the Health  Insurance Portability  and  Accountability  Act  of  1996,  as  amended  and  supplemented  by  the  Health  Information  Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment  Act of 2009, the Gramm-Leach-Bliley Act, the Family Educational Rights and Privacy Act, and  all other similar international, federal, state, provincial, and local laws.         “Processing” means  any  operation  performed  on  Personal  Information,  including  the  collection,  creation,  receipt,  access,  use,  handling,  compilation,  analysis,  monitoring,  maintenance,  storage,  transmission,  transfer,  protection,  disclosure,  destruction,  or  disposal  of                                         6  43126503 v1 

 

Personal Information.         “Record Date Policyholder” means each Policyholder of record as of the record date for  the  Special  Meeting  as  determined  by  the  NORCAL  Board  in  accordance  with  bylaws  of  NORCAL in effect as of the Adoption Date.         “SEC” means the United States Securities and Exchange Commission.         “Securities Act” means the Securities Act of 1933, as amended.         “Solicitation Period” means  the 30-day period  commencing on the date the Exchange  Agent delivers the information required by Section 4.3(c), or such longer period as the parties  may agree.         “Subsidiary” of any Person means any corporation, general or limited partnership, joint  venture, limited liability company, limited liability partnership, other business or insurance entity  or organization or other Person that is a legal entity, trust or estate (i) where such Person has the  right  to  elect  a  majority  of  the  board  of  directors  (or  a  majority  of  another  body  performing  similar functions) of or otherwise control or manage such corporation or other Person, whether  through  ownership  of  voting  securities  or  interests,  by  exercising  of  contractual  rights  or  otherwise, or (ii) of which (or in which ) more than 50% of the (a) voting capital stock of such  corporation or other Person, (b) interest in the capital or profits of such partnership, joint venture  or limited liability company or (c) the beneficial interest in such trust or estate, is at the time of  determination directly or indirectly owned or controlled by such Person.         “Termination Fee” means $15,000,000.         1.2   Index of Other Defined Terms.  Set forth below is an index to the definitions set  forth in this Agreement.         Term                                            Section         Action                                          1.1        Actuary                                         3.2(b)(iii)        Actuary’s Ultimate Loss Estimate                3.2(b)(iii)        Acquisition Proposal                            8.7(c)        Adoption Date                                   1.1        Affiliate                                       1.1        After Tax Percentage                            3.2(b)(i)        Agreement                                       Introduction        Applicable Law                                  1.1        Articles of Incorporation                       2.1(j)        Authorized Conversion Shares                    2.1(d)        Business Day                                    1.1        Bylaws                                          2.1(k)        CA Insurance Code                               Recitals        Cash Distribution List                          4.3(c)(ii)        Cash Subscribers                                2.1(g)                                         7  43126503 v1 

 

      Cash Subscriber Payment Amount                  4.4(a)(ii)        Certificate Distribution List                   4.3(c)(i)        Certificate of Authority                        4.5        Certificate Subscribers                         2.1(f)        Claim                                           8.8(b)        Closing                                         4.1        Closing Date                                    4.1        Closing Date NORCAL Disclosure Schedule         8.5        Closing Date PRA Disclosure Schedule            8.5        Code                                            1.1        Commissioner                                    2.2(a)        Confidentiality Agreement                       8.2(a)        Contingent Consideration Exchange Fund          4.8(b)        Contingent PRA Consideration                    3.2(a)        Continuing Employees                            8.10        Contribution Certificates                       2.1(e)        Control                                         1.1        Controlled Group Liability                      5.13(g)        Conversion                                      Recitals        Conversion Condition                            3.1(b)        Conversion Consideration                        4.5        Conversion Effective Time                       4.5        Conversion Statute                              1.1        Department                                      2.2(a)        EDGAR                                           6.3(a)        Election Solicitation                           3.1(a)        Eligible Policyholder Distribution List         4.3(a)        Eligible Policyholders                          2.2(b)        Employee Plan                                   1.1        Environmental Laws                              1.1        Environmental Permits                           1.1        ERISA                                           1.1        ERISA Affiliate                                 1.1        Excess Amount                                   3.2(b)        Exchange Act                                    1.1        Exchange Agent                                  4.2        Exchange Fund                                   4.4(b)        Extended Stock Offer                            3.1(a)        Fixed PRA Consideration                         3.2(a)        Form A Filings                                  8.1(f)        Form E Filings                                  8.1(f)        Fractionalized Interest                         2.1(c)        GAAP                                            5.13(c)        GAAP Financial Statements                       8.1(c)        Governmental Authority                          1.1        HSR Act Report                                  6.2(e)                                         8  43126503 v1 

 

      HSR Act                                         3.1(d)        Indemnified Parties                             8.8(b)        Information Statement                           8.1(b)        Initial Term                                    8.11        Insurance Contracts                             5.21(a)        Insurance Laws                                  1.1        Insurance Premium Amount                        8.8(a)        Insurance Regulators                            1.1        Intellectual Property                           1.1        IRS                                             5.12(a)        Knowledge of NORCAL                             1.1        Knowledge of PRA                                1.1        Lien                                            1.1        Material Adverse Effect                         1.1        Multiemployer Plan                              1.1        Non-Electing Stock Subscriber                   4.3(d)        Non-Electing Stockholder Distribution List      4.3(c)(iv)        NORCAL                                          Introduction        NORCAL Acquisition Event                        10.5        NORCAL Actuarial Analyses                       5.22(j)        NORCAL Actuary or NORCAL Actuaries              5.22(j)        NORCAL Appraised Value                          2.1(b)        NORCAL Benefit Plans                            5.13(a)        NORCAL Board                                    Recitals        NORCAL Committee                                3.2(d)        NORCAL Common Stock                             2.1(d)        NORCAL Contract                                 5.16(a)        NORCAL Disclosure Schedule                      1.1        NORCAL Employees                                8.10        NORCAL Holding Company Act Reports              5.6(a)        NORCAL INC.                                     Recitals        NORCAL Insurance Policies                       5.11(a)        NORCAL Insurance Subsidiaries                   5.2(b)        NORCAL Nominees                                 8.11        NORCAL Personal Property Leases                 5.20(b)        NORCAL Privacy and Data Policies                1.1        NORCAL Real Property                            5.19(a)        NORCAL Real Property Leases                     5.19(a)        NORCAL Recommendation Event                     10.1(d)        NORCAL Registered Intellectual Property         5.18(a)        NORCAL Regulatory Agreement                     5.15(b)        NORCAL Reinsurance Treaties                     5.22(h)        NORCAL Reserves                                 5.22(i)        NORCAL SAP Statements                           5.7(a)        NORCAL Subsidiaries                             5.2(a)        NORCAL’s 2020 Ultimate Losses                   3.2(b)(iii)                                         9  43126503 v1 

 

      NORCAL/PRA Severance Plan                       8.10(e)        NYSE                                            3.1(d)        Offer                                           3.1(a)        Offer Conditions                                3.1(b)        Offer Expiration Time                           3.1(d)        Offer to Purchase                               3.1(c)        Organizational Documents                        5.3        Outside Date                                    10.1(i)        Per Share Offer Price                           3.2(a)        Permitted Lien                                  1.1        Person                                          1.1        Personal Information                            1.1        Plan of Conversion                              2.1        Policyholder                                    1.1        Post-Closing Employment Period                  8.10(e)        Post-Closing Severance                          8.10(e)        PRA                                             Introduction        PRA Balance Sheet                               6.3(c)        PRA Board                                       Recitals        PRA Disclosure Schedule                         1.1        PRA Filed SEC Reports                           6.3(a)        PRA Professional                                Introduction        PRA SEC Reports                                 6.3(a)        PRA Consideration                               3.2(a)        PRA Regulatory Agreement                        6.6(b)        PRA Subsidiaries                                6.2(e)        PRA Ultimate Loss Estimate                      3.2(b)(ii)        Pre-Merger Notification Agencies                6.2(e)        Privacy Laws                                    1.1        ProAssurance                                    Introduction        Processing                                      1.1        Proposal                                        2.2(b)        Purchase Effective Time                         4.6        Purchased Stock                                 4.6        Qualified Benefit Plan                          5.13(c)        Quarter End Report                              8.2(c)        Record Date Policyholder                        1.1        Requisite Regulatory Approvals                  5.5(a)        SAP                                             5.7(b)        SEC                                             1.1        Second Actuary                                  3.2(c)        Second Actuary’s Estimate                       3.2(c)        Securities Act                                  1.1        Security Incident                               5.23(d)        Selling Stockholder Distribution List           4.3(e)        Selling Stockholders                            2.1(m)                                         10  43126503 v1 

 

      Social Media Terms of Use                       5.18(e)        Solicitation Period                             1.1        SOX                                             6.3(a)        Special Meeting                                 2.2(b)        SRO                                             5.5(c)        Stock Offer                                     3.1(a)        Stock Offer Initial Expiration Time             3.1(d)        Stock Subscriber                                2.1(h)        Subscription Price Per Share                    2.1(d)        Subsidiary                                      1.1        Supporting Documents                            8.1(b)        Tail Policy                                     8.8(a)        Tax or Taxes                                    5.12(a)        Tax Return or Tax Returns                       5.12(a)        Termination Fee                                 1.1        WARN Act                                        5.14(e)                                                                11  43126503 v1 

 

                                 ARTICLE 2                             PLAN OF CONVERSION         2.1   NORCAL  Plan  of  Conversion.   Prior  to  the  execution  of  this  Agreement,  the  NORCAL Board, by at least two-thirds of the NORCAL Board, adopted a Plan of Conversion, a  copy of which has  been provided to  PRA (as  amended or supplemented from  time to  time in  accordance with the terms of this Agreement, the “Plan of Conversion”), which complies with  the Conversion Statutes and includes or provides for the following:               (a)   the conversion of NORCAL from a mutual insurance company to a stock  insurance company under the name of NORCAL INC. in accordance with Section 4097(a) of the  CA  Insurance  Code  such  that  NORCAL  INC.  shall  be  a  continuation  of  the  existence  of  NORCAL and treated as such pursuant to Section 4097.11(b) of the CA Insurance Code;               (b)   the appraised value of NORCAL of Four Hundred Forty Million Dollars  ($440,000,000)  (the  “NORCAL  Appraised  Value”),  as  determined  in  accordance  with  the  Conversion Statutes;               (c)   a  fair,  just  and  equitable  formula for  the  determination  of  each  of  Policyholder’s  fractionalized  interest  of  the  NORCAL  Appraised  Value,  as  determined  by  the  NORCAL Board in accordance with the Conversion Statute (each, a “Fractionalized Interest”  and, collectively, the “Fractionalized Interests”);               (d)   each  Eligible  Policyholder’s  preemptive  right  to  acquire  his  or  her  proportionate part of all of the proposed shares to be issued in a single class of voting common  stock of NORCAL INC. (the “NORCAL Common Stock”), within a reasonable time period, by  (i)  first  dividing  the  total  number  of  authorized  shares  of  NORCAL  Common  Stock  (the  “Authorized  Conversion  Shares”)  into  the  NORCAL  Appraised  Value  to  determine  the  per  share  price  of  the  NORCAL  Common  Stock  authorized  to  be  issued  in  the  Conversion (the  “Subscription Price Per Share”), and (ii) next, dividing the Subscription Price Per Share into the  value of a Fractionalized Interest of a Policyholder, as determined under the formula described in  Section  2.1(c)  hereof,  to  determine  the  number  of  shares  of  NORCAL  Common  Stock  representing the Policyholder’s preemptive right in the NORCAL Appraised Value;               (e)   each Policyholder’s right to receive one of the following: (i) a contribution  certificate  equal  to  100%  of  such  Policyholder’s  Fractionalized  Interest  in  the  NORCAL  Appraised Value, which shall bear interest at the rate established in CA Insurance Code Section  10489.4 for minimum standard valuation of all life insurance policies of more than twenty (20)  years’ duration issued in the year, and which shall be repayable within ten (10) years following  the Plan Effective Date (as defined in the Plan of Conversion) but only with the written consent  of  the  Commissioner  and  only  out  of  NORCAL’s  surplus  in  excess  of  four  hundred  percent  (400%) of NORCAL’s “Risk-based Capital” as reflected on NORCAL’s last filed “RBC Report”  (collectively,  the  “Contribution  Certificates”);  (ii)  an  amount  of  cash  equal  to  50%  of  such  Policyholder’s  Fractionalized  Interest  in  the  NORCAL  Appraised  Value;  or  (iii)  a  number  of  shares of NORCAL Common Stock with an aggregate value (based on the Subscription Price Per  Share) equal to 100% of such Policyholder’s Fractionalized Interest in the NORCAL Appraised  Value;                                         12  43126503 v1 

 

            (f)   the  issuance  of  Contribution  Certificates  to  Policyholders  who  either  (i)  elect to receive a Contribution Certificate or (ii) do not elect to receive a cash payment or shares  of  capital  stock  of  NORCAL  INC.  pursuant  to  the  Plan  of  Conversion  (the  “Certificate  Subscribers”);               (g)   the payment of cash to Policyholders who elect to receive a cash payment  as determined in accordance with Section 2.1(e) above pursuant to the Plan of Conversion (the  “Cash Subscribers”);               (h)   the issuance of NORCAL Common Stock to  Policyholders  who  elect  to  receive shares of capital stock of NORCAL INC. pursuant to the Plan of Conversion (the “Stock  Subscribers”);               (i)   the number of shares of NORCAL Common Stock to be authorized and  the Subscription Price Per Share, as determined in accordance with Section 2.1(d);               (j)   the adoption of the articles of incorporation for NORCAL INC. after the  Conversion  in  substantially  the  form  attached  to  the  Plan  of  Conversion  (the  “Articles  of  Incorporation”);               (k)   the  adoption  of  bylaws  for  NORCAL  INC.  after  the  Conversion  in  substantially the form attached to the Plan of Conversion (the “Bylaws”);               (l)   the appointment of the persons named on Exhibit C to serve as directors  and officers of NORCAL INC. after the Conversion;               (m)   that the effectiveness of the Plan of Conversion is conditioned upon Stock  Subscribers  holding  at  least  80%  of  the  shares  of  NORCAL  Common  Stock  outstanding  immediately after the Conversion electing to  sell  their shares  of NORCAL Common Stock to  PRA  Professional  pursuant  to  Section 3.1 below  (such  Stock  Subscribers,  including,  for  the  avoidance of doubt, Certificate Subscribers and Stock Subscribers who change their election or  make an election, as the case may, during the Election Solicitation, the “Selling Stockholders”);               (n)   that the  NORCAL  Common  Stock  issued  pursuant  to  the  Plan  of  Conversion shall have been offered and issued in compliance with federal and applicable state  securities laws;               (o)   that the requirement that the conditions set forth in Section 9.1 hereof shall  be satisfied as conditions to the effectiveness of the Plan of Conversion; and               (p)   such additional terms and provisions as are agreed upon in writing by the  parties hereto and not inconsistent with the provisions set forth herein.         2.2   Approval of the Plan of Conversion.  Subject to the provisions of Section 8.3  and Section 8.7 hereof:               (a)   As promptly as reasonably practicable after the execution and delivery of  this  Agreement by the parties, NORCAL shall  file the Plan of Conversion with  the  Insurance                                         13  43126503 v1 

 

Commissioner  (the  “Commissioner”)  of  the  California  Department  of  Insurance  (the  “Department”) in accordance with the Conversion Statute.  NORCAL shall take such action as  may reasonably be required to obtain approval of the Plan of Conversion by the Commissioner,  in accordance with the Conversion Statute, including without limitation providing notice of the  Plan of Conversion to Policyholders and the public hearing thereon, if any, and appearing at the  hearing  on  the  Plan  of  Conversion;  provided,  however,  that  any  changes  to  the  Plan  of  Conversion required by the Commissioner shall require the consent of PRA (which such consent  shall  not  be  unreasonably  withheld,  conditioned  or  delayed)  and  at  least  two-thirds  of  the  NORCAL Board.               (b)   NORCAL, in accordance with the Plan of Conversion and Applicable Law  (including without limitation the Conversion Statute), shall submit a proposal to the Record Date  Policyholders to approve the Plan of Conversion (the “Proposal”) in accordance with Section 8.3  hereof (which proposal shall include the terms and conditions of the Offer), and shall give such  notice to  the Record Date Policyholders containing the date, time and place for voting on the  Proposal (the “Special Meeting”) as may be required under the Conversion Statute.  Subject to  Section 8.7 hereof, the Proposal shall include the determination of the NORCAL Board that the  Plan  of  Conversion  is  fair,  just  and  equitable  to  the  Policyholders  and  NORCAL  and  shall  include NORCAL Board’s recommendation that the Record Date Policyholders approve the Plan  of Conversion.                                    ARTICLE 3                         OFFER TO PURCHASE SHARES          3.1   The Offer.                (a)   Commencement  of  the  Offer.  Unless  this  Agreement  shall  have  been  terminated in accordance with Article 10, and subject to the other terms and conditions set forth  herein  and  in  the  Plan  of  Conversion,  (i)  simultaneously  with  the  mailing  of  the  Information  Statement, PRA shall commence an offer to purchase from the Stock Subscribers the shares of  NORCAL Common Stock that will be issued to Stock Subscribers in the Conversion in exchange  for the PRA Consideration calculated in accordance with Section 3.2 below (the “Stock Offer”),  and  (ii)  immediately  following  receipt  of  the  information  delivered  by  the  Exchange  Agent  pursuant to Section 4.3(c) hereof, in the event the Offer Condition set forth in Section 3.1(b)(ii)  and/or Section 3.1(b)(iii) is not satisfied or waived by PRA as of the date the Exchange Agent  delivers the information required by Section 4.3(c), PRA shall commence a solicitation of the  Certificate Subscribers to change their election from a Certificate Subscriber to, or to make an  election  to  be,  as  the  case  may  be,  a  Stock  Subscriber  and  then  sell,  and/or,  if  applicable,  a  solicitation of the Stock Subscribers to sell, shares of NORCAL Common Stock of such Stock  Subscribers pursuant to  the Stock Offer (the “Election Solicitation”), in which case the Stock  Offer shall be extended through the end of the Solicitation Period (the “Extended Stock Offer”  and together with the Stock Offer, collectively, the “Offer”).                (b)   Terms and Conditions of the Offer.  The obligation of PRA to accept for  payment  and  purchase  the  shares  of  NORCAL  Common  Stock  in  the  Stock  Offer  or  the  Extended Stock Offer validly tendered and not validly withdrawn pursuant to the Offer shall be                                         14  43126503 v1 

 

subject to: (i) consummation of the Conversion in accordance with the Plan of Conversion and  the Conversion Statute (the “Conversion Condition”); (ii) the face amount of the Contribution  Certificates  to  be  issued  to  Eligible  Policyholders  in  the  Conversion  shall  not  exceed  $200,000,000; (iii)  the  holders  of  not  less  than  80%  of  the  outstanding  shares  of  NORCAL  Common Stock  to be issued in the Conversion validly tender their shares of NORCAL Common  Stock  for  purchase  pursuant  to  the  Offer;  and  (iv)  the  satisfaction,  or  waiver  (to  the  extent  permitted  by  Law  and  the  terms  of  this  Agreement)  of  the  conditions  set  forth  in  Article  9  (together with the Conversion Condition, the conditions in clauses (ii), (iii) and (iv), collectively,  the “Offer Conditions”).  Subject to the satisfaction or waiver by PRA of the Offer Conditions,  PRA shall, and shall cause PRA Professional to, consummate the Offer in accordance with its  terms  and  shall  pay  for  all  shares  of  NORCAL  Common  Stock  so  purchased  as  promptly  as  practicable after the Closing in accordance with Article 4 hereof.               (c)   Offer to Purchase; Adjustment of Offer Price; Waiver of Conditions.   The  Offer  shall  be  made  by  means  of  an  offer  to  purchase  (the  “Offer  to  Purchase”)  that  describes the terms and conditions of the Offer as set forth in this Agreement, including the Offer  Conditions, which terms and conditions shall comply with Section 14(e) of the Exchange Act  and the rules promulgated thereunder.  PRA expressly reserves the right (in its sole discretion) to  waive, in  whole or in  part, any  Offer Condition,  to  the extent allowed under Article 9 of this  Agreement, to increase the PRA Consideration, or to make any other changes in the terms and  conditions of the Offer; provided, however, that unless otherwise provided by this Agreement or  as previously approved in writing by NORCAL, PRA shall not: (i) reduce the number of shares  of NORCAL Common Stock subject to the Offer; (ii) reduce the PRA Consideration; (iii) add,  amend  or  modify  any  Offer  Condition  in  a  manner  adverse  in  any  respect  to  any  holders  of  shares of NORCAL Common Stock; (iv) except as otherwise provided in this Section 3.1, extend  or  otherwise  change  the  expiration  date  of  the  Offer;  (v)  change  the  form  of  consideration  payable in  the Offer; or (vi) otherwise amend, modify, or supplement any of the terms  of the  Offer in a manner adverse in any respect to any holders of shares of NORCAL Common Stock.               (d)   Expiration  of  the  Offer;  Extension  of  Offer. The  Stock  Offer  shall  expire at 5:00 p.m. (Central Time) on the date that is sixty days (60) days after the initial mailing  of the  Information  Statement (the “Stock Offer  Initial Expiration Time”) or, in  the event  the  Stock Offer Initial Expiration Time has been extended pursuant to this Agreement, including an  extension through the end of the Solicitation Period pursuant to Section 3.1(a), the date and time  to which the Offer has been so extended (the Stock Offer Initial Expiration Time, or such later  date and time to which the Stock Offer Initial Expiration Time has been extended pursuant to this  Agreement,  is  referred  to  as  the  “Offer Expiration  Time”).   Subject  to  Section 10.1(i),  PRA  shall,  and  shall  cause  PRA  Professional  to:  (i)  extend  the  Offer  until  the  first  Business  Day  following  the  issuance  by  the  Commissioner  of  his  decision  and  order  approving  the  Plan  of  Conversion  if  such  decision  and  order  has  not  been  issued  prior  to  the  sixtieth  (60th)  day  following the initial mailing of the Information Statement; and (ii) extend the Stock Offer for any  period required by Applicable Law, any interpretation or position of the SEC, the staff thereof, or  the New York Stock Exchange (the “NYSE”) applicable to the Stock Offer, and until any waiting  period (and any extension thereof) applicable to the consummation of the Stock Offer under the  Hart-Scott-Rodino  Anti-Trust  Improvements  Act,  as  amended,  and  the  rules  and  regulations  thereunder  (collectively,  the  “HSR  Act”),  and  any  other  similar  Applicable  Law  shall  have  expired or been terminated; provided, however, that in no event shall PRA or PRA Professional                                         15  43126503 v1 

 

be  required  to  extend  the  Stock  Offer  at  any  time  that  PRA  is  permitted  to  terminate  this  Agreement pursuant to Article 10.               (e)   Payment. On the terms and subject to the conditions of this Agreement,  PRA shall, and shall cause PRA Professional to, promptly after the Offer Expiration Time accept  for payment all shares of NORCAL Common Stock validly tendered and not validly withdrawn  pursuant  to  the  Offer  and  promptly  pay  for  such  shares  tendered  pursuant  to  the  Offer  in  accordance with Article 4 hereof.               (f)   Termination  of  Offer. PRA  shall  not  terminate  or  withdraw  the  Offer  prior  to  the  applicable  Offer  Expiration  Time  without  the  prior  written  consent  of  NORCAL  except  in  the  event  that  this  Agreement  is  terminated  pursuant  to  Article  10.  If  the  Offer  is  terminated  or  withdrawn  by  PRA  in  accordance  with  the  terms  of  this  Agreement,  or  this  Agreement  is  terminated  pursuant  to  Article  10,  prior  to  the  acceptance  for  payment  of  NORCAL Common Stock tendered in the Offer, PRA shall promptly return, and shall cause any  depository  acting  on  behalf  of  PRA  to  return,  all  tendered  NORCAL  Common  Stock  to  the  registered holders thereof.         3.2   Purchase Price of NORCAL Common Stock.               (a)   The aggregate purchase price for all Authorized Conversion Shares shall  be  the  sum  of  the  following  (the  “PRA  Consideration”):  (i)  a  fixed  amount  of  $450,000,000  assuming all Policyholders are Stock Subscribers  (the “Fixed PRA Consideration”) and (ii) a  contingent amount of up to $150,000,000 to be determined as provided in Section 3.2(b) hereof  (the “Contingent PRA Consideration”).  For each share of NORCAL Common Stock issued in  the Conversion, PRA agrees to pay to the holder of a share of NORCAL Common Stock cash in  an amount equal to such holder’s pro rata share of each of the Fixed PRA Consideration and the  Contingent PRA Consideration with such pro rata share to be determined on a per share basis by  dividing the total number of Authorized Conversion Shares into the amount of each of the Fixed  PRA Consideration and the Contingent PRA Consideration.  The per share amount of the Fixed  PRA Consideration and the Contingent PRA Consideration (the “Per Share Offer Price”) shall  be payable to the Selling Stockholders in cash as provided in Article 4 hereof.  For the avoidance  of doubt, the Fixed PRA Consideration and Contingent PRA Consideration shall be payable only  to those Eligible Policyholders who elect to receive NORCAL Common Stock in the Conversion  and who tender their shares of NORCAL Common Stock to PRA pursuant to the Offer so that  the total consideration paid by PRA under this Section 3.2(a) will be reduced by an amount equal  to the aggregate Per Share Offer Price for the number of shares of NORCAL Common Stock that  would  have  been issued  to  the  Certificate  Subscribers  and  Cash  Subscribers  if  the  Certificate  Subscribers and Cash Subscribers had elected to become Stock Subscribers in the Conversion.   By way of example, assuming that the total number of Authorized Conversion Shares (being the  total number of shares of NORCAL Common Stock authorized to be issued in the Conversion) is  8,800,000 shares and that the total amount of the Contingent PRA Consideration is ultimately  determined  to  be  $150,000,000,  the  Per  Share  Offer  Price  for  a share  of  NORCAL  Common  Stock pursuant to the Offer shall be $68.1818181818 which is an amount equal to the sum of (i)  $51.1363636363  (determined  by  dividing  the  number  of  Authorized  Conversion  Shares  (8,800,000)  into  the  Fixed  PRA  Consideration  ($450,000,000));  and  (ii)  $17.0454545454  (determined  by  dividing  the  number  of  Authorized  Conversion  Shares  (1,000,000)  into  the                                         16  43126503 v1 

 

Contingent PRA Consideration ($150,000,000)).  Assuming further that only 7,040,000 shares of  NORCAL  Common  Stock  are  issued  to  Stock  Subscribers  in  the  Conversion  because  Policyholders entitled to receive 1,760,000 shares of NORCAL Common Stock are Certificate  Subscribers or Cash Subscribers, then the total PRA Consideration available for payment for the  shares  of  NORCAL  Common  Stock  issued to  Stock  Subscribers  in  the  Conversion  will  be  reduced  by  $120,000,000  (1,760,000  shares  multiplied  by  the  Per  Share  Offer  Price  of  $68.1818181818) from $600,000,000 to $480,000,000.               (b)   The  Contingent  PRA  Consideration  shall  be  an  amount  equal  to  the  product to  be  determined  by  multiplying  (X)  the  After  Tax  Percentage  (as  defined  in  subparagraph (i) of this  Section 3.2(b)) and (Y) the amount by which the PRA Ultimate Loss  Estimate (as defined in subparagraph (ii) of this Section 3.2(b)) exceeds the Actuary’s Ultimate  Loss Estimate (as defined in subparagraph (iii) of this Section 3.2(b)); provided that in the event  the amount of the Actuary’s Ultimate Loss Estimate is equal to or greater than the PRA Ultimate  Loss Estimate, the amount of the Contingent PRA Consideration shall be zero dollars ($0), and  in no event shall the total amount of the Contingent PRA Consideration exceed $150,000,000;  provided,  however,  that  to  the  extent  (A)  the  sum  of  the face  amount  of  the  Contribution  Certificates to be issued to Eligible Policyholders in the Conversion; plus (B) the sum of the cash  to  be  paid  to  Eligible  Policyholders  in  the  Conversion;  plus  (C)  the  value  of  the  shares  to  be  issued to Eligible Policyholders in the Conversion assuming all shares are valued at a purchase  price equal to the Fixed PRA Consideration, exceeds $450,000,000 (such excess, if any, being  referred to herein as the “Excess Amount”), then in such event (i) PRA shall not be obligated to  make any payments of Contingent PRA Consideration hereunder until the aggregate amount of  Contingent PRA Consideration exceeds the Excess Amount, in which event PRA shall only be  required to pay Contingent PRA Consideration in excess of the Excess Amount; and (ii) the total  possible Contingent PRA Consideration of $150,000,000 shall be reduced dollar-for-dollar by an  amount equal to the Excess Amount.                     (i)   The “After Tax Percentage” shall be the percentage determined by  subtracting from one hundred percent (100%) the maximum federal income tax marginal rate for  corporations  for  the  taxable  year  ending  December  31,  2023; provided,  that  to  the  extent  any  reserves of NORCAL or any NORCAL Insurance Subsidiary are released in any of the taxable  years ending December 31, 2020, December 31, 2021 or December 31, 2022, then the After Tax  Percentage shall be adjusted to reflect (on a proportional basis) the maximum federal income tax  for corporations for the taxable year(s) in which such reserves are released.                     (ii)  The “PRA Ultimate Loss  Estimate” shall  be  an  amount equal  to  the  sum  of   (A)  Three  Billion  Six  Hundred  Twenty-Seven  Million  Dollars  ($3,627,000,000)  (being  an  amount  equal  to  the  consolidated  ultimate  losses  and  loss  adjustment  expenses  (allocated and unallocated) net of reinsurance as has been determined by PRA for NORCAL and  its  Subsidiaries  for  the  accident  years  ended  on  or  before  December  31,  2018  determined  in  accordance  with  the  reserve  requirements,  statutory  accounting  rules  and  actuarial  principles  applicable to NORCAL and its Subsidiaries under Applicable Law and, to the extent consistent  therewith, commonly accepted actuarial and practices consistently applied in the preparation of  the PRA Ultimate Loss Estimate schedule, a copy of which has been delivered to NORCAL on  the date hereof); plus (B) an amount equal to 102% of the consolidated net earned premium as  reported  in  the  consolidated  annual  statement  of  NORCAL  and  its  Subsidiaries  for  the  year                                         17  43126503 v1 

 

ending  December  31,  2019;  plus  (C)  an  amount  equal  to  98%  of the  consolidated  net  earned  premium reported in the consolidated annual statement of NORCAL and its Subsidiaries for the  year  ending December 31, 2020;  provided that  for purposes of this  calculation  the net  earned  premium amounts referenced in subsections (B) and (C) above shall exclude the effect of any  adjustment related to NORCAL’s reserve for death, disability or retirement.                     (iii) The “Actuary’s Ultimate Loss Estimate” shall mean the amount of  the  best  estimate  of  NORCAL’s  2020  Ultimate  Net  Loss  (herein  defined)  for  accident  years  ended  on  or  before  December  31,  2020,  to  be  determined  as  of  December  31,  2023,  by  an  independent actuary in accordance with this Section 3.2(b)(iii).  Prior to Closing, NORCAL and  PRA  shall  select  a  mutually  acceptable  independent  actuarial  consultant  (the  “Actuary”)  to  conduct  a  reserve  review  of  the  consolidated  ultimate  losses  and  loss  adjustment  expenses  (including  both  allocated  and  unallocated  expenses)  of  NORCAL  and  its  Subsidiaries.   In  connection with such review, the Actuary shall determine its best estimate of the consolidated  ultimate  losses  and  loss  adjustment  expenses  (allocated  and  unallocated)  of  NORCAL  and  its  Subsidiaries  at  December  31,  2020  net  of  reinsurance  for  accident  years  ended  on  or  before  December  31,  2020 (“NORCAL’s  2020  Ultimate  Losses”).   The  Actuary  shall  conduct  an  actuarial review of NORCAL’s 2020 Ultimate Losses at December 31, 2023, to roll forward its  estimate of NORCAL’s 2020 Ultimate Losses.  All actuarial calculations shall be in accordance  with the reserve requirements, statutory accounting rules and actuarial principles applicable to  NORCAL  and  its  Subsidiaries  under  Applicable  Law  and,  to  the  extent  consistent  therewith,  commonly accepted actuarial standards and practices consistently applied in the preparation of  the PRA Ultimate Loss Estimate schedule, a copy of which has been delivered to NORCAL on  the date hereof.  The Actuary’s Ultimate Loss Estimate shall be an amount equal to the Actuary’s  estimate  of  NORCAL’s  2020  Ultimate  Losses  at  December  31,  2023,  as  the  same  may  be  adjusted in accordance with Section 3.2(c) hereof.               (c)   The  determination  of  the  Actuary’s  Ultimate  Loss  Estimate  shall  be  completed on or before June 30, 2024.  Upon completion, the Actuary shall provide a written  report  to  PRA  and  to  the  NORCAL  Committee  appointed  pursuant  to  Section 3.2(d) hereof.   PRA  and  the  NORCAL  Committee  shall  have  a  period  of  thirty  (30)  days  to  review  the  Actuary’s report on the Actuary’s Ultimate Loss Estimate.  In the event that either of PRA or the  NORCAL Committee disagrees with the determination of the Actuary’s Ultimate Loss Estimate,  then PRA and/or the NORCAL Committee may deliver written notice of disagreement setting  forth the basis of such disagreement to the other party within such thirty (30) day review period.   If PRA and the NORCAL Committee are unable to resolve any disagreement within thirty (30)  days of delivery of such notice of disagreement, then PRA and the NORCAL Committee shall  jointly  appoint  a  nationally  recognized  independent  actuary  (or,  if  PRA  and  the  NORCAL  Committee  are  unable  to  agree  on  such  actuary,  a  nationally  recognized  independent  actuary  selected by the Actuary) (the “Second Actuary”) to perform an independent review to determine  its  best  estimate  of  NORCAL’s  2020  Ultimate  Losses  at  December  31,  2023  (the  “Second  Actuary’s  Estimate”).   If  the  loss  reserve  calculation  embedded  in  the  Second  Actuary’s  Estimate are within five percent (5%) of the loss reserve calculation embedded in the Actuary’s  Ultimate Loss Estimate, then the Actuary’s Ultimate Loss Estimate as delivered by the Actuary  shall  be  final  and  binding.   If  the  loss  reserve  calculation  embedded  in  the  Second  Actuary’s  Estimate  is  not  within  five  percent  (5%)  of  the  loss  reserve  calculation  embedded  in  the  Actuary’s  Ultimate  Loss  Estimate,  then  the  amount  of  the  Actuary’s  Ultimate  Loss  Estimate                                         18  43126503 v1 

 

under Section 3.2(b)(iii) hereof shall be the average of the Actuary’s Ultimate Loss Estimate and  the Second Actuary’s Estimate.  The cost of the Actuary and a Second Actuary (if any) shall be  paid  in  equal  shares  by  PRA  and  by  the  NORCAL  Committee  from  the  Contingent  PRA  Consideration;  provided  that  if  there  is  no  Contingent  PRA  Consideration  to  be  paid  after  completion  of  the  reviews  by  the  Actuary  and/or  Second  Actuary,  PRA  shall  be  solely  responsible for the cost of the Actuary and the Second Actuary (if any).               (d)   On or before the Closing, NORCAL shall appoint a committee comprised  of three individuals (the “NORCAL Committee”) to act for and on behalf of NORCAL in the  appointment of the Actuary pursuant to Section 3.2(b)(iii) and to review the Actuary’s Ultimate  Loss Estimate and to  appoint a Second Actuary if the NORCAL Committee, in its discretion,  determines to exercise the right to appoint a Second Actuary in accordance with Section 3.2(c)  hereof.  The NORCAL Committee shall act by a majority of its members.  Any vacancy on the  NORCAL  Committee  shall  be  filled  by  the  remaining  members  on  the  Committee.   The  NORCAL Committee shall provide PRA notice of the names of the members of the Committee  and an address at which notices to the NORCAL Committee can be delivered.  The costs and  expenses  of  the  NORCAL  Committee,  including any  amounts  payable  to  members  of  the  NORCAL Committee as compensation or the costs and expenses of legal,  financial and other  professional  advisers  retained  by  the  NORCAL  Committee  to  assist  in  the  performance  of  its  duties, shall reduce the Contingent PRA Consideration (if any) or be paid by NORCAL (if the  Contingent PRA Consideration is determined to be $0 or is otherwise not sufficient to pay such  costs and expenses).         3.3   Reverse Stock Split.  Subject to the terms and provisions of this Agreement and  Applicable Law, after the Closing, PRA may cause NORCAL INC. to be recapitalized through a  reverse stock split of the NORCAL Common Stock or through other reorganization transactions.   The consideration payable to each holder of fractional shares of NORCAL Common Stock will  be  an  amount  of  PRA  Consideration  equal  to  the  amount  of  PRA  Consideration  such  holder  would have received had such holder tendered his shares of NORCAL Common Stock to PRA in  the Offer.                                    ARTICLE 4                                  THE CLOSING         4.1   Closing.  Subject to the terms and conditions of this Agreement, the closing of the  Conversion and the Offer as contemplated by this Agreement (the “Closing”) will take place at  the offices of McDermott Will & Emery LLP in San Francisco, California, at 10:00 a.m. on a  date to be specified in a notice delivered by PRA, which shall be on a date no later than five (5)  Business Days after the satisfaction or waiver (subject to Applicable Law) of the latest to occur  of the conditions set forth in Article 9 of this Agreement, or at such other time and place as may  be mutually agreed by the parties (the “Closing Date”).           4.2   Exchange Agent.  PRA and NORCAL shall mutually designate a bank or other  institution (the “Exchange Agent”) to act as conversion agent and paying agent in effecting the  distribution  and  payment  of  the  Conversion  Consideration  to  the  Policyholders  and  the  PRA  Consideration to the Selling Stockholders.  NORCAL and PRA shall each be responsible for and                                         19  43126503 v1 

 

pay  one-half  of  all  of  the  charges  and  expenses  of  the  Exchange  Agent  associated  with  the  effecting the distributions and payments contemplated by this Agreement.         4.3   Exchange Procedures.               (a)   As  soon  as  reasonably  practicable  (but  in  any  event  at  least  five  (5)  Business Days) before the mailing of the Information Statement to the Eligible Policyholders,  NORCAL shall provide to the Exchange Agent a list, certified by the Secretary of NORCAL,  which sets forth the name, address and other information reasonably requested by the Exchange  Agent of each Eligible Policyholder, the Fractionalized Interest of such Eligible Policyholder and  the  estimated  Allocable  Equity  (as  defined  in  the  Plan  of  Conversion)  of  such  Eligible  Policyholder (the “Eligible Policyholder Distribution List”).               (b)    As soon as practicable after NORCAL’s delivery to the Exchange Agent  of the items required to be delivered pursuant to Section 4.3(a) hereof, the Exchange Agent shall,  with  the  mailing  of  the  Information  Statement,  send  to  each  Eligible  Policyholder  an  election  form or other form of documentation, in form and substance reasonably acceptable to NORCAL  and PRA, setting forth the options such Eligible Policyholder has with respect to the Conversion  as set forth in Article 9 of the Plan of Conversion, including (i) the estimated amount of cash  such Eligible Policyholder shall receive if such Eligible Policyholder elects to receive cash in the  Conversion,  (ii)  the  estimated  face  amount  of  a  Contribution  Certificate  such  Eligible  Policyholder shall receive if such Eligible Policyholder elects (or fails to make any election) to  receive  a  Contribution  Certificate  in  the  Conversion,  (iii)  the  estimated  number  of  shares  of  NORCAL Common Stock that will be issued to such Eligible Policyholder in the Conversion if  such  Eligible  Policyholder  elects  to  receive  NORCAL  Common  Stock, and  (iv)  the  estimated  amount  of  Fixed  PRA  Consideration  payable  to  such  Eligible  Policyholder  and  the  right  to  receive Contingent PRA Consideration, if any, if such Eligible Policyholder elects to tender to  PRA Professional all of his, her or its shares of NORCAL Common Stock.  An IRS Form W-9  will accompany the election form or other form of documentation sent to Eligible Policyholders  by  the  Exchange  Agent  for  an  Eligible  Policyholder  to  complete  and  return  to  the  Exchange  Agent if such Eligible Policyholder elects to become a Cash Subscriber or a Selling Stockholder.   A letter of transmittal will accompany the election form or other form of documentation sent to  Eligible  Policyholders  by  the  Exchange  Agent  for  an  Eligible  Policyholder  to  complete  and  return to the Exchange Agent if such Eligible Policyholder elects to tender all of his, her or its  shares of NORCAL Common Stock to PRA Professional in accordance with Article 3 hereof.   Upon Exchange Agent’s receipt of a letter of transmittal, duly executed by a Stock Subscriber  and such other documents as may reasonably be required by the Exchange Agent, such Stock  Subscriber  shall  be  entitled  to  receive  in  exchange  for  such  Stock  Subscriber’s  NORCAL  Common Stock the Fixed PRA Consideration and the Contingent PRA Consideration, if any, in  accordance with Section 3.1 and Section 3.2 hereof. In the event of a transfer of ownership of  shares  to  a  person  that  is  not  listed  as  an  Eligible  Policyholder  in  the  Eligible  Policyholder  Distribution List, payment may be made to a person other than the person named in the Eligible  Policyholder Distribution List if the letter of transmittal is executed in proper form for transfer  and the person requesting such payment shall establish ownership of the shares to the satisfaction  of the Exchange Agent. No interest will be paid or will accrue on the PRA Consideration.                                          20  43126503 v1 

 

            (c)   As soon as reasonably practicable after the Stock Offer Initial Expiration  Time, the Exchange Agent shall provide NORCAL and PRA:                     (i)   a list that sets forth the name of each Certificate Subscriber and the  face  amount  of  each  Conversion  Certificate  to  be  issued  to  each  of  them  as  a  result  of  the  Conversion (the “Certificate Distribution List”);                     (ii)  a  list  that  sets  forth  the  name  of  each  Cash  Subscriber  and  the  amount  of  cash  to  be  distributed  to  each  of  them  as  a  result  of  the  Conversion  (the  “Cash  Distribution List”);                      (iii) a list that sets forth the name of each Selling Stockholder and the  number of uncertificated shares of NORCAL Common Stock to be issued to each of them as a  result of the Conversion; and                     (iv)  a  list  that  sets  forth  the  name  of  each  Non-Electing  Stock  Subscriber and the number of uncertificated shares of NORCAL Common Stock to be issued to  each of them as a result of the Conversion (the “Non-Electing Stockholder Distribution List”).               (d)   As soon as practicable after the Exchange Agent’s delivery to NORCAL  and  PRA  of  the  items  required  to  be  delivered  pursuant  to  Section  4.3(c)  hereof,  if  PRA  Professional commences the Election Solicitation and/or the Extended Stock Offer, the Exchange  Agent shall (i) send to each Stock Subscriber who did not elect to tender all of his, her or its  shares  of  NORCAL  Common  Stock  to  PRA  Professional  in  the  Stock  Offer  (“Non-Electing  Stock  Subscriber”)  an  election  form  or  other  form  of  documentation,  in  form  and  substance  reasonably acceptable to NORCAL and PRA, setting forth the number of shares of NORCAL  Common Stock to be issued to such Non-Electing Stock Subscriber, the amount of Fixed PRA  Consideration payable to such Non-Electing Stock Subscriber and the right to receive Contingent  PRA Consideration, if any, if such Non-Electing Stock Subscriber changes his, her or its election  to  receive  NORCAL  Common  Stock  and  tender  all  of  his,  her  or  its  shares  of  NORCAL  Common Stock, attaching an IRS Form W-9 that will accompany the election form or other form  of documentation sent to Eligible Policyholders by the Exchange Agent for such Non-Electing  Stock  Subscriber  to  complete  and  return  to  the  Exchange  Agent  if  such  Non-Electing  Stock  Subscriber  elects  to  tender  all  of  his,  her  or  its  shares  of  NORCAL  Common  Stock  to  PRA  Professional  in  accordance  with  Article  3,  and  attaching  a  letter  of  transmittal  for  such  Non- Electing Stock Subscriber to complete and return to the Exchange Agent if such Non-Electing  Stock Subscriber elects to tender all of his, her or its shares of NORCAL Common Stock to PRA  Professional  in  accordance  with  Article  3,  and  (ii)  if  PRA  Professional  initiates  the  Election  Solicitation, send to each Certificate Subscriber an election form or other form of documentation,  in form and substance reasonably acceptable to NORCAL and PRA, setting forth the amount of  Fixed  PRA  Consideration  payable  to  such  Certificate  Subscriber  and  the  right  to  receive  Contingent  PRA  Consideration,  if  any,  if  such  Certificate  Subscriber  changes  his,  her  or  its  election  to  receive  NORCAL  Common  Stock  and  tenders  all  of  his,  her  or  its  NORCAL  Common Stock, and attaching an IRS Form W-9 that will accompany the election form or other  form  of  documentation  sent  to  Eligible  Policyholders  by  the  Exchange  Agent  for  such  Non- Electing Stock Subscriber to complete and return to the Exchange Agent if such Non-Electing  Stock Subscriber elects to tender all of his, her or its shares of NORCAL Common Stock to PRA                                         21  43126503 v1 

 

Professional in accordance with Article 3, and attaching a letter of transmittal for such Certificate  Subscriber to complete and return to the Exchange Agent if such Certificate Subscriber elects  change his, her or its election to receive NORCAL Common Stock and tender all of his, her or its  NORCAL Common Stock to PRA Professional  in accordance with Article 3. Upon Exchange  Agent’s receipt of a letter of transmittal, duly executed by a Non-Electing Stock Subscriber or a  Certificate Subscriber who has subsequently elected to be a Stock Subscriber in connection with  the Election Solicitation and to tender all of his, her or its shares of NORCAL Common Stock, if  applicable, and such other documents  as  may reasonably  be required by the Exchange Agent,  such Non-Electing Stock Subscriber or Certificate Subscriber who has subsequently elected to be  a Stock Subscriber in connection with the Election Solicitation and to tender all of his, her or its  shares of NORCAL Common Stock, as applicable, shall be entitled to receive in exchange for  such Non-Electing Stock Subscriber’s or Certificate Subscriber’s NORCAL Common Stock, the  Fixed  PRA  Consideration  and  the  Contingent  PRA  Consideration,  if  any,  in  accordance  with  Section 3.1 and Section 3.2 hereof. In the event of a transfer of ownership of shares to a person  that  is  not  listed  as  a  Non-Electing  Stock  Subscriber  in  the  Non-Electing  Stockholder  Distribution  List  or  a  Certificate  Subscriber  who  has  subsequently  elected  to  be  a  Stock  Subscriber  in  connection  with  the  Election  Solicitation  in  the  Certificate  Subscription  List,  as  applicable, payment may be made to a person other than the person named in the Non-Electing  Stockholder  Distribution  List  or  Certificate  Distribution  List,  as  applicable,  if  the  letter  of  transmittal is executed in proper form for transfer and the person requesting such payment shall  establish ownership of the shares to the satisfaction of the Exchange Agent. No interest will be  paid or will accrue on the PRA Consideration.               (e)   Promptly  after  the  Offer  Expiration  Time,  the  Exchange  Agent  shall  certify  as  to  the  number  of  shares  of  NORCAL  Common  Stock  validly  tendered  and  not  withdrawn.  If the number of shares of NORCAL Common Stock so tendered is 80% or more of  the number of shares  to be issued by  NORCAL in  the Conversion, the Exchange  Agent  shall  provide to PRA a list which shall set forth the name and address of each Selling Stockholder who  validly tendered, and did not validly withdraw, all of his, her or its shares of NORCAL Common  Stock to  PRA Professional  pursuant  to  the Offer, the number of share of NORCAL Common  Stock tendered to PRA Professional and the amount of the PRA Consideration payable to such  Selling Stockholder (the “Selling Stockholder Distribution List”).               (f)   The Exchange Agent shall maintain the Selling Stockholder Distribution  List  until  the  distribution  of  the  Contingent  PRA  Consideration  is  made  to  the  Selling  Stockholders  in  accordance  with  Section 4.8 hereof.   The  right  to  receive  payment  of  the  Contingent  PRA  Consideration  shall  not  be  transferable  by  any  of the  Selling  Stockholders,  except (i) to the personal representative or heirs of a deceased individual; or (ii) the successor to  the  business  of  a  corporation  or  other  business  entity,  in  each  case  upon  presentation  to  the  Exchange Agent of documentation of such permitted transfer to the satisfaction of the Exchange  Agent.  The Exchange Agent shall provide a copy of the Selling Stockholder Distribution List to  PRA and the NORCAL Committee upon their reasonable request.         4.4   Deposit of Funds.               (a)   At least three (3) Business Days prior to the Closing, NORCAL shall:                                         22  43126503 v1 

 

                  (i)   deposit with the Exchange Agent (or otherwise make available to        the  reasonable  satisfaction  of  PRA  and  the  Exchange  Agent),  for  the  benefit  of  the        Certificate  Subscribers,  a  number  of  Contribution  Certificates  equal  to  the  total  face        amount of Contribution Certificates distributable to the Certificate Subscribers upon the        effectiveness of the Conversion, and                     (ii)  deposit with the Exchange Agent (or otherwise make available to        the reasonable satisfaction of PRA and the Exchange Agent), for the benefit of the Cash        Subscribers, an amount of cash equal to the total amount of cash distributable to the Cash        Subscribers  upon  the  effectiveness  of  the  Conversion  (the  “Cash  Subscriber  Payment        Amount”).               (b)   At least three (3) Business Days prior to the Closing, PRA shall deposit or  cause to be deposited with the Exchange Agent (or otherwise make available to the reasonable  satisfaction of NORCAL and the Exchange Agent), for the benefit of the Selling Stockholders  and for exchange through the Exchange Agent, an amount of cash equal to the total amount of  the  Fixed  PRA  Consideration  (such  amount,  together  with  the  Cash  Subscriber  Payment  Amount, the “Exchange Fund”).         4.5   Effective  Time  of  the  Plan  of  Conversion.   At  the  Closing,  NORCAL shall  deliver  a  certified  copy  of  the  Plan  of  Conversion  and  Articles  of  Incorporation  to  the  Department.  Upon  receipt  of  the  certified  copy  of  the  Plan  of  Conversion  and  Articles  of  Incorporation,  the  Commissioner  shall  issue  a new  certificate  of  authority  (the  “Certificate  of  Authority”) for NORCAL stating the effective date of the Conversion and deliver the Articles of  Incorporation to the office of the California Secretary of State for filing in accordance with CA  Insurance Code Section 4097.11.  The effective time of the Plan of Conversion (the “Conversion  Effective  Time”)  shall  be  at  such  time  as  the  Commissioner  provides  in  the  Certificate  of  Authority.   At  the  Conversion  Effective  Time,  NORCAL  shall  cause  the  Exchange  Agent  to  issue or pay (i) the Contribution Certificates to all Certificate Subscribers in accordance with the  Plan of Conversion; (ii) cash to all Cash Subscribers in accordance with the Plan of Conversion;  and  (iii)  uncertificated  shares  of  NORCAL  Common  Stock  to  all  of  the  Stock  Subscribers  in  accordance with  the Plan of Conversion (collectively, the “Conversion Consideration”).  The  Conversion  Consideration  shall  be  payable  by  NORCAL  by  delivery  of  the  same  to  the  Exchange Agent.         4.6   Purchase  of  NORCAL  Common  Stock  by  PRA.   At  the  Closing and  immediately after the Conversion Effective Time (the “Purchase Effective Time”), PRA shall  cause  PRA  Professional  to  purchase,  and  the  Selling  Stockholders  shall  sell,  the  shares  of  NORCAL Common Stock issued to the Selling Stockholders set forth on the Selling Stockholder  Distribution List (the “Purchased Stock”) for the PRA Consideration. The purchase price of the  Purchased Stock shall be payable by PRA by delivery of the Fixed PRA Consideration to the  Exchange  Agent  as  provided  in  Section 4.4(b) and  by  payment  of  the  Contingent  PRA  Consideration as provided in Section 4.8 hereof.  Upon the occurrence of both the Conversion  Effective Time and delivery of the PRA Consideration to the Exchange Agent, the transfer of the  Purchased Stock from the Selling Stockholders to PRA Professional shall be effective without  any further action on the part of PRA, PRA Professional, the Selling Stockholders and NORCAL  INC. shall reflect such transfer in its corporate records as of said time.                                         23  43126503 v1 

 

      4.7   Conversion and Exchange Procedures               (a)   As promptly as practicable, but in no event more than ten (10) Business  Days after the Closing Date, the Exchange Agent shall distribute from the Exchange Fund:                     (i)   to each Certificate Subscriber, a contribution certificate, in the face        amount  set  forth  on  the  Certificate  Distribution  List,  as  the  contribution  certificate        required to be delivered to such Certificate Subscriber in connection with the Conversion;                     (ii)  to each Cash Subscriber, a check or wire transfer for funds, in the        amount set forth on the Cash Distribution List, as the cash payment required to be paid to        such Cash Subscriber in connection with the Conversion;                     (iii) to  each  Non-Electing  Stock  Subscriber,  a  book  entry  registration        representing the number of uncertificated shares of NORCAL Common Stock issued to        such Stock Subscriber in connection with the Conversion; and                     (iv)  to each Stock Subscriber who is a Selling Stockholder, a check or        wire transfer for funds, in an amount equal to the Fixed PRA Consideration payable to        such  Selling  Stockholder  in  exchange  for  the  sale  of  such  Selling  Stockholder’s        NORCAL Common Stock to PRA Professional, as set forth on the Selling Stockholder        Distribution List.               (b)   Any other provision of this Agreement notwithstanding, neither PRA nor  the Exchange Agent shall be liable to a Policyholder, Cash Subscriber, Selling Stockholder or  Non-Electing  Stock  Subscriber  for  any  amounts  paid  or  property  delivered  in  good  faith  to  a  public official pursuant to any applicable abandoned property law.         4.8   Payment  of  the  Contingent  PRA  Consideration.   If  the  Contingent  PRA  Consideration is  due to  be paid  to  the Selling Stockholders then the payment thereof shall  be  made in accordance with this Section 4.8.               (a)   As soon as practicable after the determination of the Actuary’s Ultimate  Loss  Estimate  in  accordance  with  Section 3.2 hereof,  PRA  shall  provide  the  NORCAL  Committee  notice  of  the  amount  of  the  Contingent  PRA  Consideration, and  the  NORCAL  Committee shall provide to PRA a list of the costs and expenses incurred pursuant to Section  3.2(d) hereof and the names and addresses of the payees of such costs and expenses.  PRA shall  then  calculate  the  amount  of  the  Contingent  PRA  Consideration  to  be  paid  to  the  Selling  Stockholders after deducting payment of such costs and expenses.               (b)   Promptly  after making  the  calculation  required  under  Section 4.8(a)  above,  PRA  shall  deposit  or  cause  to  be  deposited  with  the  Exchange  Agent  (i)  cash  in  an  amount equal to the Contingent PRA Consideration (the “Contingent Consideration Exchange  Fund”),  (ii)  the  list  of  payees  of  costs  and  expenses  provided  to  PRA  by  the  NORCAL  Committee under Section 4.8(a) above and (iii) the amount of the Contingent PRA Consideration  payable to each of the Selling Stockholders.                                          24  43126503 v1 

 

            (c)   Promptly after receipt of all of the required deliverables from PRA under  Section 4.8(b) above,  the  Exchange  Agent  shall  distribute  from  the  funds  deposited  by  or  on  behalf  of  PRA,  (i)  payment  of  costs  and  expenses  on  the  list  provided  by  the  NORCAL  Committee  under  Section 4.8(a) above;  and  (ii)  payment  of  the  amount  of  Contingent  PRA  Consideration to each of the Selling Stockholders in accordance with the list provided by PRA  under Section 4.8(b) above.         4.9   Undistributed Exchange Fund.                 (a)   Any  portion  of  the  Exchange  Fund  that  remains  undistributed  to  the  Policyholders and/or Selling Stockholders for twelve (12) months after the Closing Date shall be  delivered to PRA, on demand, and the Exchange Agent’s duties with respect to the Exchange  Fund  hereunder  shall  terminate.   Thereafter  and  subject  to applicable  abandoned  property,  escheat and similar laws, each Policyholder and/or Selling Stockholder that has not yet received  the distribution to which it is entitled to pursuant to this Agreement and the Plan of Conversion  may contact PRA and PRA shall pay or deliver to such Policyholder and/or Selling Stockholder  the consideration to which it is entitled.               (b)    Any portion of the Contingent Consideration Exchange Fund that remains  undistributed to the Selling Stockholders for twelve (12) months after December 31, 2023 shall  be  delivered  to  PRA,  on  demand,  and  the  Exchange  Agent’s  duties  with  respect  to  the  Contingent Consideration Exchange Fund hereunder shall terminate.  Thereafter and subject to  applicable abandoned property, escheat and similar laws, each Selling Stockholder that has not  yet received the distribution to which it is entitled to pursuant to this Agreement and the Plan of  Conversion  may  contact  PRA  and  PRA  shall  pay  or  deliver  to  such  Selling  Stockholder  the  consideration to which it is entitled.         4.10  Withholding.  NORCAL, PRA and the Exchange Agent will be entitled to deduct  and  withhold  from  the  consideration  otherwise  payable  pursuant  to  this  Agreement  or  the  transactions contemplated hereby to any Policyholder and/or Selling Stockholder such amounts  as NORCAL (or any Affiliate thereof), PRA (or any Affiliate thereof) or the Exchange Agent is  required to deduct and withhold with respect to the making of such payment to such Policyholder  and/or  Selling  Stockholder  under  the  Code,  or  any  applicable  provision  of  U.S.  federal,  state,  local or non-U.S. tax law.  To the extent that such amounts are properly withheld by NORCAL,  PRA or the Exchange Agent and remitted to the proper Governmental Authority, such withheld  amounts  will  be  treated  for  all  purposes  of  this  Agreement  as  having  been  paid  to  such  Policyholder  and/or  Selling  Stockholder  in  respect  of  whom  such  deduction  and  withholding  were made by NORCAL, PRA or the Exchange Agent.                                    ARTICLE 5               REPRESENTATIONS AND WARRANTIES OF NORCAL.           Except as set forth in the NORCAL Disclosure Schedule (including any changes to the  NORCAL  Disclosure  Schedule  that  are  disclosed  by  NORCAL  to  PRA  in  accordance  with  Section 8.5 of this Agreement), NORCAL represents and warrants to PRA as follows:         5.1   Corporate Organization.                                           25  43126503 v1 

 

            (a)   NORCAL is a mutual insurance company duly organized, validly existing  and  in  good  standing  under  the  laws  of  the  State  of  California.   NORCAL  has  the  corporate  power and authority to own or lease all of its properties and assets and to carry on its business as  it is now being conducted.                 (b)   NORCAL is duly licensed or qualified to do business in each jurisdiction  in which the nature of the business conducted by it or the character or location of the properties  and assets owned or leased by it makes such licensing or qualification necessary, except where  the failure to be so licensed or qualified would not have a Material Adverse Effect on NORCAL.   Section 5.1(b) of the NORCAL Disclosure Schedule identifies a true, complete and correct list of  (i) the type of insurance products that NORCAL is authorized or licensed to offer, (ii) the states  or  other  jurisdictions  in  which  NORCAL  is  authorized  or  licensed  to offer  such  insurance  products,  and  (iii)  the  licenses  or  authorizations  held  by  NORCAL  to  offer  such  insurance  products.  NORCAL does not offer any insurance products in any jurisdiction where it is neither  authorized  nor  licensed  to  offer  such  insurance  products.   All  of  such  licenses  identified  in  Section 5.1 of the NORCAL Disclosure Schedules are in full force and effect, and NORCAL has  not received any written or, to the Knowledge of NORCAL, oral notice from any Governmental  Authority  regarding  the  actual  or  proposed  revocation,  amendment,  cancellation,  termination,  modification,  impairment,  failure  to  renew,  limitation,  suspension  or  restriction  of  any  such  license,  nor  is  there  any  proceeding  or,  to  the  Knowledge  of  NORCAL,  investigation  by  a  Governmental Authority pending or, to  the Knowledge of NORCAL, threatened which would  reasonably  be  expected  to  lead  to  the  revocation,  amendment,  cancellation,  termination,  modification,  impairment,  failure  to  renew,  limitation,  suspension  or  restriction  of  any  such  license.           5.2   Subsidiaries.               (a)   Section 5.2(a) of the NORCAL Disclosure Schedule sets forth the name  and  state  of  incorporation  or  organization  of  each  Subsidiary  of  NORCAL  (the  “NORCAL  Subsidiaries”).   Each  NORCAL  Subsidiary  (i)  is  duly  organized  and  validly  existing  as  a  corporation under the laws of its jurisdiction of organization, and (ii) has all requisite corporate  power and authority to own or lease its properties and assets and to carry on its business as now  conducted.               (b)   Section 5.2(b) of  the  NORCAL  Disclosure  Schedule  identifies  a  true,  complete and correct list of (i) the NORCAL Subsidiaries that conduct insurance business of any  kind and in any capacity, including as an insurer, insurance agent or broker, insurance adjustor,  insurance administrator, risk purchasing group or risk retention group (the “NORCAL Insurance  Subsidiaries”), (ii) the states or other jurisdictions in which the NORCAL Insurance Subsidiaries  are authorized or licensed to conduct such insurance business, (iii) the licenses or authorizations  held  by  the  NORCAL  Insurance  Subsidiaries  to  conduct  insurance  business  in  each  of  those  states or other jurisdictions, and (iv) as applicable, the type of insurance products that they are  authorized or licensed to offer in each such state or other jurisdiction.   Except  as  set  forth  in  Section 5.2(b) of the NORCAL Disclosure Schedules, no NORCAL Insurance Subsidiary offers  any insurance products or conducts any insurance business in any jurisdiction where it is neither  authorized  nor  licensed  to  conduct  such  insurance  business.   The  business  of  each  NORCAL  Insurance Subsidiary has been and is being conducted in compliance with all of its licenses in all                                         26  43126503 v1 

 

material respects.  All of such licenses identified in Section 5.2(b) of the NORCAL Disclosure  Schedule are in full force and effect, and NORCAL and the NORCAL  Insurance Subsidiaries  have not received written or, to the Knowledge of NORCAL, oral notice from any Governmental  Authority  regarding  the  actual  or  proposed  revocation,  amendment,  cancellation,  termination,  modification,  impairment,  failure  to  renew,  limitation,  suspension  or  restriction  of  any  such  license,  nor  is  there  any  proceeding  or,  to  the  Knowledge  of  NORCAL,  investigation  by  any  Governmental Authority pending or, to  the Knowledge of NORCAL, threatened which would  reasonably  be expected  to  lead  to  the  revocation,  amendment,  cancellation,  termination,  modification,  impairment,  failure  to  renew,  limitation,  suspension  or  restriction  of  any  such  license.  Each NORCAL Subsidiary is duly qualified to do business and in good standing in all  jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property  or  the  conduct  of  its  business  requires  it  to  be  so  qualified  and  in  which  the  failure  to  be  so  qualified would have a Material Adverse Effect on NORCAL.               (c)   Except as set forth in Section 5.2(c) of the NORCAL Disclosure Schedule,  NORCAL  is,  directly  or  indirectly,  the  record  and  beneficial  owner  of  all  of  the  outstanding  shares of capital stock of each of the NORCAL Subsidiaries.  There are no irrevocable proxies  granted by NORCAL or any  NORCAL Subsidiary  with  respect  to  such shares.  There  are no  equity  securities  of  any  of  the  NORCAL  Subsidiaries  that  are  or  may  become  required  to  be  issued by reason of any option, warrants, scrip, rights, to subscribe to, calls or commitments of  any character whatsoever relating to, or securities or rights convertible into or exchangeable for,  shares of any capital stock of any of the NORCAL Subsidiaries except shares of the NORCAL  Subsidiaries  issued  to  other  wholly  owned  NORCAL  Subsidiaries.   There  are  no  contracts,  commitments,  understandings  or  arrangements  by  which  any  of  the  NORCAL  Subsidiaries  is  bound to issue additional shares of its capital stock or options, warrants or rights to purchase or  acquire any additional shares of its capital stock or securities convertible into or exchangeable  for such shares.  All of the shares of the NORCAL Subsidiaries described in the first sentence of  this Section 5.2(c) are validly issued, fully paid and nonassessable and free of preemptive rights,  and are owned by NORCAL or a NORCAL Subsidiary free and clear of any and all Liens except  for Permitted Liens.         5.3   Corporate Affairs.  NORCAL has made available to PRA correct and complete  copies of the articles of incorporation and bylaws of NORCAL and the articles of incorporation  and  bylaws  of  each  of  the  NORCAL  Subsidiaries  (each  as  amended  to  date)  (the  “Organizational Documents”).  NORCAL has made available to PRA all of the minute books  containing  the  records  of  the  meetings  of  the  policyholders,  the  board  of  directors  and  any  committee of the board of directors of NORCAL and each of the NORCAL Subsidiaries (except  for  confidential  portions  of  such  minutes  relating  to  the  Conversion  and  the  transactions  contemplated by this Agreement) since January 1, 2016.  Subject to the immediately preceding  sentence,  the  minute  books  of  NORCAL  and  the  NORCAL  Subsidiaries  reflect  all  of  the  material actions taken by each of their respective boards of directors (including each committee  thereof)  and  policyholders.   NORCAL  has  made  available to  PRA  all  of  the  stock  ledgers  of  NORCAL and the NORCAL Subsidiaries.         5.4   Capitalization.                                            27  43126503 v1 

 

            (a)   At the Conversion Effective Time, all of the shares of NORCAL Common  Stock to be issued to Stock Subscribers pursuant to the Plan of Conversion will be authorized  under the Articles of Incorporation.  The shares of NORCAL Common Stock issued pursuant to  the Plan of Conversion will constitute all of the issued and outstanding shares of capital stock of  NORCAL  INC.,  all  of  which  will  be  duly  authorized  and  validly  issued and  fully  paid,  nonassessable and free of preemptive rights. As of the date of this Agreement and other than as  provided  in  this  Agreement,  NORCAL  does  not  have  and  is  not  bound  by  any  outstanding  subscriptions, options, warrants, calls, commitments or agreements of any character calling for  the  purchase  or  issuance  of  any  shares  of  NORCAL  Common  Stock  or  any  other  equity  securities  of  NORCAL  INC.  or  any  securities  representing  the  right  to  purchase  or  otherwise  receive any shares of NORCAL Common Stock or any other equity securities of NORCAL.               (b)   Section 5.4(b) of the NORCAL Disclosure Schedule sets forth a complete  list  of  (i)  the  officers  and  directors  of  NORCAL  and  each  NORCAL  Subsidiary,  (ii)  the  percentage of the outstanding voting stock of each NORCAL Subsidiary owned or controlled,  directly or indirectly, by NORCAL, and (iii) the percentage of the outstanding voting stock of  each  NORCAL  Subsidiary  owned  or  controlled,  directly  or  indirectly,  by  one  or  more  of  the  other  Subsidiaries  of  NORCAL.   Except  as  set  forth  in  Section 5.4(b) of  the  NORCAL  Disclosure Schedule, NORCAL does not have any direct or indirect equity or ownership interest  in  any  other  business  or  entity  and  does  not  have  any  direct  or  indirect  obligation  or  any  commitment to  invest  any funds in  any  corporation or other business  or entity, other than  for  investment purposes in the ordinary course of business in accordance with past practice.         5.5   Authority; No Violation; Consents and Approvals.               (a)   Subject  to  the  receipt  of  all  approvals  of  Governmental  Authorities  required to consummate the transactions contemplated by this Agreement as set forth on Section  5.5(a) of the NORCAL Disclosure Schedule (all such approvals and the expiration or termination  of  all  statutory  waiting  periods  in  respect  thereof  being  referred  to  in  this  Agreement  as  the  “Requisite Regulatory Approvals”), NORCAL has full corporate power and authority to execute  and deliver this Agreement and to consummate the transactions contemplated by this Agreement.   The  execution  and  delivery  of  this  Agreement  by  NORCAL  and  the  consummation  of  the  transactions  contemplated  hereby  have  been  authorized  by  the  NORCAL  Board.   Other  than  obtaining  approval  and  adoption  of  the  Plan  of  Conversion  by  at  least  two-thirds  of  the  NORCAL Board, the approval and adoption of the Plan of Conversion and this Agreement by  the affirmative vote of at least two-thirds of the Record Date Policyholders that actually vote,  whether  by  ballot,  in  person  or  by  proxy  (provided  there  is  a  quorum  as  required  by  CA  Insurance  Code  Section 4097.07),  and  any  actions  required  to  obtain  all  Requisite Regulatory  Approvals, no other corporate proceedings on the part of NORCAL are necessary to approve the  Plan of Conversion and this Agreement and to consummate the transactions contemplated by this  Agreement.  Subject to the foregoing, this Agreement has been duly and validly executed and  delivered by NORCAL and (assuming due authorization, execution and delivery by PRA and the  receipt  of  all  Requisite  Regulatory  Approvals)  constitutes  a  valid  and  binding  obligation  of  NORCAL,  subject  to  applicable  bankruptcy,  insolvency  and  similar  laws  affecting  creditors’  rights generally, and subject, as to enforceability, to general principles of equity.                                          28  43126503 v1 

 

            (b)   Neither the execution and delivery of this Agreement by NORCAL nor the  consummation by NORCAL of the transactions contemplated by the Plan of Conversion and this  Agreement,  nor  compliance  by  NORCAL  with  any  of  the  terms  or  provisions  of  the  Plan  of  Conversion and this Agreement, will (i) violate any provision of the Organizational Documents  or (ii) assuming that all Requisite Regulatory Approvals and all of the consents and approvals  referred to in Section 5.5(c) of this Agreement are duly obtained, (x) violate any Applicable Law  applicable to NORCAL or any of its properties or assets, or (y) violate, conflict with, result in a  breach  of  any  provision  of  or  the  loss  of  any  benefit  under,  constitute  a  default  (or  an  event  which,  with  notice  or  lapse  of  time,  or  both,  would  constitute  a  default)  under,  result  in  the  termination  of  or  a  right  of  termination  or  cancellation  under,  accelerate  the performance  required  by,  or  result  in  the  creation  of  any  Lien  upon  any  of  the  properties  or  assets  of  NORCAL  under,  any  of  the  terms,  conditions  or  provisions  of  any  note,  bond,  mortgage,  indenture,  surplus  debentures,  deed  of  trust,  license,  lease,  agreement  or  other  instrument  or  obligation to which NORCAL is a party, or by which it or any of its properties or assets may be  bound or affected, except (in the case of clause (ii) above) as set forth in Section 5.5(b)(ii) of the  NORCAL  Disclosure  Schedule,  or  for  such  violations,  conflicts,  breaches,  terminations,  cancellations,  accelerations,  Liens  or  defaults  which,  either  individually  or  in  the  aggregate,  would not have a Material Adverse Effect on NORCAL.               (c)   Except for (i) the Requisite Regulatory Approvals and (ii) the approval of  the  Plan  of  Conversion  and  the  transactions  contemplated  by  this  Agreement  by  the  requisite  votes of the Record Date Policyholders, no consents or approvals of or filings or registrations  with  any  Governmental  Authority,  or  with  any  other  Person  by  NORCAL  or  any  NORCAL  Subsidiary  are  necessary  in  connection  with  the  execution  and  delivery  by  NORCAL  of  this  Agreement  or  the  consummation  by  NORCAL  of  the  transactions  contemplated  by  this  Agreement, except where the failure to obtain any such consents or approvals or to make any  such  filings  would  not  be  material  to  the  transaction  or  NORCAL  and  the  NORCAL  Subsidiaries, taken as a whole.               (d)   Except  as  provided  by  Section  4097.04  of  the  CA  Insurance  Code,  no  Policyholder of NORCAL shall have any pre-emptive rights under Applicable Law with respect  to, or as a result of, the transactions contemplated by this Agreement (including the Conversion).         5.6   Insurance Reports.                (a)   Since  December  31,  2016  NORCAL  and  each  NORCAL  Insurance  Subsidiary  (i)  have  filed  or  submitted  (or  have  filed  or  submitted  on  its  behalf)  with  all  applicable  Insurance  Regulators  all  reports,  registrations,  statements, documents,  filings,  submissions, notices and reports, together with all supplements and amendments thereto required  under the Insurance Laws applicable to insurance holding companies (the “NORCAL Holding  Company  Act  Reports”),  (ii)  have  filed  (or  have  had filed  on  its  behalf)  all  NORCAL  SAP  Statements,  (iii)  have  filed  (or  have  had  filed  on  its  behalf)  all  other  material  reports,  registrations,  statements,  documents,  filings,  submissions  and  notices,  together  with  all  amendments and supplements thereto, required to be filed with any Insurance Regulator under  the Insurance Laws, and (iv) have paid all fees and assessments due and payable by them under  the Insurance Laws.  Section 5.6(a) to the NORCAL Disclosure Schedule sets forth a list of, and  NORCAL  has  made  available  to  PRA,  accurate  and  complete  copies  of,  all  NORCAL  SAP                                         29  43126503 v1 

 

Statements,  all  NORCAL  Holding  Company  Act  Reports,  and  all  other  material  reports,  registrations, statements, documents, filings, submissions, and notices filed by NORCAL or any  of  the  NORCAL  Insurance  Subsidiaries  with  any  Insurance  Regulator  for  periods  ending  and  events occurring, after December 31, 2016 and prior to the Closing Date.  All such NORCAL  SAP  Statements,  NORCAL  Holding  Company  Act  Reports  and  other  material  reports,  registrations,  statements,  documents,  filings,  submissions,  and notices  complied in  all material  respects  with  the  Insurance  Laws  when  filed  or  as  amended or  supplemented  and,  as  of  their  respective dates, contained all material information required under the Insurance Laws and did  not contain any false statements or material misstatements of fact or omit to state any material  facts necessary to make the statements set forth therein not materially misleading in light of the  circumstances in which such statements were made.  No deficiencies have been asserted by any  Governmental  Authority  with  respect  to  such  NORCAL  SAP  Statements,  NORCAL  Holding  Company Act Reports and other material reports, registrations, statements, documents, filings,  submissions, and notices.  Nothing in this Section 5.6(a) shall apply to Taxes, which are covered  exclusively by Section 5.12.               (b)   Except for normal examinations conducted by a Governmental Authority  in  the  regular  course of  the  business  of  NORCAL  and  its  Subsidiaries,  audits  by  taxing  authorities and consumer complaints to Insurance Regulators in the ordinary course of business,  and  except  as  set  forth  in  Section 5.6(b) of  the  NORCAL  Disclosure  Schedule,  there  are  no  proceedings,  investigations,  examinations  (including  financial,  market  conduct,  underwriting,  rating or claims examinations) or material inquiries by any Governmental Authority in progress  or  that  have  not  been  completed  with  respect  to  NORCAL,  any  NORCAL  Subsidiary  or  any  director  or  officer  of  NORCAL  or  any  NORCAL  Subsidiary,  nor,  to  the  Knowledge  of  NORCAL,  no  Governmental  Authority  initiated  or  scheduled  any  proceeding,  examination  (including  financial,  market  conduct,  underwriting,  rating  or  claims  examinations)  or  investigation  into  the  business  or  operations  of  NORCAL,  any  NORCAL  Subsidiary,  or  any  director  or  officer  of  NORCAL  or  any  NORCAL  Subsidiary,  since  December  31,  2016.   All  material deficiencies or violations noted with respect to the examinations of NORCAL or any of  the NORCAL Subsidiaries (including financial, market conduct, underwriting, rating or claims  examinations) have either been resolved, are subject to ongoing negotiation for which NORCAL  or  the  NORCAL  Subsidiary,  as  applicable,  believes  is  a  reasonable  basis  to  contest  such  findings,  or  are  subject  to  a  plan  that  has  been  established  to  resolve  such  deficiencies  or  violations, and NORCAL or the NORCAL Subsidiary, as applicable, is in material compliance  with any such plan, in each case, to the reasonable satisfaction of the Governmental Authority  that noted such deficiencies or violations.               (c)   Section 5.6(c) of the NORCAL Disclosure Schedule lists all financial and  market  conduct  (including  underwriting,  rating  or  claims)  examinations  that  any  Insurance  Regulator  has  conducted  with  respect  to  NORCAL  or  any  of  the  NORCAL  Insurance  Subsidiaries  since  December  31,  2016.   NORCAL  has  made  available  to  PRA  correct  and  complete reports issued by the applicable Insurance Regulator with respect to such examinations,  including solely with respect to examination for which a final report has not yet been issued, any  draft  reports  and  correspondence  with  respect  to  such  examinations.   There  are  no  regulatory  examinations (including financial, market conduct, underwriting, rating or claims examinations)  of NORCAL or any of the NORCAL Insurance Subsidiaries currently in process.                                         30  43126503 v1 

 

            (d)   Except as otherwise contemplated by this Agreement, since December 31,  2016, neither NORCAL nor any NORCAL Subsidiary has received from any Person any Notice  on Form A or such other form as may be prescribed under Applicable Law indicating that such  Person intends to make or has made a tender offer for or a request or invitation for tenders of, or  intends to enter into or has entered into any agreement to exchange securities for, or intends to  acquire or has acquired (in the open market or otherwise), any voting security of NORCAL, if  after  the  consummation  thereof  such  Person  would  directly  or  indirectly  be  in  control  of  NORCAL.         5.7   Financial Statements; Financial Reporting.               (a)   “NORCAL SAP Statements” means (i) the annual statutory statements of  each of NORCAL and the NORCAL Insurance Subsidiaries filed with any Insurance Regulator  for each of the years ended December 31, 2016, December 31, 2017 and December 31, 2018, (ii)  the quarterly statutory statements of each of NORCAL and the NORCAL Insurance Subsidiaries  filed  with  any  Insurance  Regulator  for  each  quarterly  period  in  2019  prior  to  the  date  of  this  Agreement,  and  (iii)  all  exhibits,  interrogatories,  notes,  schedules  and  any  actuarial  opinions,  affirmations or certifications or other supporting documents filed in connection with such annual  statutory statements and quarterly statutory statements.               (b)   All such NORCAL SAP Statements were prepared (i) in conformity with  statutory accounting principles prescribed or permitted by the Insurance Regulators consistently  applied  (“SAP”)  and  (ii)  in  accordance  with  the  books  and  records  of  NORCAL  and  the  NORCAL  Insurance  Subsidiaries.   The  NORCAL  SAP  Statements,  when  read  in  conjunction  with the notes thereto and any statutory audit reports relating thereto, present fairly in all material  respects  the  financial  condition  and  results  of  operations  of  NORCAL  and  the  NORCAL  Insurance Subsidiaries for the dates and periods indicated in accordance with SAP.  The annual  balance  sheets  and  income  statements  included  in  the  NORCAL  SAP  Statements  have  been,  where  required  by  Insurance  Laws,  audited  by  an  independent  accounting  firm  of  recognized  national  reputation.   In  accordance with  Section 5.7(b) of the NORCAL Disclosure Schedule,  NORCAL  has  made  available  to  PRA  true  and  complete  copies  of  all  of  the  NORCAL  SAP  Statements and all audit opinions related thereto.               (c)   Each  of  NORCAL  and  the  NORCAL  Subsidiaries  maintains  accurate  books and records reflecting its assets and liabilities and maintains proper and adequate internal  accounting controls over financial reporting which provide reasonable assurance regarding the  reliability  of  financial  reporting.   Neither  the  auditors  nor  the  board  of  directors  or  audit  committee  of  NORCAL  or  any  NORCAL  Subsidiary  have  been  advised  by  their  accountants  with  respect  to  the  audited  consolidated  balance  sheets  of  NORCAL  and  the  NORCAL  Subsidiaries  as  of  December  31,  2018, and  the  related  consolidated  audited  statements  of  earnings, policyholders’ equity and cash flows of NORCAL and the NORCAL Subsidiaries for  the period ended December 31, 2018 of:  (x) any significant deficiencies or material weaknesses  in the design or operation of the internal controls over financial reporting (as such term is defined  in Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the Exchange Act) of NORCAL or  any NORCAL Subsidiary which could materially adversely affect its ability to record, process,  summarize  and  report  financial  data,  or  (y)  any  fraud,  whether  or  not  material,  that  involves                                         31  43126503 v1 

 

management  or  other  employees  who  have  a  significant  role  in  the  internal  controls  over  financial reporting of NORCAL or any NORCAL Subsidiary.               (d)   Except as  described  in  Section  5.7(d)  of  the  NORCAL  Disclosure  Schedule, at  the dates of the aforementioned balance sheets,  neither NORCAL nor any of the  NORCAL  Subsidiaries  had  any  liabilities  or  obligations  of  any  nature,  whether  accrued,  absolute,  contingent or  otherwise,  which  would  be  required  to  be  disclosed  in  or  reflected  or  reserved for on a balance sheet prepared in conformity with SAP, other than (i) as disclosed in or  reflected  or  reserved  against  on  the  balance  sheets  described  in  Section 5.7(a),  (ii)  those  liabilities  and  obligations  incurred  pursuant  to  contractual  obligations  identified  in  this  Agreement  or  the  NORCAL  Disclosure  Schedule  other than  liabilities  or  obligations  due  to  breaches  by  NORCAL  thereunder,  (iii)  liabilities  incurred  or  to  be  incurred  pursuant  to,  in  connection with, or as a result of, the Plan of Conversion and the other transactions contemplated  by this  Agreement  and (iv) those liabilities and obligations  incurred in  the ordinary  course of  business.               (e)   Section 5.7(e) of the NORCAL Disclosure Statement lists, and NORCAL  has  delivered  to  PRA  copies  of  the  documentation  creating  or  governing,  all  securitization  transactions and “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K  of  the  SEC)  effected  by  NORCAL  or  any  of  the  NORCAL  Subsidiaries  since December  31,  2016.               (f)   KPMG  US  LLP,  which  has  expressed  its  opinion  with  respect  to  the  financial statements of NORCAL and the NORCAL Subsidiaries (including the related notes), is  and has  been throughout the periods covered by  such financial statements  “independent” with  respect to NORCAL and the NORCAL Subsidiaries within the meaning of Regulation S-X.         5.8   Broker’s  Fees.  Except  as  set  forth  in  Section 5.8 of the NORCAL Disclosure  Schedule,  none  of  NORCAL,  the  NORCAL  Subsidiaries  and  their  respective  officers  and  directors, has employed any broker or finder or incurred any liability for any broker’s fees or  commissions, or investment banker fees or commissions, or finder’s fees in connection with the  transactions contemplated by this Agreement.         5.9   Absence of Certain Changes or Events.                 (a)   Since September 30, 2019, and except as set forth in Section 5.9(a) of the  NORCAL  Disclosure  Schedule,  neither  NORCAL  nor  any  of  its  Subsidiaries  has  (except  as  required by Applicable Law):  (i) increased the wages, salaries, compensation, pension, or other  fringe benefits  or perquisites  payable to  any  executive officer, employee, or director from  the  amount  thereof  in  effect  as  of  June  30,  2019,  (ii)  granted  any  stock  options  or  severance  or  termination pay, entered into any contract to make or grant  any stock options or severance or  termination pay, or paid any bonuses, or (iii) suffered any strike, work stoppage, slowdown, or  other labor disturbance.               (b)   Since September 30, 2019, and except as set forth in Section 5.9(b) of the  NORCAL  Disclosure  Schedule,  there  has  not  been:   (i)  any  material  adverse  change  in  the  financial condition, assets, liabilities or business of NORCAL or any NORCAL Subsidiary; (ii)                                         32  43126503 v1 

 

any  material  change  in  any  method  of  accounting  or  accounting  principles  or  practice  by  NORCAL or any NORCAL Subsidiary, except as required by SAP and disclosed in the notes to  the unaudited financial statements of NORCAL and the NORCAL Subsidiaries; (iii) any material  change  in  the  actuarial,  investment,  reserving,  underwriting  or  claims  administration  policies,  practices,  procedures,  methods,  assumptions  (outside  of  the  ordinary  course  of  business)  or  principles of NORCAL or any NORCAL Insurance Subsidiary; (iv) any damage, destruction or  loss, whether or not covered by insurance, materially and adversely affecting the properties or  business  of  NORCAL  or  any  NORCAL  Subsidiary;  (v)  any  declaration  or  payment  of  any  dividends or distribution of any kind to the Policyholders of NORCAL or in respect of the capital  stock  of any  NORCAL  Subsidiary;  (vi)  any  direct  or  indirect  redemption,  purchase  or  other  acquisition by NORCAL or any NORCAL Insurance Subsidiary of any of the capital stock of  any NORCAL Subsidiary; (vii) any discharge or cancellation, whether in part or in whole, of any  indebtedness  owed  by  NORCAL  or  any  NORCAL  Subsidiary  to  any  Person,  except  reimbursement to employees of ordinary business expenses or other debts arising in the ordinary  course of business; (viii) any sale or transfer or cancellation of any of the assets, properties, or  claims  of  NORCAL  or  any  NORCAL  Insurance  Subsidiary,  except  in  the  ordinary  course  of  business; (ix) any sale, assignment or transfer of any trademarks, trade names, or other intangible  assets of NORCAL or any NORCAL Subsidiary; (x) except as set forth in Section 5.9(b) of the  NORCAL  Disclosure  Schedule,  any  material  amendment  to  or  termination  of  any  material  contract, agreement, instrument or license to which NORCAL or any NORCAL Subsidiary is a  party; or (xi) any other event or condition of any character materially and adversely affecting the  business or properties of NORCAL or any NORCAL Subsidiary.         5.10  Legal Proceedings and Judgments.                 (a)   Except  as  set  forth  in  Section 5.10(a) of  the  NORCAL  Disclosure  Schedule, neither NORCAL nor any  NORCAL Subsidiary is  a party to any, and there  are no  pending or, to  the Knowledge of NORCAL, threatened, legal,  administrative, arbitral  or other  inquiries,  proceedings,  claims  (whether  asserted  or  unasserted),  actions  or  governmental  or  regulatory or applicable industry self regulatory organization (including, without limitation, the  National  Association  of  Insurance  Commissioners)  investigations  of  any  nature  (including  noncontractual claims, bad faith claims and claims against any directors or officers of NORCAL  or  any  NORCAL  Subsidiary,  but  excluding  coverage  and  other  claims  made  with  respect  to  insurance  policies  issued  by  NORCAL  or  any  NORCAL  Insurance  Subsidiary  for  which  adequate claims reserves have been established in accordance with SAP and generally accepted  actuarial  principles)  against  NORCAL,  any  NORCAL  Subsidiary,  any  of  their  respective  businesses or  assets,  any  assets  of any  other Person which are used in  any  of the business or  operations of NORCAL or any NORCAL Subsidiary, any directors or officers of NORCAL or  any NORCAL Subsidiary, or the transactions contemplated by this Agreement, or challenging  the validity or propriety of the transactions contemplated by this Agreement, other than, in each  case, as would not be material to NORCAL and the NORCAL Subsidiaries, taken as a whole.               (b)   Except  as  set  forth  in  Section 5.10(b) of  the  NORCAL  Disclosure  Schedule,  there  is  no  injunction,  order,  judgment,  decree,  or  regulatory  restriction  (including  noncontractual claims, bad faith claims and claims against any directors or officers of NORCAL  or  any  NORCAL  Subsidiary,  but  excluding  coverage  and  other  claims  made  with  respect  to  insurance  policies  issued  by  NORCAL  or  any  NORCAL  Insurance  Subsidiary  for  which                                         33  43126503 v1 

 

adequate  claims  reserves  have  been  established)  imposed  upon  NORCAL,  any  NORCAL  Subsidiary or the assets of NORCAL or any NORCAL Subsidiary.               (c)   Except  as  set  forth  in  Section 5.10(c) of  the  NORCAL  Disclosure  Schedule,  to  the  Knowledge  of  NORCAL,  since  December  31,  2016  no  breach  of  contract,  breach  of  fiduciary  duties  under  ERISA,  bad  faith,  breach  of  warranty,  tort,  negligence,  infringement, fraud, discrimination, wrongful  discharge or other  claim  of any nature has  been  asserted or threatened against NORCAL or any NORCAL Subsidiary.         5.11  Insurance.                 (a)   Section 5.11(a) of the NORCAL Disclosure Schedule sets forth policies of  general  liability,  fire  and  casualty,  automobile,  directors  and  officers,  errors  and  omissions,  fiduciary,  and  other  forms  of  insurance currently  maintained  by  NORCAL  and  the  NORCAL  Insurance Subsidiaries (the “NORCAL Insurance Policies”).  All such policies are in full force  and  effect,  all  premiums  due  and  payable  thereon  have  been  paid  (other  than  retroactive  or  retrospective premium adjustments that are not yet, but may be, required to be paid with respect  to  any  period  ending  prior  to  the  Closing  Date  under  comprehensive  general  liability  and  workmen’s compensation insurance policies), and no written or, to the Knowledge of NORCAL,  oral  notice  of  cancellation  or  termination  has  been  received  with  respect  to  any  such  policy  which has not been replaced on substantially similar terms prior to the date of such cancellation.   To the Knowledge of NORCAL, the activities and operations of NORCAL and the NORCAL  Insurance Subsidiaries have been conducted in a manner so as to conform in all material respects  to all applicable provisions of such insurance policies.               (b)   No issuer of the NORCAL Insurance Policies has issued a reservation-of- rights letter, or entered into a nonwaiver agreement, or otherwise denied or limited coverage (in  whole or in part), under any open claims under the NORCAL Insurance Policies, and during the  last twelve (12) months no declaratory judgment has been sought by any Person or entered by  any court of competent jurisdiction that denies or limits coverage (in whole or in part) under any  open claims under the NORCAL Insurance Policies.         5.12  Taxes and Tax Returns.                 (a)   As  used  in  this  Agreement:   “Tax”  or  “Taxes”  means  all  federal, state,  county,  local,  and  foreign  income,  excise,  gross  receipts,  gross  income,  profits,  franchise,  license, ad valorem, profits, gains, capital, sales, transfer, use, payroll, employment, severance,  withholding,  duties,  intangibles,  franchise,  backup  withholding,  stamp,  occupation,  premium,  social security (or similar), unemployment, disability, real property, personal property, sales, use,  registration, alternative or add on minimum, estimated, and other taxes, charges, levies or like  assessments together with all penalties and additions to tax and interest thereon).  “Tax Return”  or  “Tax  Returns”  means  any  and  all  returns,  declarations,  claims  for  refunds,  reports,  information returns and information statements (including, without limitation, Form 1099, Form  W-2 and W-3, Form 5500, and Form 990) with respect to Taxes filed, or required to be filed, by  any Person or any Subsidiary of such Person with the Internal Revenue Service (“IRS”) or any  other Governmental Authority or tax authority or agency, whether domestic or foreign (including  consolidated, combined and unitary tax returns).                                         34  43126503 v1 

 

            (b)   NORCAL and the NORCAL Subsidiaries have duly filed all material Tax  Returns  required  to  be  filed  by  them  on  or  prior  to  the  date  of  this  Agreement  (all  such  Tax  Returns  being accurate  and  complete  in  all  material  respects),  taking  into  account  any  valid  extension of time within which to file, and have duly paid or made sufficient provisions for the  payment  of  all  Taxes  shown  thereon  as  owing  on  or  prior  to  the  date  of  this  Agreement  (including,  if  and  to  the  extent  applicable,  those  due  in  respect  of  their  properties,  income,  business,  capital  stock,  premiums,  franchises,  licenses,  sales  and  payrolls)  other  than  Taxes  which  are  not  yet  delinquent  or  are  being  contested  in  good  faith  and  have  not  been  finally  determined for which adequate reserves have been made on the financial statements described in  Section 5.7(a) of this Agreement.  Neither NORCAL nor any NORCAL Subsidiary has waived  any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a  Tax Return or tax assessment or deficiency other than extensions that are automatically granted  by the taxing authorities upon filing an application therefor.  The unpaid Taxes of NORCAL and  the  NORCAL  Subsidiaries  do  not  exceed  the  reserve  for  tax  liability  set  forth  on  the  balance  sheets referenced in Section 5.7(a) of this Agreement as adjusted for the passage of time through  the Closing Date in accordance with past custom and practice of NORCAL in filing its returns.   No written claim  (which remains  unresolved) has  been made since December 31, 2016 by  an  authority  in  a  jurisdiction  where  NORCAL  or  any  NORCAL  Subsidiary  does  not  file  Tax  Returns that it is or may be subject to taxation by that jurisdiction.               (c)   There  is  no  claim,  audit,  Action, other  administrative  or  judicial  proceeding or, to the Knowledge of NORCAL, investigation now pending or, to the Knowledge  of  NORCAL,  threatened  against  or  with  respect  to  NORCAL  or  any  NORCAL  Subsidiary  in  respect  of  any  material  Tax.   NORCAL  and  each  NORCAL  Subsidiary  in  connection  with  amounts paid or owed to any employee, independent contractor, creditor, shareholder or other  third party have complied with applicable tax withholding in all material respects.  NORCAL  and each NORCAL Subsidiary have reported such withheld amounts to the appropriate taxing  authority and to each such employee, independent contractor, creditor, shareholder or other third  party as required by Applicable Law.               (d)   There  are no Tax  Liens  upon any property or assets  of NORCAL or its  Subsidiaries except for Permitted Liens.  Neither NORCAL nor any NORCAL Subsidiary has  been required to include in income any adjustment pursuant to Section 481 of the Code by reason  of a voluntary change in accounting method initiated by NORCAL or any NORCAL Subsidiary,  and the IRS has not initiated or proposed any such adjustment or change in accounting method.   Except  as  set  forth  in  the  financial  statements  described  in  Section 5.7(a) of  this  Agreement,  neither NORCAL nor  any NORCAL Subsidiary has  entered into a transaction which is  being  accounted for as an installment obligation under Section 453 of the Code.  Neither NORCAL nor  any  NORCAL  Subsidiary  is  a  party  to  or  bound  by  any  tax  indemnity,  tax  sharing  or  tax  allocation  agreement  (other  than  such  agreements  as  exist  by  and  among  themselves  or  customary  Tax  indemnifications  contained  in  ordinary  course  commercial  contracts  with  third  parties  that do  not  relate  primarily  to  Taxes).   Except  as  set  forth  in  Section  5.13(d)  of  the  NORCAL  Disclosure  Schedule,  since  January  1,  2013,  neither  NORCAL  nor  any  NORCAL  Subsidiary  has  been  a  member  of  an  affiliated  group  of  corporations  within  the  meaning  of  Section  1504  of  the  Code  other  than  an  affiliated  group  in  which  NORCAL  has  been  the  common parent corporation.  Neither NORCAL nor any NORCAL Subsidiary is liable for the  Taxes  of  any  person  under  Section  1.1502  6  of  the  Treasury  Regulations  (or  any  similar                                         35  43126503 v1 

 

provision of state, local or foreign Tax law) or by contract, as a successor or otherwise (other  than  ordinary  course  commercial  contracts  with  third  parties  that  do  not  relate  primarily  to  Taxes).  During the five (5) year period ending on the date hereof, neither NORCAL nor any  NORCAL Subsidiary was a distributing corporation or a controlled corporation in a transaction  intended  to  be  governed  by  Section  355  of  the  Code.   Neither  NORCAL  nor  any  NORCAL  Subsidiary is a party to any joint venture, partnership or other arrangement or contract that could  be treated as a partnership for federal income tax purposes.               (e)   To the Knowledge of NORCAL, there is no dispute or claim concerning  any tax liability of NORCAL or any NORCAL Subsidiary except as disclosed in Section 5.12(e)  of  the  NORCAL  Disclosure  Schedule.   Section 5.12(e) of  the  NORCAL  Disclosure  Schedule  identifies the last Tax Returns that have been audited by the taxing authority with whom they  were filed, and indicates those Tax Returns that currently are the subject of an audit procedure or  that  NORCAL  or  any  NORCAL  Subsidiary  has  received  notice  will  be  subject  to  an  audit  procedure.   NORCAL  has  made  available  to  PRA  correct  and  complete  copies  of  all  federal  income tax returns (including amendments thereto) of, all examination reports of, and statements  of deficiencies assessed against or agreed to by, NORCAL or any NORCAL Subsidiary since  December 31, 2016.               (f)   Neither  NORCAL  nor  any  NORCAL  Subsidiary  is  a  party  to  any  employment, severance or termination agreement or other compensation arrangement (including  any NORCAL Employee Plan) with any individual that obligates NORCAL or any NORCAL  Subsidiary  to  reimburse  any  employee  for  any  taxes  attributable  to  a  “parachute  payment”  Section 280G of the Code.          5.13  Employee Plans; Labor Matters.               (a)   Section 5.13(a) of the NORCAL Disclosure Schedule contains a true and  complete  list  of  each  pension,  benefit,  retirement,  compensation,  profit-sharing,  deferred  compensation, incentive, performance award, phantom equity or other equity, change in control,  retention, severance, vacation, paid time off, material fringe-benefit and other similar agreement,  plan, policy, program or arrangement (and any amendments thereto), in each case whether or not  reduced  to  writing  and  whether  funded  or  unfunded,  including  each  “employee  benefit  plan”  within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not  subject to ERISA, which is or has been during the preceding three (3) calendar years maintained,  sponsored, contributed to, or required to be contributed to by NORCAL for the benefit of any  current  or  former  employee,  officer,  manager,  retiree,  independent  contractor  or  consultant  of  NORCAL or any spouse or dependent of such individual, or under which NORCAL has or may  have any liability, or with respect to which PRA or any of its ERISA Affiliates would reasonably  be  expected  to  have  any  liability,  contingent  or  otherwise  (as  listed  on  Section 5.13(a) of  the  NORCAL Disclosure Schedule, each, an “NORCAL Benefit Plan”).               (b)   With  respect  to  each  NORCAL  Benefit  Plan,  NORCAL  has  made  available to PRA accurate, current and complete copies of each of the following: (i) where the  NORCAL  Benefit  Plan  has  been  reduced  to  writing,  the  plan  document  together  with  all  amendments; (ii) where the NORCAL Benefit Plan has not been reduced to writing, a written  summary  of  all  material  plan  terms;  (iii)  where  applicable,  copies  of  any  trust  agreements  or                                         36  43126503 v1 

 

other  funding  arrangements,  custodial  agreements,  insurance  policies  and  contracts,  administration  agreements  and  similar  agreements,  and  investment  management  or  investment  advisory  agreements,  now  in  effect  or  required  in  the  future  as  a  result  of  the  transactions  contemplated  by  this  Agreement  or  otherwise;  (iv)  copies  of  any  summary  plan  descriptions,  summaries  of  material  modifications,  employee  handbooks  and  any other  material  written  communications relating to any NORCAL Benefit Plan; (v) in the case of any NORCAL Benefit  Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent  determination, opinion or advisory letter from the Internal Revenue Service; (vi) in the case of  any NORCAL Benefit Plan for which a Form 5500 is required to be filed, a copy of the most  recently filed Form 5500, with schedules attached; (vii) actuarial valuations and reports related to  any  NORCAL  Benefit  Plans with  respect  to  the  two most recently completed plan  years; and  (viii)  copies  of  material  written  notices,  letters  or  other  correspondence  from  the  Internal  Revenue Service, Department of Labor or Pension Benefit Guaranty Corporation relating to the  NORCAL Benefit Plan.               (c)   Each  NORCAL  Benefit  Plan  has  been  established,  administered  and  maintained in  accordance with  its  terms  and in material  compliance with all Applicable  Laws  (including ERISA and the Code). Each NORCAL Benefit Plan that is intended to be qualified  under Section 401(a) of the Code (a “Qualified Benefit Plan”) is so qualified and has received a  favorable and current determination letter from the Internal Revenue Service, or with respect to a  prototype plan, can rely on an opinion letter from the Internal Revenue Service to the prototype  plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and  the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a),  respectively, of the Code, and nothing has occurred that could reasonably be expected to cause  the  revocation  of  such  determination  letter  from  the  Internal  Revenue  Service  or  the  unavailability of reliance on such opinion letter from the Internal Revenue Service, as applicable,  nor has such revocation or unavailability been threatened. Each such NORCAL Benefit Plan has  been timely amended, as necessary, to reflect mandatory changes required by Applicable Law.   Nothing  has  occurred  with  respect  to  any  NORCAL  Benefit  Plan  that  has  subjected  or  could  reasonably  be  expected  to  subject  NORCAL  or,  with  respect  to  any  period  on  or  after  the  Closing Date, PRA or any of its ERISA Affiliates, to a penalty under Section 502 of ERISA or to  tax or penalty under Section 4975 of the Code.  All benefits, contributions and premiums relating  to each NORCAL Benefit Plan have been timely paid in material compliance with the terms of  such NORCAL Benefit Plan and all Applicable Laws and accounting principles, and all benefits  accrued under  any  unfunded  NORCAL  Benefit  Plan  have  been  paid,  accrued  or  otherwise  adequately  reserved  to  the  extent  required  by,  and  in  accordance  with,  generally  accepted  accounting principles in the United States (“GAAP”).               (d)   Except  as  set  forth  in  Section 5.13(d) of  the  NORCAL  Disclosure  Schedules,  neither  NORCAL  nor  any  of  its  ERISA  Affiliates  has  (i)  incurred  or  reasonably  expects to incur, either directly or indirectly, any material liability under Title I or Title IV of  ERISA or related provisions of the Code or foreign Applicable Law relating to employee benefit  plans;  (ii)  failed  to  timely  pay  premiums  to  the  Pension  Benefit  Guaranty  Corporation;  (iii)  withdrawn  from  any  NORCAL  Benefit  Plan;  or  (iv)  engaged  in  any  transaction  which  would  give rise to liability under Section 4069 or Section 4212(c) of ERISA.                                          37  43126503 v1 

 

            (e)   No  reportable  event  that  would  require  notice  (either  advance  or  post  event) under Section 4043 of ERISA has occurred within the past three (3) years.               (f)   With respect to each NORCAL Benefit Plan (i) no such plan is a “multiple  employer  plan”  within  the  meaning  of  Section  413(c)  of  the  Code  or  a  “multiple  employer  welfare  arrangement”  (as  defined  in  Section 3(40)  of  ERISA);  and  (ii)  no  Action  has  been  initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a  trustee for any such plan.               (g)   Except  as  described  in  Section  5.13(g)  of  the  NORCAL  Disclosure  Schedule,  there  does  not  now  exist,  nor  do  any  circumstances  exist  that  could  result  in,  any  Controlled Group Liability that would be a liability of PRA following the Closing.  “Controlled  Group Liability” means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302  of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply  with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B  of the Code and  (v) under corresponding or similar provisions  of foreign laws  or regulations.   Without limiting the generality of the foregoing, NORCAL has not engaged in any transaction  described in Section 4069 or Section 4203-4205 or 4212 of ERISA and no event has occurred or  circumstance exists that constitutes, or could reasonably be expected to cause, any withdrawal  from, or the participation, termination, reorganization, or insolvency of, any Multiemployer Plan  that could result in any liability of NORCAL to a Multiemployer Plan.  For each Multiemployer  Plan, NORCAL has provided PRA with the following to the extent applicable and available to or  in  possession  of  NORCAL  or  NORCAL:  (i)  any  letter  from  the  administrator  of  the  Multiemployer Plan setting forth the estimated withdrawal liability which would be imposed by  the  Multiemployer  Plan  if  NORCAL  or  any  ERISA  Affiliate  were  to  withdraw  from  the  Multiemployer Plan in a complete withdrawal, as of the most recently-available information, and  the factors used to determine such estimate and (ii) a copy of the most recently-available Form  5500  and/or  actuarial  report  of  the  Multiemployer  Plan,  which  sets  forth  the  actuarial  assumptions used in determining the present value of unfunded vested benefits for withdrawal  liability purposes.               (h)   All  contributions  required to  be made to  any NORCAL  Benefit  Plan by  Applicable Law or by any plan document or other contractual undertaking, and all premiums due  or payable with respect to insurance policies funding any NORCAL Benefit Plan, for any period  through the date hereof have been timely made or paid in full or, to the extent not required to be  made or paid on or before the date hereof, have been fully reflected on the financial statements.               (i)   Except  as  required  by  Applicable  Law,  no  provision  of  any  NORCAL  Benefit Plan or collective bargaining agreement could reasonably be expected to  result in any  limitation on PRA or any of its ERISA Affiliates from amending or terminating any NORCAL  Benefit Plan.  NORCAL has no commitment or obligation and has not made any representations  to any employee, officer, manager, independent contractor or consultant, whether or not legally  binding,  to  adopt,  amend  or  modify  any  NORCAL  Benefit  Plan  or  any  collective  bargaining  agreement,  in  connection  with  the  consummation  of  the  transactions  contemplated  by  this  Agreement or otherwise.                                          38  43126503 v1 

 

            (j)   Except  as  set  forth  in  Section 5.13(j) of  the  NORCAL  Disclosure  Schedule, other than as required under Section 601 et. seq. of ERISA or other Applicable Law,  no NORCAL Benefit Plan provides post-termination or retiree welfare benefits to any individual  for any reason, and neither NORCAL nor any of its ERISA Affiliates has any liability to provide  post-termination or retiree welfare benefits  to  any individual or ever  represented,  promised or  contracted  to  any  individual  that  such  individual  would  be  provided  with  post-termination  or  retiree welfare benefits.               (k)   There is no pending or, to the Knowledge of NORCAL, threatened Action  relating to a NORCAL Benefit Plan (other than routine claims for benefits), and no NORCAL  Benefit  Plan  has  within  the  three  years  prior  to  the  date  hereof  been  the  subject  of  an  examination or audit by a Governmental Authority or the subject of an application or filing under  or  is  a  participant  in,  an  amnesty,  voluntary  compliance,  self-correction  or  similar  program  sponsored by any Governmental Authority.               (l)   Other than in the ordinary course of business or as disclosed under Section  5.13(l) of the NORCAL Disclosure Schedule, there has been no amendment to, announcement  by NORCAL or any of its ERISA Affiliates relating to, or change in employee participation or  coverage  under,  any  NORCAL  Benefit  Plan  that  would  increase  the  annual  expense  of  maintaining such plan above the level of the expense incurred for the most recently completed  fiscal year with respect to any manager, officer, employee, independent contractor or consultant,  as applicable. Other than in the ordinary course of business or as disclosed under Section 5.13(l)  of the NORCAL Disclosure Schedule, neither NORCAL nor any of its ERISA Affiliates has any  commitment or obligation or has made any representations to any manager, officer, employee,  independent contractor or consultant, whether or not legally binding, to adopt, amend or modify  any NORCAL Benefit Plan.               (m)   Each  NORCAL  Benefit  Plan  that  is  or  was  a  “nonqualified  deferred  compensation plan” within the meaning of Section 409A of the Code and associated Treasury  Department guidance has (i) been operated between January 1, 2005 and December 31, 2008, in  good faith compliance with Section 409A of the Code and Notice 2005-01 and (ii) since January  1, 2009 (or such later date permitted under applicable guidance), been operated in compliance  with, is in documentary compliance with, and, no compensation is subject to reporting under, in  all material respects, Section 409A of the Code and IRS regulations and guidance thereunder.   No  compensation  payable  by  under  any  such  NORCAL  Benefit  Plan  has  been  reportable  as  nonqualified deferred compensation in the gross income of any individual or entity, and subject  to an additional tax, as a result of the operation of Section 409A of the Code and no arrangement  exists  with  respect  to  a  nonqualified  deferred  compensation  plan  that  would  result  in  income  inclusion under Section 409A(b) of the Code.               (n)   Except  as  set  forth  in  Section  5.13(n)  of  the  NORCAL  Disclosure  Schedule, neither the execution of this Agreement nor any of the transactions contemplated by  this Agreement will (either alone or upon the occurrence of any additional or subsequent events):  (i) entitle any current or former director, manager, officer, employee, independent contractor or  consultant  of  NORCAL  to  severance  pay  or  any  other  payment;  (ii)  accelerate  the  time  of  payment, funding or vesting, or increase the amount of compensation due to any such individual;  (iii) limit or restrict the right of NORCAL to merge, amend or terminate any NORCAL Benefit                                         39  43126503 v1 

 

Plan; (iv) increase the amount payable under or result in any other material obligation pursuant  to any NORCAL Benefit Plan; (v) result in “excess parachute payments” within the meaning of  Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified  individual” within the meaning of Section 280G(c) of the Code. NORCAL has made available to  PRA true and complete copies of any Section 280G calculations prepared (whether or not final)  with respect to any disqualified individual in connection with the transactions.         5.14  Employees.               (a)   NORCAL has made available to PRA a true and correct list of the names  of  the  employees  of  NORCAL  and  the  NORCAL  Subsidiaries,  their  birth  dates,  hire  dates,  compensation rates, name of employer and capacity in which employed, and accrued vacation  and  sick  leave,  if  any,  all  as  of  December 31,  2019.   Except  as  limited  by  any  employment  agreements  and  severance  agreements  listed  on  Section 5.14(a) of  the  NORCAL  Disclosure  Schedule,  and  except  for  any  limitations  of  general  application  which  may  be  imposed  under  applicable  employment  laws,  NORCAL  and  the  NORCAL  Subsidiaries  have  the  right  to  terminate the employment of any of their respective employees at will and without payment to  such employees.               (b)    NORCAL  and  the  NORCAL  Subsidiaries  are  in  compliance,  in  all  material  respects,  with  all  Applicable  Laws  regarding  labor  and  employment  and  the  compensation  therefore,  discrimination  in  employment,  terms  and  conditions  of  employment,  wages,  hours  and  occupational  safety  and  health,  and  employment  practices,  whether  state  or  federal (including, without limitation, as applicable, wage and hour laws; workplace safety laws;  workers’ compensation laws; equal employment opportunity laws; equal  pay laws; civil rights  laws;  the  Occupational  Safety  and  Health  Act  of  1970,  as  amended;  the  Equal  Employment  Opportunity Act, as amended; the Americans With Disabilities Act, 42 U.S.C. § 12101 et seq., as  amended; the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., as amended; the Equal Pay Act,  29 U.S.C. § 206d, as amended, the Portal-to-Portal Pay Act of 1947, 29 U.S.C. § 255 et seq., as  amended;  Title  VII  of  the  Civil  Rights  Act  of  1964,  42  U.S.C.  §  2000e,  as  amended  and  42  U.S.C. § 1981, as amended; Rehabilitation Act of 1973, as amended; the Vietnam-Era Veterans’  Readjustment Assistance Act of 1974, as amended; the Immigration Reform and Control Act, 8  U.S.C.  §  1324A  et  seq.,  as  amended;  the  Employee  Polygraph  Protection  Act  of  1988,  as  amended;  the  Veterans  Re-employment  Act - Handicap  Bias,  38  U.S.C.  §  2027  et  seq.,  as  amended; the Civil Rights Act of 1991, as amended; the Family and Medical Leave Act of 1993,  as  amended;  the  Religious  Freedom  Restoration  Act  of  1993,  as  amended;  the  Age  Discrimination  and Employment  Act  of  1967,  as  amended;  and  the  Consolidated  Omnibus  Budget  Reconciliation  Act  of  1985).  Except  as  set  forth  in  Section 5.14(b) of  the  NORCAL  Disclosure  Schedule,  no  action  or,  to  the  Knowledge  of  NORCAL,  investigation  has  been  instituted  or,  to  the  Knowledge  of  NORCAL,  is  threatened  to  be  conducted  by  any  state  or  federal agency regarding any potential violation by NORCAL or any NORCAL Subsidiary of  any  laws,  orders,  ordinances  and  regulations  regarding  labor  and  employment  or  the  compensation therefore (including, without limitation, any of the aforementioned statutes, to the  extent applicable) during the past three (3) years.               (c)   Neither NORCAL nor any NORCAL Subsidiary has ever been a party to  or bound by any union  or collective bargaining contract, nor is any such contract currently in                                         40  43126503 v1 

 

effect or being negotiated by NORCAL or any NORCAL Subsidiary.  NORCAL does not know  of any activities or proceedings of any labor union to organize any employees of NORCAL or  any  NORCAL  Subsidiary.   To  the  Knowledge  of  NORCAL,  since  December  31,  2018,  no  executive  officer  of  NORCAL  or  any NORCAL  Subsidiary  has  indicated  in  writing  to  any  executive officer of NORCAL an intention to terminate his or her employment on or before six  (6) months following the Closing of the transactions contemplated by this Agreement.               (d)   NORCAL and each of the NORCAL Subsidiaries have complied with all  applicable  notice  provisions  of  and  have  no  material  obligations  under  the  Consolidated  Omnibus Budget Reconciliation Act of 1985 with respect to any former employees or qualifying  beneficiaries  thereunder.   Except  as set  forth  in  Section 5.14(d) of  the  NORCAL  Disclosure  Schedules,  there  is  no  action,  claim,  cause  of  action,  suit  or  proceeding  pending  or,  to  the  Knowledge of NORCAL, threatened against NORCAL or any NORCAL Subsidiary, on the part  of any employee or applicant for employment, including any such action, claim, cause of action,  suit or proceeding based on allegations of wrongful termination or discrimination on the basis of  age, race, religion, sex, sexual preference, or mental or physical handicap or disability.  Neither  NORCAL  nor  any  NORCAL  Subsidiary  is  delinquent  in  the  payment  of  wages,  salaries,  bonuses, relocation benefits, stock options or other incentives due to or for the benefit of any  employee  of  NORCAL  or  any  NORCAL  Subsidiary.   To  the  Knowledge  of  NORCAL,  no  person  treated  as  an  independent  contractor  by  NORCAL  or  any  NORCAL  Subsidiary  is  an  employee  as  defined  in  Section  3401(c)  of  the  Code,  nor  has  any  employee  been  otherwise  improperly  classified,  as  exempt,  nonexempt  or  otherwise,  for  purposes  of  federal  or  state  income tax withholding or overtime laws, rules, or regulations.               (e)   Since  December  31,  2018,  neither  NORCAL  nor  any  NORCAL  Subsidiary  has  effectuated  (i)  a  “plant  closing”  (as  defined  in  the  Worker  Adjustment  and  Retraining Notification Act (the “WARN Act”)) affecting any site of employment or one or more  facilities  or  operating  units  within  any  site  of  employment  or  facility  of  NORCAL  or  any  NORCAL  Subsidiary;  (ii)  a  “mass  layoff”  (as  defined  in  the  WARN  Act);  or  (iii)  such  other  transaction, layoff, reduction in force or employment terminations sufficient in number to trigger  application of any similar foreign, state or local law.               (f)   Each  individual  who  is  classified  by  NORCAL  as  an  independent  contractor has  been properly  classified  for purposes of participation and benefit  accrual  under  each NORCAL Benefit Plan.         5.15  Compliance with Applicable Law.               (a)   NORCAL  and  the  NORCAL  Subsidiaries  have  complied  in  all  material  respects with, and are not in default in any material respect under any, and have maintained and  conducted their respective businesses in all material respects in compliance with, all Applicable  Laws during the last three (3) years.               (b)   Neither NORCAL nor any  NORCAL Subsidiary is  subject  to  any cease  and desist or other order issued by, or is a party to any written agreement, consent agreement or  memorandum of understanding with, or is a party to any commitment letter or similar written  undertaking  to,  or  is  subject  to  any  order  or  directive  by,  or  has  been  a  recipient  of  any                                         41  43126503 v1 

 

supervisory letter from, or since that date, has adopted any board resolutions at the request of any  Governmental  Authority  that:   (i)  materially  limits  the  ability of  NORCAL  or  any  NORCAL  Subsidiary to  conduct  any line of business that  it currently  conducts,  (ii) require  any material  investments of NORCAL or any NORCAL Subsidiary to be treated as non-admitted assets, (iii)  requires divestiture of any material investments of NORCAL or any NORCAL Subsidiary, (iv)  in  any  manner  imposes  any  material  requirements  on  NORCAL  or  any  NORCAL  Insurance  Subsidiary in respect of risk based capital requirements that add to or otherwise modify the risk  based capital requirements imposed under the Insurance Laws, (v) in any manner relates to the  ability of NORCAL or any NORCAL Subsidiary to pay or declare dividends or distributions, or  (vi) restricts in any material respect the conduct of the business, credit policies or management of  NORCAL  or  any  NORCAL  Subsidiary  (each,  whether  or  not  set  forth  in  the  NORCAL  Disclosure Schedule, an “NORCAL Regulatory Agreement”), nor has NORCAL or any of its  Subsidiaries  been  advised  in  writing  or,  to  the  Knowledge  of  NORCAL,  orally  by  any  Governmental  Authority  that  it  is  considering  issuing  or  requesting  any  such  NORCAL  Regulatory Agreement.                 (c)   Except  as  set  forth  in  Section 5.15(c) of  the  NORCAL  Disclosure  Schedule,  there  is  no  pending  or,  to  the  Knowledge  of  NORCAL,  threatened  charge  by  any  Governmental  Authority  that  NORCAL  or  any  NORCAL  Subsidiary  has  violated  any  Applicable  Laws  (including  any  Insurance  Laws),  nor  any  pending  or,  to  the  Knowledge  of  NORCAL,  threatened  investigation  by  any  Governmental  Authority  with  respect  to  possible  violations of any Applicable Laws (including any Insurance Laws).               (d)   There  are  no  material  contracts  (other  than  contracts  relating  to  employment), real estate leases, loans, guarantees or other arrangements or transactions of any  nature  between  NORCAL  or  any  NORCAL  Subsidiary,  on  the  one  hand,  and  any  of  their  respective officers, directors, or affiliates (as such term is defined in Rule 405 of the SEC), on  the  other  hand.   NORCAL  has  not,  since  December  31,  2016,  extended  or  maintained  credit,  arranged for the extension of credit, or renewed an extension of credit, in the form of a personal  loan  to  or  for  any  director  or  executive  officer  (or  equivalent  thereof)  of  NORCAL  or  any  NORCAL Subsidiary.  Section 5.15(d) of the NORCAL Disclosure Schedule identifies each loan  or extension of credit maintained by NORCAL or any NORCAL Subsidiary to which the second  sentence of Section 13(k)(1) of the Exchange Act applies.               (e)   None of NORCAL, the NORCAL Subsidiaries and, to the Knowledge of  NORCAL,  any  of  their  respective  current  or  former  officers  or  directors  or  current  or  former  employees,  agents  or  representatives  have:  (i)  used  any  corporate  funds  for  any  illegal  contributions,  gifts,  entertainment  or  other  unlawful  expenses  relating  to  political  activity,  (ii)  used any corporate funds for any direct or indirect unlawful payments to any foreign or domestic  government officials or employees, (iii) violated any provision of the Foreign Corrupt Practices  Act of 1977, (iv) established or maintained any unlawful or unrecorded fund of corporate monies  or other assets, (v) made any false or fictitious entries on the books and records of NORCAL or  any NORCAL Subsidiary, (vi) made any bribe, rebate, payoff, influence payment, kickback or  other  unlawful  payment  of  any  nature,  or  (vi)  made  any  material  favor  or  gift  which  is  not  deductible  for  federal  income  tax  purposes.   To  the  Knowledge  of  NORCAL,  no  director  or  officer  of  NORCAL  or  any  NORCAL  Subsidiary  has  engaged  in  any  “insider  trading”  in  violation of Applicable Law with respect to any security issued by NORCAL.                                         42  43126503 v1 

 

      5.16  Certain Contracts.               (a)   Section 5.16(a) of  the  NORCAL  Disclosure  Schedule  sets  forth  all  contracts, agreements, arrangements, commitments, or understandings, whether written or oral,  (other  than  insurance  policies  or  contracts  issued  by  NORCAL  or  a  NORCAL  Subsidiary)  to  which NORCAL or a NORCAL Subsidiary is a party to or bound by:                     (i)   with  respect  to  the  employment  of  any  directors,  officers  or  employees;                     (ii)  which,  upon  the  consummation  of  the  transactions  contemplated  by  this  Agreement  will  (either  alone  or  upon  the  occurrence  of  any  additional  acts  or  events)  result in any payment (whether of severance pay or otherwise) becoming due from NORCAL,  PRA, or any of their respective Subsidiaries to any director, officer or employee thereof;                     (iii) which  is  a  “material  contract”  (as  such  term  is  defined  in  Item  601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this Agreement;                     (iv)  that concerns a partnership or joint venture that is not consolidated  with NORCAL for financial reporting purposes;                     (v)   the purpose of which is to restrict the ability of NORCAL or any  NORCAL Subsidiary to compete with respect to any product, service or territory;                     (vi)  that  is  in  the  nature  of  a  collective bargaining  agreement,  employment agreement, consulting agreement or severance agreement that is not cancelable by  NORCAL  or  any  NORCAL  Subsidiary  without  penalty  or  compensation  on  thirty  (30)  days’  notice or less;                     (vii) that provides for the payment to an employee of NORCAL or any  NORCAL  Subsidiary  any  incentive  or  bonus  compensation  based  on  the  productivity  or  performance of such employee or of NORCAL or any NORCAL Subsidiary;                     (viii) that is with any Insurance Regulator and restricts (A) distributions  or other payments to the Policyholders or any NORCAL Subsidiary, (B) the continued operation  of NORCAL or any NORCAL Subsidiary, or (C) any other matter relating to NORCAL or any  NORCAL Subsidiary and its affairs; or                     (ix)  any of the benefits of which will be increased, or the vesting of the  benefits of which will be accelerated, by the occurrence of any of the transactions contemplated  by this Agreement, or the value of any of the benefits of which will be calculated on the basis of  any of the transactions contemplated by this Agreement.   NORCAL has previously made available to PRA true and correct copies of all employment and  deferred  compensation  agreements  which  are  in  writing  and  to  which  NORCAL  or  any  NORCAL  Subsidiary  is  a  party.   Each  contract,  agreement,  arrangement,  commitment,  or  understanding  (whether  written  or  oral)  of  the  type  described  in  Sections 5.16(a) of  this  Agreement, whether or not set forth in the NORCAL Disclosure Schedule, is referred to in this                                         43  43126503 v1 

 

Agreement as an “NORCAL Contract”, and neither NORCAL nor any NORCAL Subsidiary has  received  written  or,  to  the  Knowledge  of  NORCAL,  oral  notice  of  any  violation  of  any  NORCAL Contract by any of the other parties thereto.               (b)   Section 5.16(b) of the NORCAL Disclosure Schedule sets forth a list of,  and  NORCAL  has  made  available  to  PRA  correct  and  complete  copies  of,  all  written  arrangements  (or  group  of  related  written  arrangements)  from  or  to  third  parties,  for  the  furnishing  of  services  to,  or  receipt  of  services  by,  NORCAL  or  any  NORCAL  Subsidiary  (including without limitation, legal and accounting services, risk management services, agency  agreements, managing general agent agreements, reinsurance intermediary agreements and other  distribution agreements, and agreements relating to the sale or servicing of medical professional  liability  insurance  products  offered  by  NORCAL  or  any  NORCAL  Subsidiary)  under  which  payments were made during any calendar year since December 31, 2018 in excess of $100,000  or that has a non-cancelable term in excess of one year (as to the latter, which is still in effect).               (c)   With respect to each NORCAL Contract: Such NORCAL Contract is in  full force and effect (except for contracts that have expired pursuant to the terms thereof) and  (assuming due authorization, execution and delivery by each other party thereto) is legally valid,  binding  and  enforceable  in  accordance  with  its  terms  against  NORCAL  or  any  relevant  NORCAL  Subsidiary  (except  as  may  be  limited  by  bankruptcy,  insolvency,  moratorium,  reorganization or similar laws affecting the rights of creditors generally and the availability of  equitable remedies).  There are no material defaults by NORCAL or any NORCAL Subsidiary,  or,  to  the  Knowledge  of  NORCAL,  any  other  party,  under  such  NORCAL  Contract.   Neither  NORCAL nor any NORCAL Subsidiary has received written or, to the Knowledge of NORCAL,  oral notice  of  any  material  default,  offset,  counterclaim  or  defense  under  such  NORCAL  Contract.  No condition or event has occurred which with the passage of time or the giving of  notice  or  both  would  constitute  a  material  default  or  material  breach  by  NORCAL or  any  NORCAL Subsidiary, or, to  the  Knowledge of  NORCAL, any other party under the terms of  such NORCAL Contract.  All security deposits, reserve funds, and other sums and charges that  have become due  and payable under such NORCAL Contract  have been paid in  full.  To the  Knowledge of NORCAL, no party has repudiated any provision of such NORCAL Contract.         5.17  Investments and Interest Rate Risk Management Instruments.               (a)   Except  as  set  forth  in  Section 5.17(a) of  the  NORCAL  Disclosure  Schedule, NORCAL and each NORCAL Subsidiary have good and valid title to all securities  held by it (except securities sold under repurchase agreements or held in any fiduciary or agency  capacity),  free  and  clear  of  any  Lien.   Such  securities  are  permissible  investments  under  all  Applicable  Laws  and  are  valued  on  the  books  of  NORCAL  or  the  applicable  NORCAL  Insurance  Subsidiary  in  accordance  with  SAP.   To  the  Knowledge  of  NORCAL,  none  of  the  securities are in default in the payment of principal, interest or dividends nor is impaired to any  extent.  NORCAL has provided to PRA a copy of the investment policies of NORCAL and the  NORCAL Subsidiaries as of June 30, 2019.  There has been no material change in investment  policy of NORCAL and the NORCAL Subsidiaries or in the composition of the investments of  NORCAL and the NORCAL Subsidiaries since June 30, 2019.                                          44  43126503 v1 

 

            (b)   Except  as  described  in  Section 5.17(b) of  the  NORCAL  Disclosure  Schedule, all interest rate swaps, caps, floors and option agreements and other interest rate risk  management  arrangements  entered  into  for  the  account  of  NORCAL  or its  Subsidiaries  were  entered  into  in  the  ordinary  course  of  business  and,  to  the  Knowledge  of  NORCAL,  in  accordance  with  business  practices  believed  to  be  prudent  by  NORCAL  management  and  Applicable Laws and with counterparties believed by NORCAL’s management to be financially  responsible at the time.  All of such interest rate swaps, caps, floors and option agreements and  other interest rate risk management arrangements are (assuming due authorization, execution and  delivery  by  each  other  party  thereto)  legal,  valid  and  binding  obligations  of  NORCAL  or  its  Subsidiaries enforceable in accordance with their terms (except as may be limited by bankruptcy,  insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally  and the availability of equitable remedies), and are in full force and effect.  NORCAL and each  NORCAL  Subsidiary  have  duly  performed  in  all  material  respects  all  of  their  material  obligations thereunder to the extent that such obligations to perform have accrued; and, to the  Knowledge of NORCAL, there are no material breaches, violations or defaults or allegations or  assertions of such by any party thereunder.         5.18  Intellectual Property/Social Media.               (a)   NORCAL  or  a  NORCAL  Subsidiary  owns  or  has  the  right  to  use  all  Intellectual  Property  necessary  for  the  operation  of  the  businesses  of  NORCAL  and  the  NORCAL  Subsidiaries  as  presently  conducted.  Section 5.18(a)(i)  of  the  NORCAL  Disclosure  Schedule lists all Intellectual Property that is registered or subject to a pending application filed  with a Governmental Authority (collectively, the “NORCAL Registered Intellectual Property”),  specifying  as  applicable  to  each:  the  title,  mark,  or  design;  the  record  owner,  inventor(s),  author(s) or assignees; the jurisdiction by or in which it has been issued, registered or filed; the  patent  number,  serial  number,  application  number,  registration  number  or  other  designator  assigned  by  the  registering  office;  the  filing  date  and  the  issue  or  registration  date;  and  the  current  status  of  each  item.   Section 5.18(a)(ii)  of  the  NORCAL Disclosure  Schedule  lists  all  material unregistered trademarks, service marks, logos, trade names and corporate names owned  by  NORCAL  and  each  NORCAL  Subsidiary.  With  respect  to  all  NORCAL  Registered  Intellectual Property, all assignments  and other instruments necessary to  establish, record, and  perfect  NORCAL’s  ownership  interest  in  the  NORCAL  Registered  Intellectual  Property  have  been  validly  executed,  delivered,  and  filed  with  the  relevant  Governmental  Authorities  and  authorized registrar.               (b)   To  the  Knowledge  of  NORCAL,  neither  NORCAL  nor  any  NORCAL  Subsidiary  has  interfered  with,  infringed  upon,  misappropriated  or  otherwise  violated  any  Intellectual Property owned by third parties.  None of NORCAL, the NORCAL Subsidiaries, and  any of the directors, officers or employees with responsibility for intellectual property matters of  NORCAL or any NORCAL Subsidiary has since December 31, 2016 received any written or, to  the Knowledge of NORCAL, oral claim or notice alleging any such interference, infringement,  misappropriation  or  violation.   To  the  Knowledge  of  NORCAL,  no  third  party  has  interfered  with,  infringed upon, misappropriated or otherwise violated  any intellectual property  rights  of  NORCAL or any NORCAL Subsidiary.                                          45  43126503 v1 

 

            (c)   Section 5.18(c) of the NORCAL Disclosure Schedule identifies each item  of Intellectual Property material to the business that any third party owns and that NORCAL or  any  NORCAL  Subsidiary  uses pursuant  to  a  license,  sublicense,  or  other  written  agreement  under  which  annual  payments  were  made  since  December  31,  2018  in  excess  of  $100,000  (excluding off-the-shelf software license agreements).  With respect to each such item of such  Intellectual Property: (i) (assuming due authorization, execution and delivery by each other party  thereto)  is  legal,  valid,  binding  and  enforceable  against  NORCAL  and  such  NORCAL  Subsidiary; (ii) to the Knowledge of NORCAL no party to the license, sublicense, agreement or  permission  is  in  breach  or default,  and no event  of default has  occurred which with  notice or  lapse of time, or both, would constitute a breach or default or permit termination, modification or  acceleration thereunder; (iii) to the Knowledge of NORCAL no party to the license, sublicense,  agreement  or  permission  has  repudiated  any  provision  thereof;  (iv)  with  respect  to  any  sublicense,  the  representations  and  warranties  set  forth  in  (i)  through  (iii)  above  are  true  and  correct  with  respect  to  the  underlying  license;  and  (v)  neither  NORCAL  nor  any  NORCAL  Subsidiary  has  granted  any  sublicense  or  similar  right  with  respect  to  the  license,  sublicense,  agreement or permission.               (d)   To  the  Knowledge  of  NORCAL,  all  of  the  NORCAL  Registered  Intellectual  Property  is  valid  and  enforceable,  and  all  registrations  for  NORCAL  Registered  Intellectual  Property  are  subsisting  and  in  full  force  and  effect.   NORCAL  has  taken  commercially  reasonable  steps  to  maintain  and  enforce  the  NORCAL  Registered  Intellectual  Property.  All required filings and fees related to the NORCAL Registered Intellectual Property  have  been  timely  submitted  with  and  paid  to  the  relevant  Governmental  Authorities  and  authorized registrars.               (e)   Section 5.18(e) of the NORCAL Disclosure Schedules contains a correct,  current and complete list of all social media accounts used in NORCAL’s business. NORCAL  has complied in all material respects with all terms of use, terms of service, or other agreements  and all associated policies and guidelines relating to its use of any social media platforms, sites,  or services (collectively, “Social Media Terms of Use”). There are no Actions, whether settled,  pending,  or,  to  the  Knowledge  of  NORCAL,  threatened,  alleging  any  (A)  breach  or  other  violation  of  any  Social  Media  Terms  of  Use  by  NORCAL;  or  (B)  defamation,  violation  of  publicity rights of any Person, or any other violation by NORCAL in connection with its use of  social media.         5.19  Real Property; Environmental Liability.               (a)   Neither NORCAL nor any NORCAL Subsidiary owns any right, title or  interest in any real property except as described on Section 5.19(a) of the NORCAL Disclosure  Schedule  (collectively,  the  “NORCAL  Real  Property”).   Section 5.19(a) of  the  NORCAL  Disclosure Schedule sets forth a complete and accurate list and general description of all material  leases,  subleases  or  other  occupancy  agreements  for  real  property,  together  with  all  subordination,  attornment,  estoppel,  non-disturbance  or  other  ancillary  agreements  pertaining  thereto,  and  all  amendments  to  or  modifications  of  any  of  the  foregoing  (collectively,  the  “NORCAL Real Property Leases”) to which NORCAL or any NORCAL Subsidiary is a party or  by which any of them are bound.  NORCAL or a NORCAL Subsidiary owns all right, title and  interest in, and has good and marketable title to, the NORCAL Real Property, and NORCAL or a                                         46  43126503 v1 

 

NORCAL Subsidiary has a valid leasehold interest under each NORCAL Real Property Lease, in  each case free and clear of all Liens except for (i) rights of lessors, co-lessees or sublessees under  each  NORCAL Real  Property  Lease;  (ii) taxes  and assessments  not  yet due and payable;  (iii)  easements, covenants, conditions, restrictions and reservations of record, and such nonmonetary  imperfections of title and encumbrances, if any, as do not materially detract from the value of or  materially  interfere  with  the  present  use  of  the  subject  property;  (iv)  matters  which  would  be  shown  or  disclosed  by  a  current  survey  of  the  subject  property;  (v)  all  Applicable  Laws,  including zoning, building, use and life-safety laws, ordinances, codes, rules and regulations; and  (vi)  Permitted  Liens.   To  the  Knowledge  of  NORCAL,  the  activities  of  NORCAL  and  its  Subsidiaries  with  respect  to  all  NORCAL  Real  Property  and  NORCAL  Real  Property  Leases  used in connection with their operations are in all material respects permitted under applicable  zoning laws, ordinances and regulations.               (b)   NORCAL  or  its  applicable  Subsidiary  enjoys  peaceful  and  undisturbed  possession under each NORCAL Real Property Lease, subject to the terms of such NORCAL  Real Property Lease.  NORCAL has made available to PRA complete and correct copies of all of  the  NORCAL  Real  Property  Leases.   Each  NORCAL  Real  Property  Lease  is  (assuming  due  authorization, execution and delivery by each other party thereto) in full force and effect and is  legally valid, binding and enforceable against NORCAL and the applicable NORCAL Subsidiary  in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium,  reorganization or similar laws affecting the rights of creditors generally and the availability of  equitable  remedies).   There  are  no  current  outstanding  monetary  defaults  and  no  current  outstanding material nonmonetary defaults by NORCAL or any NORCAL Subsidiary, or, to the  Knowledge of NORCAL, any other party, under any NORCAL Real Property Lease.  Neither  NORCAL  nor  any  NORCAL  Subsidiary  has  received  written  notice  of  any  default,  offset,  counterclaim or defense under any NORCAL Real Property Lease which has not heretofore been  cured  or  resolved.  Except  as  set  forth  in  Section 5.5(b)(ii)(y)  of  the  NORCAL  Disclosure  Schedule, to the Knowledge of NORCAL, no condition or event has occurred which with the  passage of time or the giving of notice or both would constitute a default or breach by NORCAL  or  any  NORCAL  Subsidiary,  or   any  other  party,  under  of  the  terms  of  any  NORCAL  Real  Property  Lease.   All  rent,  security  deposits,  reserve  funds,  allowances  and  other  sums  and  charges that have become due and payable under the NORCAL Real Property Leases have been  paid in accordance with the terms of the NORCAL Real Property Leases, and no disputes with  respect to the amount of payment thereof presently exist.  Except as set forth on Section 5.19(b)  of the NORCAL Disclosure Schedules, consummation of the transactions contemplated by this  Agreement does not require any consent or approval by any counterparty to any of the NORCAL  Real Property Leases, and will not result in any breach or default under any of the NORCAL  Real Property Leases.               (c)   NORCAL and its Subsidiaries are and have been since December 31, 2016  in  compliance  in  all  material  respects  with  all  Environmental  Laws  and  all  Environmental  Permits.  There are no legal, administrative, arbitral or other proceedings, claims, actions, causes  of action,  private  environmental  investigations  or  remediation  activities  or  governmental  investigations of any nature pending or, to the Knowledge of NORCAL, threatened seeking to  impose on NORCAL or any NORCAL Subsidiary, or that could reasonably be expected to result  in  the  imposition  on  NORCAL  or  any  NORCAL  Subsidiary  of,  in  each  case,  any  liability  or  obligation arising under any Environmental Law which would have a Material Adverse Effect on                                         47  43126503 v1 

 

NORCAL.   To  the  Knowledge  of  NORCAL,  there  is  no  reasonable  basis  for  any  such  proceeding,  claim,  action,  investigation  or  remediation  activity.   Neither  NORCAL  nor  any  NORCAL  Subsidiary  is  subject  to  any  agreement,  order,  judgment,  decree,  letter  or  memorandum by or with any Governmental Authority or private Person imposing any liability or  obligation under any Environmental Law that would reasonably be expected to have a Material  Adverse  Effect  on  NORCAL.   For  purposes  of  this 5.19,  the  terms  “NORCAL”  and  “Subsidiaries” include any Person that is, in whole or in part, a predecessor of NORCAL or any  of its Subsidiaries.         5.20  Personal Property.               (a)   None  of  the  material  personal  property  owned  by  NORCAL  or  any  NORCAL Subsidiary is subject to, or as of the Closing Date will be subject to, any Lien, except  Permitted Liens.               (b)   Section 5.20(b) of the NORCAL Disclosure Schedule lists each personal  property lease to which NORCAL or any NORCAL Subsidiary is a party that is not cancelable  upon  ninety  (90)  or  fewer  days’  notice  without  penalty  and  has  monthly  rent  that  exceeds  $10,000  (collectively,  the  “NORCAL  Personal  Property  Leases”).   NORCAL  has  made  available to PRA complete and correct copies of all of the NORCAL Personal Property Leases.   Each NORCAL Personal Property Lease is (assuming due authorization, execution and delivery  by each other party thereto) in full force and effect and is legally valid, binding and enforceable  in accordance with its terms against NORCAL or the applicable NORCAL Subsidiary (except as  may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting  the rights of creditors generally and the availability of equitable remedies).  There are no material  defaults  by  NORCAL  or  any  NORCAL  Subsidiary,  or,  to  the  Knowledge  of  NORCAL,  any  other party, under any NORCAL Personal Property Lease.  Neither NORCAL nor any NORCAL  Subsidiary has received written or, to the Knowledge of NORCAL, oral notice of any material  default,  offset,  counterclaim  or  defense  under  any  NORCAL  Personal  Property  Lease.   No  condition or event has occurred which with the passage of time or the giving of notice or both  would constitute a material default or breach by NORCAL or any NORCAL Subsidiary, or, to  the  Knowledge  of  NORCAL,  any  other  party  under  of  the  terms  of  any  NORCAL  Personal  Property  Lease.   All  rent,  security  deposits,  reserve  funds,  allowances  and  other  sums  and  charges that have become due and payable under the NORCAL Personal Property Leases have  been  paid  in  accordance  with  the  terms  of  the  NORCAL  Personal  Property  Leases,  and  no  disputes with respect to the amount or payment thereof presently exist.  To the Knowledge of  NORCAL, there are no purchase contracts, options or other agreements of any kind whereby any  Person has acquired or will have any basis to assert any right, title or interest in, or right to the  possession, use, enjoyment or proceeds of, any interest in the personal  property subject to the  NORCAL  Personal  Property  Leases.   Consummation  of  the  transactions  contemplated  by  this  Agreement does not require any consent or approval by any lessor, lender or other counterparty  to any of the NORCAL Personal Property Leases, and will not result in any breach or default  under any of the NORCAL Personal Property Leases.         5.21  Insurance Matters.                                          48  43126503 v1 

 

            (a)   Since December 31, 2016, all benefits claimed by any Person under any  policy,  binder,  slip,  certificate  or  other  agreement  of  insurance  in  effect  as  of  the  date  hereof  (including  all  applications,  endorsements,  supplements,  endorsements,  riders  and  ancillary  agreements in connection therewith) issued by NORCAL or a NORCAL Insurance Subsidiary  (the  “Insurance  Contracts”)  have  in  all  material  respects  been  administered  and  paid  (or  provision for payment thereof has been made) in accordance with the terms of such Insurance  Contract and the laws under which they arose.               (b)   NORCAL  has  provided  or  made  available  to  PRA  true  and  complete  copies of the current underwriting standards and guidelines utilized and rates and rating factors  and criteria applied by NORCAL and the applicable NORCAL Insurance Subsidiaries.                 (c)   All  policy  and  contract  forms  on  which  NORCAL  or  a  NORCAL  Insurance Subsidiary has issued currently effective Insurance Contracts or which are currently  being used by NORCAL or any applicable NORCAL Insurance Subsidiary have, to the extent  required by  Applicable  Law, been approved by  all  Insurance Regulators or filed with  and not  objected  to  by  such  Insurance  Regulators  within  the  period  provided  by  Applicable  Law  for  objection.               (d)   Except  as  set  forth  in  Section  5.21(d)  of  the  NORCAL  Disclosure  Schedule, the Insurance Contracts have been marketed, sold and issued in material compliance  with all Applicable Laws, including Applicable Laws relating to (i) the use of unfair methods of  competition  and  deceptive  acts  or  practices  relating  to  the  advertising,  sale  and  marketing  of  insurance,  (ii)  all  applicable  disclosure,  filing  and  other  requirements  with  respect  to  any  variation in premiums or other charges resulting from time to time at which such premiums or  charges  are paid  and  (iii)  all  applicable  requirements  regulating  the  underwriting,  rating,  nonrenewal, cancellation or replacement of insurance policies; and, in each case, all marketing  materials, brochures, illustrations and certificates pertaining to the Insurance Contracts comply  with the Insurance Laws in all material respects.               (e)   Except  as  set  forth  in  Section  5.21(e)  of  the  NORCAL  Disclosure  Schedule,  each  agent,  broker,  service  provider,  managing  general  agent,  third  party  administrator,  adjuster,  or  other  Person engaged  by  NORCAL  or  a  NORCAL  Insurance  Subsidiary  to  provide  claims  management  or  other  insurance  services  with  respect  to  the  Insurance Contracts requiring licensure was, to  the Knowledge of NORCAL, at the time such  Person provided such services (or within any permitted grace period), to the extent required by  Applicable Law, duly licensed or exempt from licensure to provide each of the services provided  by such Person in each case, in the particular jurisdiction in which (i) such Person performed  such services, (ii) the applicable Policyholder of the Insurance Contract subject to such services  resides and (iii) the loss under such Insurance Contract occurred.  Except as set forth in Section  5.21(e) of the NORCAL Disclosure Schedule, all agents agreements, brokers agreements, service  contracts,  third  party  administrator  agreements,  adjuster  agreements  and  managing  general  agents  agreements  to  which  NORCAL  or  any  NORCAL  Subsidiary  is  a  party  comply  with  Applicable Law in all material respects.  Except as set forth in Section 5.21(e) of the NORCAL  Disclosure  Schedule,  to  the  Knowledge  of  NORCAL,  no  agent,  broker,  service  provider,  managing  general  agent,  third  party  administrator,  adjuster  or  other  Person  engaged  by  NORCAL or a NORCAL Insurance Subsidiary is in material violation, or has, since December                                         49  43126503 v1 

 

31,  2016,  been  in  material  violation,  of  any  law  applicable  to  such  Person  or  the  services  provided  by  such  Person  to  the  extent  relating  to  the  services  provided  to  NORCAL  or  a  NORCAL  Insurance  Subsidiary.   All  agents,  brokers  and  other  representatives  engaged  by  NORCAL have been engaged and duly appointed in accordance with applicable insurance laws.               (f)   As to premium rates established by NORCAL or any NORCAL Insurance  Subsidiary  which  are  required  to  be  filed  with,  approved  or  not  objected  to  by  any  Insurance  Regulators,  the  rates  have  been  so  filed,  approved  or  not  objected  to,  the  premiums  charged  conform thereto, and such premiums comply with the Insurance Laws.  Section 5.21(f) of the  NORCAL Disclosure Schedule sets forth all increases in premium rates for medical professional  liability insurance submitted by NORCAL and the NORCAL Insurance Subsidiaries which have  been disapproved by any Insurance Regulators since December 31, 2016.  Section 5.21(f) of the  NORCAL Disclosure Schedule lists all written correspondence or written communications from  any  Insurance  Regulator  received  by  NORCAL  or  any  NORCAL  Insurance  Subsidiary  after  December 31, 2016, that requests that its premium rates, if applicable, for professional liability  insurance should be reduced below the current approved premium levels.                (g)   Except  as  set  forth  in  Section  5.21(g)  of  the  NORCAL  Disclosure  Schedule, neither NORCAL nor any NORCAL Insurance Subsidiary has issued any participating  Insurance  Contracts  or  any  retrospectively  rated  Insurance  Contracts.   NORCAL  has  not  declared any policyholder dividend which has not been paid prior to the date of this Agreement.               (h)   All  reinsurance  treaties  or  agreements,  including  retrocessional  agreements, to which NORCAL or any NORCAL Insurance Subsidiary is a party or under which  NORCAL  or  any  NORCAL  Insurance  Subsidiary  has  any  existing  rights,  obligations  or  liabilities are listed on Section 5.21(h) of the Disclosure Schedule (the “NORCAL Reinsurance  Treaties”).   NORCAL  has  provided  PRA  with  correct  and  complete  copies  of  all  of  such  NORCAL Reinsurance Treaties and all such NORCAL Reinsurance Treaties are in full force and  effect, and the consummation of the transactions contemplated by this Agreement will not result  in  any  party  having  the  right  to  terminate  a  NORCAL  Reinsurance  Treaty.   The  NORCAL  Reserves at each of December 31, 2017 and December 31, 2018, as reflected in the NORCAL  SAP Statements, are stated net of reinsurance ceded amounts.  The NORCAL SAP Statements  accurately  reflect  as  of  and  for  the  dates  indicated  therein  the  extent  to  which,  pursuant  to  Insurance  Laws,  NORCAL  and/or  the  NORCAL  Insurance  Subsidiaries  are  entitled  to  take  credit  for  reinsurance  under  the  NORCAL  Reinsurance  Treaties.   To  the  Knowledge  of  NORCAL, all reinsurance recoverable amounts reflected in the NORCAL SAP Statements are  collectible, and NORCAL is unaware of any material adverse change in the financial condition  of  its  reinsurers  that  might  raise  concern  regarding  their  ability to  honor  their  reinsurance  commitments, except as set forth in Section 5.21(h) of the NORCAL Disclosure Schedule.  No  party to any of the NORCAL Reinsurance Treaties has given written or, to the Knowledge of  NORCAL,  oral  notice  to  NORCAL  or  any  NORCAL  Insurance  Subsidiary  that  such  party  intends  to  terminate  or  cancel  any  of  the  NORCAL  Reinsurance  Treaties  as  a  result  of  or  following  consummation  of  the  Conversion  and  the  transactions  contemplated  by  this  Agreement.  Each NORCAL Reinsurance Treaty is (assuming due authorization, execution and  delivery  by  each  other  party  thereto)  valid  and  binding  on  NORCAL  and  each  NORCAL  Insurance Subsidiary party thereto, and none of NORCAL, any NORCAL Insurance Subsidiary,  and, to the Knowledge of NORCAL, any other party thereto, is in default in any material respect                                         50  43126503 v1 

 

with respect to any NORCAL Reinsurance Treaty.  No NORCAL Reinsurance Treaty contains  any  provision  providing  that  the  other  party  thereto  may  terminate  the  same  by  reason  of  the  transactions contemplated by this Agreement, or contains any other provision which would be  altered  or  otherwise  become  applicable  by  reason  of  such  transactions.   Since  December  31,  2018 no NORCAL Reinsurance Treaty has been canceled and there has not been any change in  the retention level under any of such NORCAL Reinsurance Treaty.               (i)   Each of the NORCAL SAP Statements, as of the date thereof, sets forth all  of  the  loss  and  loss  adjustment  expense  reserves  of  NORCAL  and  the  NORCAL  Insurance  Subsidiaries as of such date (collectively, the “NORCAL Reserves”).  The NORCAL Reserves  were determined in accordance with SAP in all material respects and generally accepted actuarial  methods and standards, consistently applied except as set forth therein, and were fairly stated in  all  material  respects  in  accordance  with  sound  actuarial  and  statutory  accounting  principles.   NORCAL has provided or made available to PRA copies of all internally prepared work papers  used  as  the  basis  for  establishing  the  NORCAL  Reserves.   Except  for  regular  periodic  assessments based on developments that are publicly known within the insurance industry, to the  Knowledge of NORCAL, no claim or assessment is pending or threatened against NORCAL or  any NORCAL Insurance Subsidiary which is peculiar or unique to NORCAL or such NORCAL  Insurance  Subsidiary  by  any  state  insurance  guaranty  association  in  connection  with  such  association’s fund relating to insolvent insurers.               (j)   Section  5.21(j)  of  the  NORCAL  Disclosure  Schedule  lists  each  actuary,  independent  or  otherwise,  that  has reviewed,  on  behalf  of  NORCAL  or  any  NORCAL  Subsidiary,  the  reserves  for  losses  and  loss  adjustment  expenses  of  NORCAL  or  any  of  the  NORCAL Insurance Subsidiaries and their premium rates for liability insurance in each of the  years  commencing  after  December  31,  2016  (collectively  the  “NORCAL  Actuaries”  and  separately a “NORCAL Actuary”).  Section 5.21(j) of the NORCAL Disclosure Schedule lists  each  and  every  actuarial  report,  and  all  attachments,  supplements,  addenda  and  modifications  thereto  prepared  for  or  on  behalf  of  NORCAL  or  any  NORCAL  Insurance  Subsidiary  by  the  NORCAL  Actuaries,  or  delivered  by  the  NORCAL  Actuaries  to  NORCAL  or  any  NORCAL  Insurance  Subsidiary,  since  December  31,  2016,  in  which  a  NORCAL  Actuary  has  (i)  either  expressed an opinion on the adequacy of such reserves for losses and loss adjustment expenses  or  made  recommendations  as  to  either  the  amount  of  reserves  for  losses  and  loss  adjustment  expenses that should be maintained by NORCAL or any NORCAL Insurance Subsidiary, or (ii)  expressed an opinion as to the adequacy of such premiums or made a recommendation as to the  premiums  that  should  be  charged  by  NORCAL  or  any  NORCAL  Insurance  Subsidiary  for  liability  insurance  (collectively,  the  “NORCAL  Actuarial  Analyses”).   To  the  Knowledge  of  NORCAL  the  information  and  data  furnished  by  NORCAL  or  any  NORCAL  Insurance  Subsidiary to the NORCAL Actuaries in connection with the NORCAL Actuarial Analyses were  accurate  in  all  material  respects.   To  the  Knowledge  of  NORCAL,  each  NORCAL  Actuarial  Analysis  was  based  upon  an  accurate  inventory  of  policies  in  force  for  NORCAL  and  the  NORCAL Insurance Subsidiaries, as the case may be, at the relevant time of preparation, was  prepared  using  appropriate  modeling  procedures  accurately  applied  and  in  conformity with  generally accepted actuarial principles consistently applied, and the projections contained therein  were properly prepared in accordance with the assumptions stated therein.  NORCAL has made  available to PRA a true and correct copy of each of the NORCAL Actuarial Analyses.                                         51  43126503 v1 

 

            (k)   Except  for  the  non-reviewed  items  set  forth  on  Schedule  5.21(k)  of  the  NORCAL  Disclosure  Schedule,  the  reserve  analysis  prepared  by  Milliman,  dated  October  3,  2019, contains reserve data for all NORCAL Insurance Subsidiaries that issue or have issued any  Insurance Contracts.                (l)   Except  for  assessments  in  the  ordinary  course  of  business,  no  material  claim or material assessment is pending or, to the Knowledge of NORCAL, threatened in writing  against  NORCAL  or  a  NORCAL  Insurance  Subsidiary  by  any  state  insurance  guaranty  association in connection with such association’s fund relating to insolvent insurers, and neither  NORCAL nor a NORCAL Insurance Subsidiary has, since December 31, 2016, received written  notice of any such claim or assessment.  NORCAL and each NORCAL Insurance Subsidiary, as  applicable, has timely paid all guaranty fund assessments that are due to any state guaranty fund  or association or other applicable Insurance Regulator.               (m)   NORCAL  has  made  available  to  PRA  a  true  and  correct  copy  of  each  filing submitted by NORCAL or an applicable NORCAL Insurance Subsidiary to any Insurance  Regulator since December 31, 2016 relating to risk based capital calculations of NORCAL or the  applicable NORCAL Insurance Subsidiary.  Such reports are correct and complete in all material  respects.  Neither NORCAL nor any NORCAL Insurance Subsidiary has suffered a decrease in  its risk based capital to the “Company Action Level.”               (n)   Neither  NORCAL  nor  any  NORCAL  Insurance  Subsidiary  is  “commercially domiciled” under the Applicable Laws of any jurisdiction or is otherwise treated  as domiciled in a jurisdiction other than its jurisdiction of organization.         5.22  No Investment Company.  Neither NORCAL nor any NORCAL Subsidiary is  an “investment company,” or a company “controlled” by an “investment company,” within the  meaning of the Investment Company Act of 1940, as amended.         5.23  Privacy and Data Security.               (a)   NORCAL  and  each  NORCAL  Subsidiary,  and,  to  the  Knowledge  of  NORCAL, all vendors, processors, or other third parties acting for or on behalf of NORCAL or a  NORCAL  Subsidiary  in  connection  with  the  Processing  of  Personal  Information  or  that  otherwise  have  been  authorized  to  have  access  to  Personal  Information  in  the  possession  or  control of NORCAL or any NORCAL Subsidiary comply and at all times in the past three years  have  complied,  in  all  material  respects  with  all  of  the  following:  (A)  Privacy  Laws;  (B)  the  Payment  Card  Industry  Data  Security  Standard;  (C)  NORCAL  Privacy  and  Data  Security  Policies; and (D) all obligations or restrictions concerning the privacy, security, or Processing of  Personal  Information  under  any  contracts  or  other  written  agreements,  arrangements,  commitments, or understandings to which NORCAL or any NORCAL Subsidiary is a party or  otherwise bound as of the date hereof.               (b)   The  execution,  delivery,  and  performance  of  this  Agreement  and  the  consummation  of  the  transactions  contemplated  hereby,  including  the  transfer  of  all  Personal  Information in the possession or control of NORCAL or any NORCAL Subsidiary to PRA or its  Subsidiaries, do not and will not: (A) conflict with or result in a material violation or breach of                                         52  43126503 v1 

 

any Privacy Laws or NORCAL Privacy and Data Policies; or (B) require the consent of or notice  to any Person concerning such Person’s Personal Information.               (c)   NORCAL  and  each  NORCAL  Subsidiary,  in  compliance  with  Privacy  Laws in all material respects, has posted to each of their websites and mobile applications and  published or otherwise made available in connection with any products  or services offered by  NORCAL,   NORCAL  Privacy  and  Data  Policies.  No  disclosure  or  representation  made  or  contained in any such policy has been materially inaccurate, misleading, deceptive, or in material  violation of any Privacy Laws (including by containing any material omission), and the practices  of  NORCAL  and  the  NORCAL  Subsidiaries  with  respect  to  the  Processing  of  Personal  Information  conform,  and  at  all  times  in  the  past  three  years  have  conformed,  to  NORCAL  Privacy  and  Data  Policies  that  govern  the  use  of  such  Personal  Information  in  all  material  respects.  NORCAL has delivered or made available to PRA true, complete, and correct copies  of all NORCAL Privacy and Data Policies that are in effect as of the date hereof or have been in  effect in the past three years.               (d)   Except  as  set  forth  in  Section 5.23(d) of  the  NORCAL  Disclosure  Schedules to the Knowledge of NORCAL, no Personal Information in the possession or control  of NORCAL or any  NORCAL Subsidiary, or held  or Processed by  any  vendor, processor, or  other third party for or on behalf of NORCAL or any NORCAL Subsidiary, has been subject to  any data or security breach or unauthorized access, disclosure, use, loss, denial or loss of use,  alteration, destruction, compromise, or Processing that NORCAL or any NORCAL Subsidiary is  required to report to a Governmental Authority or other Person (a “Security Incident”).               (e)   Except  as  set  forth  in  Section 5.23(e) of  the  NORCAL  Disclosure  Schedules, in the past three years, NORCAL and the NORCAL Subsidiaries have not received  any  written  or,  to  the  Knowledge  of  NORCAL,  oral  notice,  request,  claim,  complaint,  correspondence, or other communication from any Governmental Authority or other Person, and  to the Knowledge of NORCAL there has not been any audit, investigation, enforcement action  (including  any  fines  or  other  sanctions),  or  other  Action  relating  to,  any  actual,  alleged,  or  suspected Security Incident or violation of any Privacy Law involving Personal Information in  the possession or control of NORCAL or any NORCAL Subsidiary, or held or Processed by any  vendor,  processor,  or  other  third  party  for  or  on  behalf  of  NORCAL  or  any  NORCAL  Subsidiary, except as would not, individually or in the aggregate, reasonably be expected to have  a Material Adverse Effect.               (f)   NORCAL and each NORCAL Subsidiary has at all times in the past three  years  implemented  and  maintained,  and  required  all  vendors  that  Process  any  Personal  Information  for  or  on  behalf  of  NORCAL  or  any  NORCAL Subsidiary  to  implement  and  maintain, commercially reasonable security measures, plans, procedures, controls, and programs,  including written information security programs, designed to (A) identify and reasonably address  internal and external risks to the privacy and security of Personal Information in their possession  or control; (B) implement and monitor reasonable and appropriate administrative, technical, and  physical safeguards to protect the integrity and security of such Personal Information and their  software, systems, applications, and websites involved in the Processing of Personal Information;  and (C) provide notification in compliance in all material respects with applicable Privacy Laws  in the case of any Security Incident.                                         53  43126503 v1 

 

            (g)   In  the  past  three  years  NORCAL  and  each  NORCAL  Subsidiary  has  performed or obtained from a third party a security risk assessment and obtained an independent  vulnerability  assessment  performed  by  a  third-party  security  auditor  or  information  security  consultant, in each case to the extent required by applicable Privacy Laws. NORCAL and each  NORCAL  Subsidiary  has  used  commercially  reasonable  efforts  to  address  and  remediate  all  critical or high risk threats and deficiencies identified in each such assessment. Section 5.23(g) of  the NORCAL Disclosure Schedules sets forth a complete and accurate list of each such internal  and external assessment.               (h)   To the Knowledge of NORCAL, none of its  policyholders or customers  are located in the European Union.          5.24  Non-Reliance.   Except  for  the  representations  and  warranties  set  forth  in  this  Article 5, neither NORCAL nor any other Person makes any express or implied representation or  warranty with  respect  to  NORCAL  or  any  of  the  NORCAL  Subsidiaries,  their  respective  businesses  or  with  respect  to  any  other  information  provided  to  PRA  in  connection  with  the  transactions  contemplated hereby, and neither PRA nor any of its  Affiliates has  relied on any  such representation or warranties or other information.  Neither NORCAL nor any other Person  will have or be subject to any liability or indemnification obligation to PRA or any other Person  resulting  from  the distribution to  PRA, or PRA’s  use of, any such information,  including  any  information, documents, projections, forecasts of other material made available to PRA in “data  rooms”  or  management  presentations  in  expectation  of  the  transactions  contemplated  hereby,  unless, and to the extent that, any such information is expressly included in a representation or  warranty contained in this Article 5. Notwithstanding anything to the contrary contained herein,  neither NORCAL nor any other person makes  any  representation  or warranty with  respect  to,  and nothing contained in this Agreement or any other agreement, document or instrument to be  delivered  in  connection  with  the  transactions  contemplated  hereby  is  intended  or  shall  be  construed  to  be  a  representation  or  warranty  (express  or  implied)  of  NORCAL  or  any  of  its  Affiliates, for any purpose of this Agreement or any other agreement, document or instrument to  be  delivered  in  connection  with  the  transactions  contemplated  hereby,  with  respect  to:  (i)  the  adequacy or sufficiency of any of the NORCAL Reserves, (ii) other than as set forth in Section  5.21(d),  whether  or  not  such  NORCAL  Reserves  were  determined  in  accordance  with  any  actuarial, statutory or other standard, (iii) the future profitability of NORCAL or any NORCAL  Subsidiary or (iv) the effect of the adequacy or sufficiency of such Reserves on any “line item”  or asset, liability or equity amount.  Furthermore, PRA acknowledges and agrees that no fact,  condition, development or issue relating to the adequacy or sufficiency of Reserves may be used,  directly  or  indirectly,  to  demonstrate  or  support  the  breach  of  any  representation,  warranty,  covenant  or  agreement  contained  in  this  Agreement  or  any  other  agreement,  document  or  instrument to be delivered in connection with the transactions contemplated hereby.                                    ARTICLE 6                 REPRESENTATIONS AND WARRANTIES OF PRA   Except  as  disclosed  by  PRA  to  NORCAL  in  accordance  with  Section 8.5 of  this  Agreement,  PRA hereby represents and warranties to NORCAL, as of the date hereof or such other date as  specified, as follows:                                         54  43126503 v1 

 

      6.1   Corporate Organization.                 (a)   ProAssurance is a corporation duly organized, validly existing and in good  standing under the laws of the State of Delaware, and has the corporate power and authority to  own or lease all of its properties and assets and to carry on its business as now being conducted.               (b)   PRA Professional is a corporation duly organized, validly existing and in  good  standing  under  the  laws  of  the  State  of  Delaware,  and  has  the  corporate  power  and  authority to own or lease all of its properties and assets and to carry on its business as now being  conducted.          6.2   Authority; No Violation; Consents and Approvals.               (a)   ProAssurance  has  full  corporate  power  and  authority  to  execute  and  deliver  this  Agreement  and  to  consummate  the  transactions  contemplated  by  this  Agreement.   The  execution  and  delivery  of  this  Agreement  and  the  consummation  of  the  transactions  contemplated by this Agreement have been duly and validly approved by the PRA Board, and no  other  corporate  proceedings  on  the  part  of  ProAssurance  (including  any  approval  of  the  stockholders of ProAssurance) are necessary to approve this Agreement and to consummate the  transactions  contemplated  by  this  Agreement.   This  Agreement  has  been  duly  and  validly  executed  and  delivered  by  ProAssurance  and  (assuming  due  authorization,  execution  and  delivery by NORCAL and the receipt of all Requisite Regulatory Approvals) constitutes a valid  and binding obligation of ProAssurance, subject to applicable bankruptcy, insolvency and similar  laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles  of equity.                (b)   PRA Professional  has  full  corporate power and authority to  execute and  deliver  this  Agreement  and  to  consummate  the  transactions  contemplated  by  this  Agreement.   The  execution  and  delivery  of  this  Agreement  and  the  consummation  of  the  transactions  contemplated by this Agreement have been duly and validly approved by the board of directors  of  PRA  Professional,  and  no  other  corporate  proceedings  on  the  part  of  PRA  Professional  (including any approval of the stockholders of PRA Professional) are necessary to approve this  Agreement  and  to  consummate  the  transactions  contemplated  by  this  Agreement.   This  Agreement  has  been  duly  and  validly  executed  and  delivered  by  PRA  Professional  and  (assuming  due  authorization,  execution  and  delivery  by  NORCAL  and  the  receipt  of  all  Requisite Regulatory Approvals) constitutes a valid and binding obligation of PRA Professional,  subject  to  applicable  bankruptcy,  insolvency  and  similar  laws  affecting  creditors’  rights  generally, and subject, as to enforceability, to general principles of equity.               (c)   Neither the execution and delivery of this Agreement by ProAssurance nor  the  consummation  by  ProAssurance  of  the  transactions  contemplated  by  this  Agreement,  nor  compliance  by  ProAssurance  with  any  of  the  terms  or  provisions  of  this  Agreement,  will  (i)  violate  any  provision  of  the  Certificate  of  Incorporation  or  Bylaws  of  ProAssurance  or  (ii)  assuming that all Requisite Regulatory Approvals and all of the consents and approvals referred  to  in  Section 5.5(c) of  this  Agreement  are  duly  obtained,  (x)  violate  any  Applicable  Law  applicable to ProAssurance or any of its properties or assets, or (y) violate, conflict with, result in  a breach of any provision of or the loss of any benefit under, constitute a default (or an event                                         55  43126503 v1 

 

which,  with  notice  or  lapse  of  time,  or  both,  would  constitute  a  default)  under,  result  in  the  termination  of  or  a  right  of  termination  or  cancellation  under,  accelerate  the  performance  required  by,  or  result  in  the  creation  of  any  Lien  upon  any  of  the  properties  or  assets  of  ProAssurance  under,  any  of  the  terms,  conditions  or  provisions  of  any  note,  bond,  mortgage,  indenture,  deed  of  trust,  license,  lease,  agreement  or  other  instrument  or  obligation  to  which  ProAssurance  is  a  party,  or  by  which  it  or  any  of  its  properties  or  assets  may  be  bound  or  affected,  except  (in  the  case  of  clause  (ii)  above)  for  such  violations,  conflicts,  breaches,  terminations, cancellations, accelerations, Liens or defaults which, either individually or in the  aggregate, would not have a Material Adverse Effect on ProAssurance.                (d)   Neither the execution and delivery of this Agreement by PRA Professional  nor the consummation by PRA Professional of the transactions contemplated by this Agreement,  nor compliance by PRA Professional with any of the terms or provisions of this Agreement, will  (i) violate any provision of the Certificate of Incorporation or Bylaws of PRA Professional or (ii)  assuming that all Requisite Regulatory Approvals and all of the consents and approvals referred  to  in  Section 5.5(c) of  this  Agreement  are  duly  obtained,  (x)  violate  any  Applicable  Law  applicable to  PRA Professional  or any of its  properties or assets,  or (y)  violate, conflict  with,  result in a breach of any provision of or the loss of any benefit under, constitute a default (or an  event which, with notice or lapse of time, or both, would constitute a default) under, result in the  termination  of  or  a  right  of  termination  or  cancellation  under,  accelerate  the  performance  required by, or result in the creation of any Lien upon any of the properties or assets of PRA  Professional  under,  any  of  the  terms,  conditions  or  provisions  of  any  note,  bond,  mortgage,  indenture, deed of trust, license, lease, agreement or other instrument or obligation to which PRA  Professional is a party, or by which it or any of its properties or assets may be bound or affected,  except  (in  the  case  of  clause  (ii)  above)  for  such  violations,  conflicts,  breaches,  terminations,  cancellations,  accelerations,  Liens  or  defaults  which,  either  individually  or  in  the  aggregate,  would not have a Material Adverse Effect on PRA Professional.               (e)   Except  for (i) the filing of applications,  notices  and forms  with,  and the  obtaining  of  approvals  from,  the  Insurance  Regulators  pursuant  to  the  Insurance  Laws,  with  respect to the transactions contemplated by this Agreement, (ii) the filing of a notification and  report  form  (the  “HSR  Act  Report”)  with  the  Pre  Merger  Notification  Office  of  the  Federal  Trade Commission and with the Antitrust Division of the Department of Justice (collectively, the  “Pre-Merger  Notification Agencies”)  pursuant  to  the  HSR  Act,  (iii)  any  consents,  authorizations, clearances, orders and approvals required under the Securities Act, the Exchange  Act, and the HSR Act, and (iv) the approval of this Agreement and the transactions contemplated  by  this  Agreement  by  the  requisite  votes  of  the  Record  Date  Policyholders,  no  consents  or  approvals  of,  or  filings  or  registrations  with  any  Governmental  Authority  or  with  any  other  Person  by  ProAssurance  or  any  Subsidiary  of  PRA,  including  without  limitation  PRA  Professional  (the  “PRA  Subsidiaries”),  are  necessary  in  connection  with  the  execution  and  delivery  by  ProAssurance  and  PRA  Professional  of  this  Agreement  or  the  consummation  by  PRA or any PRA Subsidiary of the transactions contemplated by this Agreement.         6.3   SEC Reports; Financial Statements.               (a)   PRA has on a timely basis filed all forms, reports and documents required  to be filed by it with the SEC since December 31, 2016.  Section 6.3(a) of the PRA Disclosure                                         56  43126503 v1 

 

Schedule lists, and PRA has delivered to NORCAL (except to the extent available in full without  redaction on the SEC’s web site through the Electronic Data Gathering, Analysis, and Retrieval  database (“EDGAR”) two days prior to the date of this Agreement) copies in the form filed with  the SEC of (i) PRA’s Annual Reports on Form 10-K for each fiscal year of PRA commencing  after December 31, 2015, (ii) its Quarterly Reports on Form 10-Q for each of the first three fiscal  quarters in each of the fiscal years of PRA commencing after December 31, 2015, (iii) all proxy  statements relating to PRA’s meetings of shareholders (whether annual or special) held, and all  information  statements  relating  to  shareholder  consents,  since  December  31,  2015,  (iv)  all  certifications and statements required by (x) the SEC’s Order dated June 27, 2002 pursuant to  Section  21(a)(1)  of  the  Exchange  Act  (File  No.  4-460),  (y)  Rule  13a-14  or  15d-14  under  the  Exchange Act or (z) 18 U.S.C. §1350 (Section 906 of the Sarbarnes-Oxley Act of 2002 (“SOX”)  with  respect  to  any report referred to  in  clause (i) or (ii) of this  sentence, (v) all other forms,  reports,  registration  statements  and  other  documents  (other  than  preliminary  materials  if  the  corresponding  definitive  materials  have  been  provided  to  NORCAL  pursuant  to  this  Section  6.3(a) filed  by  PRA  with  the  SEC  since  December  31,  2015  (the  forms,  reports,  registration  statements and other documents referred to in clauses (i), (ii), (iii), (iv) and (v) of this sentence  together with any and all amendments thereto are, collectively, the “PRA SEC Reports” and, to  the extent available in full without redaction on the SEC’s web site through EDGAR two days  prior to the date of this Agreement, are, collectively, the “PRA Filed SEC Reports”), and (vi) all  comment letters received by PRA from the staff of the SEC since December 31, 2015 and all  responses to such comment letters by or on behalf of PRA.               (b)   The  PRA  SEC  Reports  (i)  were  prepared  in  accordance  with  the  requirements  of  the  Securities  Act  and  the  Exchange  Act,  as  the  case  may  be,  in  all  material  respects, and (ii) did not at the time they were filed with the SEC, or if thereafter amended, at the  time  of  such  amendment,  contain  any  untrue  statement  of  a  material  fact  or  omit  to  state  a  material  fact  required  to  be  stated  therein  or  necessary  in  order  to  make  the  statements  made  therein,  in  the  light  of  the  circumstances  under  which  they  were  made,  not  misleading.   No  Subsidiary of PRA is or has been required to file any form, report, registration statement or other  document with the SEC.  As used in this Section 6.3, the term “file” shall be broadly construed  to include any manner in which a document or information is furnished, supplied otherwise made  available to the SEC.               (c)   The financial statements of PRA and its Subsidiaries included in the PRA  SEC  Reports  (including  the  related  notes)  complied  or  will  comply  as  to  form,  as  of  their  respective  dates  of  filing  with  the  SEC,  in  all  material  respects  with  applicable  accounting  requirements and the published rules and regulations of the SEC with respect thereto (including,  without limitation, Regulation S-X), were or will be prepared in accordance with GAAP during  the periods and at the dates involved (except as may be indicated in the notes thereto and except,  in  the  case  of  unaudited  statements,  to  the  extent  permitted  by  Regulation  S-X  for  Quarterly  Reports  on  Form  10-Q),  and  fairly present  in  all  material  respects  the  consolidated  financial  condition  of  PRA  and  its  Subsidiaries  at  the  dates  thereof  and  the  consolidated  results  of  operations and cash flows for the periods then ended.  Except (x) as reflected in PRA’s unaudited  balance sheet at September 30, 2019, or liabilities described in any notes thereto (or liabilities for  which neither accrual nor footnote disclosure is required pursuant to GAAP) (the “PRA Balance  Sheet”),  or  (y)  for  liabilities  incurred  in  the  ordinary  course  of  business  since  September  30,  2019  consistent  with  past  practice  or  in  connection  with  this  Agreement  or  the  transactions                                         57  43126503 v1 

 

contemplated  hereby,  neither  PRA  nor  any  PRA  Subsidiary  has  any  material  liabilities  or  obligations of any nature.         6.4   Broker’s  Fees.   Except  as  set  forth  in  Section 6.4 of  the  PRA  Disclosure  Schedule,  none  of  PRA,  the  PRA  Subsidiaries  and  their  respective  officers  and  directors,  has  employed any broker or finder or incurred any liability for any broker’s fees or commissions, or  investment  banker  fees  or  commissions,  or  finder’s  fees  in  connection  with  the  transactions  contemplated by this Agreement.         6.5   Absence of Certain Changes or Events.  Since September 30, 2019, there has  not  been:  (i)  any  change  in  the  financial  condition,  assets,  liabilities,  prospects  (financial  and  otherwise)  or  business  of  PRA  or  any  PRA  Subsidiary  which,  either  individually  or  in  the  aggregate, has had or would have a Material Adverse Effect on PRA; or (ii) any material change  in any method of accounting or accounting principles or practice by PRA, except as required by  GAAP or SAP and disclosed in the notes to the consolidated financial statements of PRA and  PRA Subsidiaries.           6.6   Compliance with Applicable Law.               (a)   PRA  and  the  PRA  Subsidiaries  have  complied  in  all  material  respects  with,  and  are  not  in  default  in  any  material  respect  under  any,  and  have  maintained  and  conducted their respective businesses in all material respects in compliance with, all Applicable  Laws during the last three (3) years.               (b)   Neither PRA nor any PRA Subsidiary is subject to any cease and desist or  other order issued by, or is a party to any written agreement, consent agreement or memorandum  of understanding with, or is a party to any commitment letter or similar written undertaking to, or  is subject to any order or directive by, or has been a recipient of any supervisory letter from, or  since that date, has adopted any board resolutions at the request of any Governmental Authority  that:   (i)  materially  limits  the  ability  of  PRA  or  any  PRA  Subsidiary  to  conduct  any  line  of  business  that  it  currently  conducts,  (ii)  require  any  material  investments  of  PRA  or  any  PRA  Subsidiary  to  be  treated  as  non-admitted  assets,  (iii)  require  divestiture  of  any  material  investments  of  PRA  or  any  PRA  Subsidiary,  (iv)  in  any  manner  imposes  any  material  requirements on PRA or any PRA Subsidiary in respect of risk based capital requirements that  add  to  or  otherwise  modify  the  risk  based  capital  requirements  imposed  under  the  Insurance  Laws, (v) in any manner relate to the ability of PRA or any PRA Subsidiary to pay or declare  dividends or distributions, or (vi) restricts in any material respect the conduct of the business,  credit policies or management of PRA or any PRA Subsidiary (each, whether or not set forth in  the  PRA  Disclosure  Schedule,  a  “PRA  Regulatory  Agreement”),  nor  has  PRA  or  any  of  its  Subsidiaries  been  advised  in  writing  or,  to  PRA’s  Knowledge,  orally  by  any  Governmental  Authority that it is considering issuing or requesting any such PRA Regulatory Agreement.                 (c)   Except as set forth in Section 6.6(c) of the PRA Disclosure Schedule, there  is no pending or, to the Knowledge of PRA, threatened charge by any Governmental Authority  that  PRA  or  any  PRA  Subsidiary  has  violated  any  Applicable  Laws  (including  any  Insurance  Laws),  nor  any  pending  or,  to  the  Knowledge  of  PRA,  threatened  investigation  by  any                                          58  43126503 v1 

 

Governmental Authority with respect to possible violations of any Applicable Laws (including  any Insurance Laws).               (d)   Other  than  as  disclosed  in  PRA’s  annual  proxy  statements,  there  are  no  material  contracts  (other  than  contracts  relating  to  employment),  real  estate  leases,  loans,  guarantees  or  other  arrangements  or  transactions  of  any  nature  between  PRA  or  any  PRA  Subsidiary, on the one hand, and any of their respective officers, directors, or affiliates (as such  term is defined in Rule 405 of the SEC), on the other hand.  PRA has not, since December 31,  2016,  extended  or maintained  credit,  arranged  for  the  extension  of  credit,  or  renewed  an  extension of credit, in the form of a personal loan to or for any director or executive officer (or  equivalent  thereof)  of  PRA  or  any  PRA  Subsidiary.   Section  6.6(d)  of  the  PRA  Disclosure  Schedule identifies each loan or extension of credit maintained by PRA or any PRA Subsidiary  to which the second sentence of Section 13(k)(1) of the Exchange Act applies.               (e)   None of PRA, the PRA Subsidiaries and, to the Knowledge of PRA, any  of their respective current or former officers or directors or current or former employees, agents  or  representatives  have:  (i)  used  any  corporate  funds  for  any  illegal  contributions,  gifts,  entertainment  or  other  unlawful  expenses  relating  to  political  activity,  (ii)  used  any  corporate  funds  for  any  direct  or  indirect  unlawful  payments  to  any  foreign  or  domestic  government  officials or employees, (iii) violated any provision of the Foreign Corrupt Practices Act of 1977,  (iv)  established  or  maintained  any  unlawful  or  unrecorded  fund  of  corporate  monies  or  other  assets,  (v)  made  any  false  or  fictitious  entries  on  the  books  and  records  of  PRA  or  any  PRA  Subsidiary, (vi) made any bribe, rebate, payoff, influence payment, kickback or other unlawful  payment of any nature, or (vi) made any material favor or gift which is not deductible for federal  income tax purposes.  To the Knowledge of PRA, no director or officer of PRA or any PRA  Subsidiary has engaged in any “insider trading” in violation of Applicable Law with respect to  any security issued by PRA.               (f)   PRA  has  no  reason  to  believe  that  any  facts  or  conditions  related  to  its  identity  or  regulatory  status  are  reasonably  likely  to  impede  its  ability  to  promptly  obtain  the  approvals  and  consents  required  to  consummate  the  transactions  contemplated  by  this  Agreement.           6.7   Financial Ability.  Other than the fulfillment or valid waiver of the conditions set  forth  in  Section 9.1 and Section 9.2, the obligations  of PRA hereunder  are not  subject  to  any  conditions  regarding  PRA’s  ability  to obtain  financing  for  the  consummation  of  the  Offer  transaction.   PRA  has,  and  at  the  Purchase  Effective  Time  will  have,  sufficient  immediately  available funds to pay or cause to be paid the Fixed PRA Consideration and PRA’s costs and  expenses in connection with the transactions contemplated by this Agreement.                                    ARTICLE 7                                  COVENANTS         7.1   Conduct of Businesses of NORCAL Prior to the Purchase Effective Time.               (a)   During the period between the date of this  Agreement and the Purchase  Effective  Time,  except  as  expressly  contemplated or  permitted  by  this  Agreement,  NORCAL                                         59  43126503 v1 

 

shall,  and  shall  cause  each  NORCAL  Subsidiary  to:  (a)  conduct  its  business  in  the  ordinary  course  consistent  with  past  practice,  (b)  use  commercially  reasonable  efforts  to  maintain  and  preserve intact its business organization and advantageous business relationships and retain the  services of its key employees and agents, and (c) take no action which would adversely affect or  delay the ability of any party to this Agreement to obtain any Requisite Regulatory Approval for  the  transactions  contemplated  by  this  Agreement  or  to  perform  such  party’s  covenants  and  agreements under this Agreement.               (b)   During the period between the date of this  Agreement and the Purchase  Effective Time, NORCAL shall permit PRA’s senior officers to meet with the Chief Financial  Officer  and  Controller  of  NORCAL  and  officers  of  NORCAL  responsible  for  the  financial  statements, the internal controls, and disclosure controls and procedures of NORCAL to discuss  such  matters  as  PRA  may  deem  reasonably  necessary  or  appropriate  for  PRA  to  satisfy  its  obligations  under  Sections  302,  404  and  906  of  SOX  and  any  rules  and  regulations  relating  thereto.               (c)   NORCAL agrees to consult with PRA with respect to material litigation  against  NORCAL  and  the  NORCAL  Subsidiaries  and  to  provide  information  and  updates  requested by PRA on reserve policies and practices (including the levels of reserves) with respect  to losses and loss adjustment expenses.  PRA and NORCAL shall also consult with respect to the  character, amount and timing of restructuring charges to be taken by each of them in connection  with  the  transactions  contemplated  hereby.   Notwithstanding  anything  herein  to  the  contrary,  nothing in this Section 7.1(c) shall require NORCAL or any of its Affiliates to provide PRA with  any  information  the  disclosure  of  which  would  reasonably  be  expected  to  jeopardize  the  attorney-client or other privilege of it or contravene any Applicable Law or contract in existence  as of the date hereof.         7.2   NORCAL Forbearances. During the period from the date of this Agreement to  the  Purchase  Effective  Time,  except  as  set  forth  in  Section 7.2 of  the  NORCAL  Disclosure  Schedule,  and,  except  as  expressly  contemplated  or  permitted  by  this  Agreement,  NORCAL  shall not, and NORCAL shall not permit any NORCAL Subsidiary to, without the prior written  consent of PRA (which consent will not be unreasonably withheld, conditioned or delayed):               (a)   incur  any  indebtedness  for  borrowed  money  (other  than  short-term  indebtedness incurred on commercially reasonable terms to refinance indebtedness of NORCAL  or any of its Subsidiaries, on the one hand, to NORCAL or any of its Subsidiaries, on the other  hand), or assume, guarantee, endorse or otherwise as an accommodation become responsible for  the obligations of any other individual, corporation or other entity, or make any loan or advance  (it  being  understood  and  agreed  that  incurrence  of  indebtedness  in  the  ordinary  course  of  business shall include entering into repurchase agreements and reverse repurchase agreements);               (b)   redeem,  repay,  discharge  or  defease  any  surplus  note,  unless  such  redemption,  repayment,  discharge  or  defeasance  is  an  express  condition  of  any  Requisite  Regulatory Approval;                                          60  43126503 v1 

 

            (c)   grant any stock options or stock awards or stock appreciation rights or any  other  right  with  respect  to  the  NORCAL  Common  Stock  to be  authorized  under  the  Plan  of  Conversion;               (d)   other  than  paying  dividends  that  have  been  declared  prior  to  the  date  hereof, make, declare or pay any dividend or make any other distribution on or with respect to  insurance policies written by NORCAL or any NORCAL Subsidiary;               (e)   sell,  transfer,  mortgage,  encumber  or  otherwise  dispose  of  any  of  its  material properties or material assets to any Person other than a Subsidiary, or cancel, release or  assign any material indebtedness of any such Person or any material claims held by any such  Person, except (i) in the ordinary course of business consistent with past practice, or (ii) pursuant  to contracts or agreements in force at the date of this Agreement;               (f)   except  pursuant  to  contracts  or  agreements  in  force  at  the  date of  this  Agreement,  make  any  material  non-portfolio  investment  (by  purchase  of  stock  or  securities,  contributions to capital, property transfers, or purchase of any property or assets) in any Person  other than a Subsidiary;               (g)   increase in any manner the compensation of the employees of NORCAL  and the NORCAL Subsidiaries, or pay any bonus or incentive compensation to such employees  outside of the ordinary course of business consistent with past practice; provided that NORCAL  and  the  NORCAL  Subsidiaries  may  make annual  increases  in  the  salaries  and  wages  of  their  employees  in  the  ordinary  course  of  business  and  consistent  with  past  practice  so  long  as  the  aggregate  amount  of  such  increases  in  compensation  on  an  annualized  basis  does  not  exceed  three percent (3%) of the aggregate amount of the compensation paid to the affected employees  in the 12 months preceding the effective date of the increase in compensation;               (h)   pay any pension or retirement allowance not required by any existing plan  or agreement to any of its employees or become a party to, amend (except as may be required by  law)  or  commit  itself  to  any  pension,  retirement,  profit  sharing  or  welfare  benefit  plan  or  agreement or employment agreement with or for the benefit of any employee or accelerate the  vesting of any stock options or other stock based compensation, other than pension funding in  the normal course or as required by Applicable Law;               (i)   settle any claim, action or proceeding involving money damages, except in  the ordinary course of business consistent with past practice; provided, however, that prior to the  settlement  of  any  lawsuit,  claim,  action  or  proceeding  against  NORCAL  or  any  NORCAL  Subsidiary or otherwise in which NORCAL or any NORCAL Subsidiary is a named defendant  involving  a  payment  by  NORCAL  or  any  NORCAL  Subsidiary  in  excess  of  $250,000  or  the  settlement of any ECO, XPL or bad faith claim involving any insurance policy of NORCAL or  any  NORCAL  Subsidiary  involving  a  payment  by  NORCAL  or  any  NORCAL  Subsidiary  in  excess of $250,000, NORCAL will notify PRA of the terms of the proposed settlement and will  consult with PRA regarding the terms of the settlement, but shall not be required to obtain PRA’s  consent to the terms of the settlement (it being acknowledged and agreed that this proviso does  not  apply to  the settlement  of any  claims involving any insurance policy of NORCAL or any  NORCAL Subsidiary not involving ECO, XPL or bad faith claims);                                         61  43126503 v1 

 

            (j)   amend its Organizational Documents, except as provided for in the Plan of  Conversion and this Agreement;               (k)   other than in accordance with its current investment guidelines, restructure  or materially change its investment securities portfolio through purchases, sales or otherwise, or  the manner in which such portfolio is classified or reported;               (l)   offer or sell insurance or reinsurance of any type in any jurisdiction other  than such lines of insurance and reinsurance that it offers and sells on the date of this Agreement  and  other  than  in  those  jurisdictions  where  it  offers  and  sells  such  lines  of  insurance  and  reinsurance on the date of this Agreement;               (m)   take any action that is intended or may reasonably be expected to result in  any of the conditions set forth in Article 9 of this Agreement not being satisfied, except, in every  case, as may be required by Applicable Law;               (n)   take any action that is intended or likely to adversely affect its ability to  perform its covenants and agreements under this Agreement; or               (o)   agree to, or make any commitment to, take any of the actions prohibited  by this Section 7.2; provided, that except for and subject to Section 7.2(l), nothing in this Section  7.2 shall prohibit NORCAL or any NORCAL Insurance Subsidiary from issuing any insurance  policy  or  contract  or  any  rider  or  endorsement  thereto  in  the  ordinary  course  of  business  consistent with past practice.         7.3   PRA Forbearances.  During the period from the date of this Agreement to the  Purchase Effective Time, except as set forth in Section 7.3 of the PRA Disclosure Schedule, and,  except as expressly contemplated or permitted by this Agreement, PRA shall not, and PRA shall  not permit any PRA Subsidiary to, without the prior written consent of NORCAL:               (a)   take any action that is intended or may reasonably be expected to result in  any of the conditions set forth in Article 9 of this Agreement not being satisfied, except, in every  case, as may be required by Applicable Law;               (b)   take any action that is intended or likely to adversely affect its ability to  perform its covenants and agreements under this Agreement; or               (c)   agree to, or make any commitment to, take any of the actions prohibited  by this Section 7.3.         7.4   NORCAL Subsidiaries, Directors and Officers.  At PRA’s request, NORCAL,  to the extent it has the authority to do so, shall cause the officers and directors of the NORCAL  Subsidiaries to resign effective as of the Closing Date and cause successor officers and directors  to be appointed or elected effective as of the Closing Date.                                    ARTICLE 8                           ADDITIONAL AGREEMENTS                                         62  43126503 v1 

 

      8.1   Regulatory Matters.               (a)   The  parties  shall  promptly  make  all  filings  and  notifications  with,  and  shall  use  reasonable  best  efforts  to  promptly  obtain  all  authorizations,  consents,  clearances,  orders and approvals of all Governmental Authorities that may be or become necessary for their  respective  execution  and  delivery  of,  and  the  performance  of  their  respective  obligations  pursuant  to,  and  the  consummation  of  the  transactions  contemplated  by,  this  Agreement,  including as set forth in Section 9.1(b) and Section 9.1(c) below, and shall take all actions as may  be  requested  by  any  such  Governmental  Authorities  to  obtain  such  authorizations,  consents,  clearances,  orders  and approvals; provided, however, that in  no event  shall PRA or any of its  Affiliates be required to agree to (i) (A) the divesture of any business, line of business, or entity  of PRA or its Subsidiaries or NORCAL or its Subsidiaries in each case except for such actions  related  to  de  minimis  assets  (with  such  assets  measured  on  a  scale  relative  to PRA  and  its  Subsidiaries, taken as a whole) or (B) the imposition after the Closing Date of any restrictions to  compete  in  any  jurisdiction  on  PRA  or  any  of  its  Affiliates  or  NORCAL  or  any  of  its  Subsidiaries,  in  each  case,  which  has  or  would  reasonably  be  expected  to  have  a  Material  Adverse Effect on PRA and its Subsidiaries (including NORCAL INC. and its Subsidiares after  the  Closing  Date),  taken  as  a  whole,  or  (ii)  any  requirement  imposed  by  a  Governmental  Authority that would reasonably be expected to have a (A) Material Adverse Effect on NORCAL  or  any  NORCAL  Subsidiary,  (B)  material  adverse  effect  on  the  aggregate  financial  benefits  reasonably expected to be realized by PRA in connection with the transactions contemplated by  this  Agreement,  or  (C)  Material  Adverse  Effect  on  PRA  and  its  Subsidiaries  (including  NORCAL INC. and its Subsidiaries after the Closing Date), taken as a whole.  Neither PRA nor  NORCAL shall take any action that they should be reasonably aware would have the effect of  delaying, impairing or impeding the receipt of any required clearances or approvals.               (b)   In connection with the solicitation of approval of the Conversion by the  Eligible Policyholders and Commissioner, as  contemplated by this  Agreement, NORCAL will  prepare, with PRA’s assistance at NORCAL’s reasonable request, and file with the Department  the  Plan  of  Conversion,  any  supporting  documents  required  by  CA  Insurance  Code  Section  4097.02(b) (the “Supporting Documents”), and any information statement relating to the Plan of  Conversion, the Supporting Documents, the transactions contemplated by this Agreement, and  PRA’s tender offer solicitation materials in accordance with the Insurance Laws, if applicable  (the  “Information  Statement”).   NORCAL  and  PRA,  as  applicable,  will  prepare  the  Plan  of  Conversion  in  accordance  with  Section  2.1  hereof  and  the  provisions  of  CA  Insurance  Code  Section 4097.04.  NORCAL shall use reasonable best efforts to (i) obtain and furnish (with the  reasonable  cooperation  of  PRA)  the  information  (x)  required  to  be  included  in  the  Plan  of  Conversion  by  the  Conversion  Statutes,  (y)  required  to  be  submitted  to  the  Commissioner  as  Supporting  Documents  by  CA  Insurance  Code  Section  4097.02(b)  and  (z)  agreed  to  by  the  parties  to  be  included  in  the  Information  Statement,  and  (ii)  to  obtain  the  approval  of  the  Commissioner of the Plan of Conversion.  PRA and NORCAL will use all reasonable efforts to  respond to the comments of the staff of the Department with respect to the Plan of Conversion,  Supporting  Documents  and  Information  Statement  as  promptly  as  practicable.   As  soon  as  reasonably  practicable  after  the  date  hereof,  NORCAL  shall  mail  or  deliver  the  Plan  of  Conversion,  Supporting  Documents  and  Information  Statement  to  the  Policyholders.   Each  of  NORCAL and PRA   agrees  that the information  provided and to  be provided by NORCAL or  PRA, as the case may be, specifically for use in the Plan of Conversion, Supporting Documents                                         63  43126503 v1 

 

and Information Statement shall not, with respect to the information supplied by such party (i) on  the date upon which the Plan of Conversion, Supporting Documents and Information Statement  is mailed to Eligible Policyholders, (ii) on the commencement date of the Offer, (iii) on the last  date on which Record Date Policyholders  are entitled to  vote on the Proposal, (iv) during the  solicitation period for the Offer, (v) at the Offer Expiration Time, and/or (vi) on the date of the  Closing,  contain  any  untrue  statement  of  a  material  fact  or  omit  to  state  any  material  fact  required to be stated therein or necessary in order to make the statements therein, in light of the  circumstances under which they were made, not misleading.  No less than ten (10) days prior to  the filing of the Plan of Conversion, Supporting Documents and Information Statement with the  Commissioner,  NORCAL  shall  provide  PRA  a  draft  of  the  Plan  of  Conversion,  Supporting  Documents and Information Statement and an opportunity to comment on such drafts.  Each of  PRA and NORCAL agree to promptly correct any such information provided by it which shall  have become false or misleading in any material respect as of the dates described in clauses (i) –  (vi) above and to take all steps necessary to file with the Department and obtain approval of the  Commissioner  for  any  amendment  or  supplement  to the  Plan  of  Conversion,  Supporting  Documents,  and  Information  Statement,  and  to  cause  the  Plan  of  Conversion,  Supporting  Documents,  and  Information  Statement  so  corrected  to  be  distributed  to  the  Eligible  Policyholders to the extent required by Applicable Law.               (c)   NORCAL  shall  prepare  consolidated  financial  statements  of  NORCAL  and  the  NORCAL  Subsidiaries  in  accordance  with  GAAP  for  the  years  ended  December  31,  2017,  December  31,  2018  and  December  31,  2019  and  each  quarterly  period  thereafter  (the  “GAAP Financial Statements”), which financial statements shall include balance sheets at the  end  of  each  period,  and  statements  of  policyholders’/shareholders’  equity,  earnings  and  cash  flow  for  each  of  said  periods,  and  notes  thereto  (except  in  the  case  of  interim  financial  statements).   NORCAL  shall  cause  the  annual  GAAP  Financial  Statements  to  be  audited  by  KPMG  US  LLP  or  such  other  independent  public  accounting  firm  as  may  be  reasonably  acceptable to PRA; provided that such accounting firm shall as part of its engagement agree to  consent  to  the  use  of  its  report  on  the  GAAP  Financial  Statements  in  a  PRA  registration  statement if and to the extent required by SEC regulations.               (d)   Pursuant to the HSR Act, PRA and NORCAL will promptly prepare and  file,  or  cause  to  be  filed,  the  HSR  Act  Report  with  the  Pre-Merger  Notification  Agencies  in  respect of the transactions contemplated by this Agreement, which filing shall comply as to form  with all requirements applicable thereto and all of the data and information reported therein shall  be accurate and complete in all material respects.  Each of PRA and NORCAL will promptly  comply  with  all  requests,  if  any,  of  the  Pre-Merger  Notification  Agencies  for  additional  information  or  documentation  in  connection  with  the  HSR  Act  Report  forms  filed  by  or  on  behalf of each of such parties pursuant to the HSR Act, and all such additional information or  documentation  shall  comply  as  to  form  with  all  requirements  applicable  thereto  and  shall  be  accurate and complete in all material respects.               (e)   [Reserved].               (f)   In furtherance of, and without limitation to, the foregoing, PRA shall (i)  prepare and make its Form A filings with the Department and all other applicable Governmental  Authorities (the “Form A Filings”) and file any required Form E pre-acquisition notices with an                                         64  43126503 v1 

 

Insurance  Regulator  in  any  U.S.  jurisdiction  requiring  that  Form  E  pre-acquisition  notices  be  filed with respect to NORCAL or a NORCAL Insurance Subsidiary (“Form E Filings”) and all  other  documentation  to  effect  all  necessary  notices, reports,  applications  and  other  filings,  as  soon as practicable following the date hereof and (ii) respond promptly to any reasonable request  by  the  Department  or  any  other  Insurance  Regulator,  for  any  additional  information  and  documentary material in connection therewith.               (g)   The  parties  hereto  shall  cooperate  with  each  other  and  use  their  commercially  reasonable  efforts  to  promptly  prepare  and  file  all  necessary  documentation,  to  effect  all  applications,  notices,  petitions  and  filings,  to  obtain  as  promptly as  practicable  all  permits, consents, clearances, approvals and authorizations of all third parties and Governmental  Authorities which are necessary or advisable to  consummate the transactions contemplated by  this Agreement (including the Plan of Conversion), and to comply with the terms and conditions  of all such permits, consents, approvals and authorizations of all such Governmental Authorities.   As permitted by Applicable Law, each party agrees to provide a draft of all applications, notices,  petitions and  filings  (and  each  amendment  or  supplement  thereto),  including  the  Plan  of  Conversion and any Form A or Form E, submitted to Governmental Authorities pursuant to this  Section 8.1 to the other party and to allow the other party three (3) Business Days to review such  and  to  consult  with  the  drafting  party  regarding  any  issues  arising  as  a  result  of  its  review,  application, notice, petition and filing (and each amendment or supplement thereto) prior to the  submission  by  the  drafting  party  of  such  application,  notice,  petition  and  filing  (and  each  amendment or supplement thereto) to the Insurance Regulator.  In addition, PRA and NORCAL  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 Laws relating to the exchange of information, all the  information relating to PRA or its Subsidiaries or NORCAL or its Subsidiaries, as the case may  be, which appear in any filing made with, or written materials submitted to, any third party or  any  Governmental  Authority  in  connection  with  the  transactions  contemplated  by  this  Agreement.  The cooperation and coordination of each party required under this Section 8.1 shall  include giving timely (to the extent permitted by Applicable Law): (i) notices to the other party  with respect to any meeting, hearing, discussion, appearance or contact with any Governmental  Authority  in  connection  with  any  such  material  filing  (including  the  Plan  of  Conversion  and  Form  A),  with  such  notice  being  sufficient  to  provide  the  other  party  with  the  opportunity  to  attend and participate in such meeting, discussion, appearance or contact; and (ii) public notice  of any public hearings regarding the transactions contemplated by this Agreement, and having  the other party’s representatives attend and testify at such public hearings.  In addition, each of  the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree  that  they  will  consult  with  each  other  with  respect  to  the  obtaining  of  all  permits,  consents,  approvals  and  authorizations  of  all  third  parties  and  Governmental  Authorities  necessary  or  advisable to consummate the transactions contemplated by this Agreement and each party will  keep  the  other  apprised  of  the  status  of  matters  relating  to  completion  of  the  transactions  contemplated by this Agreement.  Notwithstanding anything herein to the contrary, nothing in  this  Agreement  shall  require  NORCAL  or  any  of  its  Affiliates  to  provide  PRA  with  any  information  the  disclosure  of  which  would  reasonably  be  expected  to  jeopardize  the  attorney- client or other privilege of it or contravene any Applicable Law or contract in existence as of the  date hereof.                                          65  43126503 v1 

 

            (h)   Each  party  shall  provide  to  the  other,  on  its  request,  (i)  promptly  after  filing thereof, copies of all statements, applications, correspondence or forms filed by such party  prior to the Closing Date with the Insurance Regulators, the SEC and any other Governmental  Authority in connection with the transactions contemplated by this Agreement and (ii) promptly  after delivery to, or receipt from, such authorities, all written communications, letters, reports or  other  documents  relating  to  the  transactions  contemplated  by  this  Agreement;  provided,  however, nothing contained in this Section 8.1 shall require NORCAL to provide PRA with any  presentations, board books, work papers or other materials prepared in support of any appraisal  or other valuation analysis of NORCAL; provided, further that the party sharing such filing or  materials  may  redact  from  such  filing  and  communications  any  competitively  sensitive  information of such party and its Affiliates.               (i)   PRA  and  NORCAL  shall,  upon  request,  furnish  each  other  with  all  information  concerning  themselves,  their  Subsidiaries,  directors,  officers  and  shareholders/policyholders and such other matters as may be reasonably necessary or advisable  in  connection  any  statement,  filing,  notice  or  application  made  by  or  on  behalf  of  PRA,  NORCAL or any of their respective Subsidiaries to any Governmental Authority in connection  with the Conversion and the other transactions contemplated by this Agreement.  NORCAL and  the NORCAL Subsidiaries on the one hand, and PRA on the other, shall reasonably cooperate  with each other and each other’s agents, including public accounting firms, in connection with  the preparation of GAAP financial statements of NORCAL and the NORCAL Subsidiaries with  respect to periods prior to the Closing Date.               (j)   PRA  and  NORCAL  shall consult  with  each  other  with  respect  to  the  obtaining  of  all  approvals  of  Governmental  Authorities  necessary,  proper  or  advisable  to  consummate the transactions contemplated by this Agreement, and each of them shall keep the  other apprised on a prompt basis of the status of matters relating to such approvals, including the  receipt of any communication from any Governmental Authority whose consent or approval is  required for consummation of the transactions contemplated by this Agreement.           8.2   Access to Information; Financial Reporting.               (a)   Upon reasonable prior notice and subject to Applicable Laws relating to  the  exchange  of  information  and  to  the  Confidentiality  Agreement,  dated  July  16,  2018,  respectively  (the  “Confidentiality  Agreement”)  which  is  hereby  incorporated  into  this  Agreement by reference and shall continue in full force and effect until Closing, NORCAL shall  afford  to  the  officers,  employees,  accountants,  counsel  and  other  representatives  of  PRA,  (i)  access,  during  normal  business  hours  during  the  period  prior  to  the  Closing  Date,  to  all  its  properties, books, contracts, commitments and records and (ii) make available such officers and  employees whose assistance and expertise is reasonably necessary to assist PRA in connection  with  PRA’s  preparation  to  integrate  NORCAL’s  and  its  Subsidiaries’  business  and  operations  into PRA’s organization following the Closing Date; provided, however, that such access does  not unreasonably interfere with the operation of the businesses of PRA and the PRA Subsidiaries  or  NORCAL  and  the  NORCAL  Subsidiaries,  as  applicable;  provided,  further,  that  the  independent accountants of PRA or NORCAL, as applicable, shall not be obligated to make any  working papers available to NORCAL and its representatives or PRA and its representatives, as  applicable, unless and until PRA and its relevant representatives or NORCAL and its relevant                                         66  43126503 v1 

 

representatives,  as  applicable,  has  signed  a  customary  confidentiality  and  hold  harmless  agreement relating to such access to working papers in form and substance reasonably acceptable  to such independent accountants.  During such period, each of PRA (and its Subsidiaries) and  NORCAL (and its Subsidiaries) shall make available to the other party a copy of each report,  schedule, registration statement and other document filed or received by it during such period  pursuant to the requirements of federal securities laws or Insurance Laws (other than reports or  documents  which  PRA  or  NORCAL,  as  the  case  may  be,  is  not  permitted  to  disclose  under  Applicable  Law or  by  agreement).   Neither  PRA  (or  its  Subsidiaries)  nor  NORCAL  (or  its  Subsidiaries) shall be required to provide access to or to disclose information where such access  or disclosure would violate or prejudice the rights of PRA or NORCAL, as the case may be, or  their  respective  customers,  jeopardize  the  attorney-client  and  work  product  privileges  of  the  entity  in  possession  or  control  of  such  information  or  contravene  any  Applicable  Law,  order,  judgment,  decree,  fiduciary  duty  or  binding  agreement  entered into  prior  to  the  date  of  this  Agreement.  The parties hereto will make appropriate substitute disclosure arrangements under  circumstances in which the restrictions of the preceding sentence apply.               (b)   Each of PRA and NORCAL agrees to keep confidential, and not divulge  to  any  other  party  or  Person  (other  than  employees  of,  and  attorneys,  accountants,  financial  advisors and other representatives for, any said party who agree to be bound by the terms of the  Confidentiality  Agreement),  any  non-public  documents,  information,  records  or  financial  statements received from the other and, in addition, any and all reports, information or financial  information of the other party obtained through audits or other reviews conducted pursuant to  this  Agreement  (unless  readily ascertainable  from  public  or  published  information,  or  trade  sources,  or  already  known  or  subsequently  developed  by  a  party  independently  of  any  investigation or received from a third party not  under an obligation to the other party to keep  such  information  confidential),  and  to  use  the  same  only  in  connection  with  the  transactions  contemplated by this Agreement; and if the transactions contemplated by this Agreement are not  consummated for any reason, each party agrees to promptly return to the other party all written  materials furnished by the other party, and all copies thereof, and to destroy all documents and  records in its possession containing extracts or summaries of any such non-public information.               (c)   As soon as practicable, but in any event within ninety (90) days following  the end of each calendar quarter which is completed prior to the Closing Date, commencing with  the  quarter  ending  December  31,  2019,  NORCAL  shall  cause  to  be  delivered  to  PRA  the  “Quarter End Report” prepared by NORCAL with respect to such quarter, which report shall  include  (x)  a  SAP  balance  sheet  of  NORCAL  as  of  the  end  of  such  quarter  and  (y)  a  SAP  statement of earnings and policyholders’/shareholders’ equity of NORCAL for the year-to-date  period  ending  the  end  of  such  quarter,  prepared  in  a  manner  consistent  with,  and  in  a  format  comparable to, the statements of earnings and policyholders’/shareholders’ equity referred to in  Section 5.7(a) hereof.               (d)   NORCAL shall provide to PRA a monthly report setting forth each claim,  action or proceeding settled in excess of applicable policy limits, including any ECO, XPL or  bad faith claim settled in excess of applicable policy limits.               (e)   If  this  Section 8.2 conflicts  with  any  provision  of  the  Confidentiality  Agreement, the provisions of this Agreement shall control.                                         67  43126503 v1 

 

      8.3   Special Meeting of, and Recommendation to, Eligible Policyholders.               (a)   After the setting of the public hearing with respect to the Conversion and  the Plan of Conversion by the Commissioner, NORCAL acting through  the NORCAL  Board,  shall  in  accordance  with  Applicable  Law  and  the  NORCAL  Organizational  Documents,  duly  call, give notice of (as required by Applicable Law), convene and hold a Special Meeting for the  purpose of considering and acting upon the approval  and adoption of the Plan of Conversion,  including the adoption of the Articles of Incorporation and Bylaws.  NORCAL shall consider in  good faith the request of PRA to postpone the Special Meeting to allow additional time to solicit  the Eligible Policyholders in accordance with Section 8.3 below.               (b)   NORCAL  shall  solicit  proxies  from  the  Record  Date  Policyholders  for  approval of the Plan of Conversion at the Special Meeting.  In connection with the solicitation of  proxies  from  the  Eligible  Policyholders,  NORCAL  shall,  in  accordance  with  Section 8.1(b)  hereof,  prepare  the  Plan  of  Conversion,  Supporting  Documents  and  Information  Statement  in  accordance with the requirements of Applicable Law subject to review and comment by PRA  prior to furnishing the Plan of Conversion, Supporting Documents and Information Statement to  the Department and the Eligible Policyholders.  Unless prohibited by Applicable Law or by the  Regulatory Authority, the Plan of Conversion, Supporting Documents and Information Statement  shall include the following:                     (i)   the  form  of  proxy  solicited  from  Eligible  Policyholders  will  provide  that  each  Eligible  Policyholder  shall  have  the  preemptive  right  to  acquire  his  or  her  proportionate part of the NORCAL Common Stock within a reasonable time period, and each  Eligible  Policyholder  not  applying  the  foregoing  preemptive  right  will  elect  (or  be  deemed  to  elect  pursuant  to  Section  4097.04(c)  of  the  Code)  to  receive  one  of  the  following  in  the  Conversion:  (A) a contribution certificate as provided in Section 2.1(e)(i); or (B) an amount of  cash in accordance with Section 2.1(e)(ii);                     (ii)  that each Eligible Policyholder will be afforded an opportunity to  elect to receive one of the following in the Conversion: (A) a contribution certificate as provided  in Section 2.1(e)(i); (B) an amount of cash in accordance with Section 2.1(e)(ii); or (C) a number  of shares of NORCAL Common Stock in accordance with Section 2.1(d);                     (iii) that each Eligible Policyholder who is a Stock Subscriber will be  afforded an opportunity to elect to sell all of such Policyholder’s shares of NORCAL Common  Stock to PRA in exchange for the PRA Consideration;                     (iv)  the recommendation of the NORCAL Board that the Record Date  Policyholders vote in favor of the Plan of Conversion (unless the NORCAL Board determines in  its good faith judgment after consultation with its advisors and any Insurance Regulators that a  change in the recommendation is required in order for the NORCAL Board to comply with its  fiduciary obligations);                      (v)   that  the NORCAL  Board  will  recommend  that  the  Eligible  Policyholders elect to receive shares of NORCAL Common Stock in the Conversion and tender  such shares of NORCAL Common Stock pursuant to the terms of the Stock Offer (unless the                                         68  43126503 v1 

 

NORCAL Board determines in its good faith judgment after consultation with its advisors and  any  Insurance  Regulators  that  a  change  in  the  recommendation  is  required  in  order  for  the  NORCAL Board to comply with its fiduciary obligations); and                     (vi)  that NORCAL and PRA shall have the right to mutually agree to  postpone  the  Special  Meeting,  to  extend  the  solicitation  period  and  to  allow  Eligible  Policyholders to revoke their elections prior to the Special Meeting.         8.4   Exemption  from  Registration  of  NORCAL  Common  Stock.   NORCAL  and  PRA understand and agree that the NORCAL Common Stock to be issued pursuant to the Plan  of Conversion and this Agreement will not be registered under the Securities Act or applicable  state securities laws in reliance on exemptions from such registration.  NORCAL and PRA shall  use commercially reasonable efforts to cause the NORCAL Common Stock to be issued pursuant  to available exemptions from registration under the Securities Act and state securities laws.  PRA  shall take no action that would require any such exemption to become unavailable.         8.5   Closing  Date  Disclosure  Schedule.   PRA  shall  update  the  PRA  Disclosure  Schedule (the “Closing Date PRA Disclosure Schedule”) to a date that is no earlier than ten (10)  Business Days prior to the Closing Date and no later than seven (7) Business Days prior to the  Closing Date and shall deliver the Closing Date PRA Disclosure Schedule to NORCAL not less  than three (3) Business Days prior to the Closing Date.  NORCAL shall update the NORCAL  Disclosure Schedule (the “Closing Date NORCAL Disclosure Schedule”) to  a date that is  no  earlier than ten (10) Business Days prior to the Closing Date and no later than seven (7) Business  Days prior to the Closing Date and shall deliver the Closing Date NORCAL Disclosure Schedule  to PRA not less than three (3) Business Days prior to the Closing Date.  The obligation of PRA  to deliver to NORCAL the Closing Date PRA Disclosure Schedule as provided above shall be a  material  obligation  for  purposes  of  Section  9.3(a)  hereof,  and  the  obligation  of  NORCAL  to  deliver to PRA the Closing Date NORCAL Disclosure Schedule shall be a material obligation  for purposes of Section 9.2(a) hereof.  The provisions of this Section 8.5 and any notices by PRA  on the one hand, and  NORCAL on the other, shall not  be deemed in  any way to  constitute a  waiver by the counterparty of the conditions set forth in Article 9 hereof or any of its remedies  under  Article  10  hereof,  nor  shall  any  such  notices  cure  any  breach  of  any  representation  or  warranty which is inaccurate.         8.6   Additional Agreements.                 (a)   In the event that any further action is necessary or desirable to carry out  the purposes  of this  Agreement or to  vest  PRA  or any of its  Subsidiaries  with  full  title to  all  properties,  assets,  rights,  approvals,  immunities  and  franchises  of  any  of  the  parties  to  this  Agreement including the Plan of Conversion, the proper officers and directors of each party to  this Agreement shall take all such necessary action as may be reasonably requested by, and at the  sole expense of, PRA.               (b)   Prior  to  the  Closing  Date,  except  in  connection  with  the  acquisition  of  shares  or  interests  in  mutual  funds  or  exchange-traded  funds,  NORCAL  shall  not  acquire,  directly  or  indirectly,  beneficial  or  record  ownership  of  any  shares  of  PRA  common  stock  or                                          69  43126503 v1 

 

other equity securities of PRA, or any securities convertible into or exercisable for any shares of  PRA common stock or other equity securities of PRA.         8.7   Negotiations with Other Parties.               (a)   So long as this Agreement remains in effect and no notice of termination  has been given under this Agreement, NORCAL shall not authorize or knowingly permit any of  its  representatives, directly or indirectly, to  initiate, entertain, solicit, encourage, engage in,  or  participate in, negotiations with any Person or any group of Persons other than the other party to  this Agreement or any of its Affiliates concerning any Acquisition Proposal (as herein defined)  other than as expressly provided in this Agreement.  NORCAL will promptly inform PRA of any  serious, bona fide inquiry it receives with respect to any Acquisition Proposal and shall furnish to  PRA a description of the terms of a possible transaction, if any (but need not identify the Person,  or group of Persons, making the offer).               (b)   Nothing contained in this Agreement shall prohibit the NORCAL Board  from  either  furnishing  information  to,  or  entering  into  discussions  or  negotiations  with,  any  Person or group of Persons regarding any Acquisition Proposal, or approving and recommending  to the Eligible Policyholders of NORCAL an Acquisition Proposal from any Person or group of  Persons,  if  the  NORCAL  Board  determines  in  good  faith  that  such  action  is  appropriate  in  furtherance  of  the  best  interests  of  the  Policyholders  and  in  order  for  the  NORCAL  Board  to  comply with its fiduciary obligation.  In connection with any such determination: (i) NORCAL  shall direct its representatives, officers and other appropriate personnel to cooperate with and be  reasonably available to consult with any such Person, or group of Persons; (ii) NORCAL will  disclose to PRA that it is furnishing information to, or entering into discussions or negotiations  with,  such  Person  or  group  of  Persons,  which  disclosure  shall  describe  the  terms  thereof  (but  need not identify the Person, or group of Persons making the offer); (iii) prior to furnishing such  information to such Person or group of Persons, NORCAL shall enter into a written agreement  with such Person or group of Persons which provides for, among other things, (A) the furnishing  to  such  Person  or  group  of  Persons  of  information  regarding  NORCAL  that  is  relevant  to  its  ability to finance and otherwise perform its obligations under its Acquisition Proposal, (B) the  confidentiality  of  all  non-public  information  furnished  to  such  Person  or  group  of  Persons  by  NORCAL, and (C) procedures reasonably satisfactory to NORCAL that are designed to restrict  or limit the provision of information regarding NORCAL that could be used to the competitive  disadvantage of NORCAL; (iv) NORCAL will not furnish any non-public information regarding  PRA or the transactions contemplated hereby; and (v) NORCAL will keep PRA informed of the  status of any such discussions or negotiations (provided that NORCAL shall not be required to  disclose to PRA confidential information concerning the business or operations of such Person or  group of Persons).               (c)   As  used  in  this  Agreement,  “Acquisition  Proposal”  means  (i)  any  proposal pursuant to which any Person or group of Persons, other than PRA or NORCAL, would  acquire  or  participate  in  a  merger,  consolidation,  or  other  business combination  involving  NORCAL,  directly  or  indirectly;  (ii)  any  proposal  by  which  any  Person  or  group  of  Persons,  other than PRA or NORCAL, would acquire a substantial equity interest in NORCAL, including  the right to vote 10% or more of the capital stock (following a reorganization or conversion) of  NORCAL entitled to vote thereon for the election of directors; (iii) any acquisition of 10% or                                         70  43126503 v1 

 

more  of  the  assets  of  NORCAL,  other  than  in  the  ordinary  course  of  business;  (iv)  any  acquisition  in  excess  of  10% of  the  outstanding  capital  stock  (following  a  reorganization  or  conversion) of NORCAL, other than as contemplated by this Agreement; (v) any acquisition of  control (as defined under the Insurance Laws) of NORCAL; or (vi) any transaction similar to the  foregoing.         8.8   Directors’ and Officers’ Indemnification and Insurance.                (a)   NORCAL shall use its commercially reasonable efforts, immediately prior  to the Closing, to purchase a single payment, run-off policy or policies of directors’ and officers’  liability  insurance  covering  current  and  former  officers  and  directors  of  NORCAL  and  the  NORCAL Subsidiaries on terms and conditions, including limits, at least as favorable as their  respective directors and officers liability insurance policy in effect on the date of this Agreement,  such policy or policies to become effective at the Purchase Effective Time and remain in effect  for a period of six years after the Purchase Effective Time or the period of the applicable statute  of limitation, if longer (the “Tail Policy”).  If NORCAL is unable to obtain the Tail Policy prior  to Closing, PRA shall use its best efforts to cause the individuals serving as officers and directors  of NORCAL and the NORCAL Subsidiaries prior to the Purchase Effective Time to be covered  for a period of six years from the Purchase Effective Time (or the period of the applicable statute  of limitations, if longer) by the directors’ and officers’ liability insurance policy maintained by  PRA (provided that PRA may substitute therefore policies of the same or greater coverage and  amounts  containing  terms  and  conditions  which  are  at  least  as  favorable  as  their  respective  directors  and  officers  liability  insurance  policy  in  effect  on  the  date  of  this  Agreement)  with  respect to acts or omissions occurring on or prior to the Purchase Effective Time which were  committed by such officers and directors in their capacity as such; provided, however, that in no  event shall the annual premium for any such insurance be more than 300% of the current annual  amount  expended  by  NORCAL  or  the  NORCAL  Subsidiary  (the  “Insurance  Premium  Amount”); and provided further, that if PRA is unable to maintain or obtain the insurance called  for by this Section 8.8, PRA shall use its best efforts to obtain as much comparable insurance as  available for the Insurance Premium Amount.               (b)   In addition to the obligations set forth in Section 8.8(a), PRA shall, and  shall cause NORCAL and each NORCAL Subsidiary to, indemnify, defend and hold harmless  each person who is now, or who has been at any time before the date hereof or who becomes  before the Purchase Effective Time, an officer, director or employee of NORCAL or a NORCAL  Subsidiary  (the  “Indemnified  Parties”)  against  all  losses,  claims,  damages,  costs,  expenses  (including attorney’s fees), liabilities or judgments or amounts that are paid in settlement of or in  connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, or  administrative (each a “Claim”), in which an Indemnified Party is, or is threatened to be made, a  party or witness in whole or in part on or arising in whole or in part out of the fact that such  person is or was a director, officer or employee of NORCAL or a NORCAL Subsidiary if such  Claim  pertains  to  any  matter  of  fact  arising,  existing  or  occurring  at  or  before  the  Purchase  Effective  Time  (including,  without  limitation,  the  Conversion  and  the  other  transactions  contemplated hereby), regardless of whether such Claim is asserted or claimed before, or after,  the Purchase Effective Time, to the fullest extent NORCAL is permitted under Applicable Law  and consistent with NORCAL’s or any NORCAL Subsidiary’s Organizational Documents as in  effect on the date hereof.  PRA shall pay expenses in advance of the final disposition of any such                                         71  43126503 v1 

 

action or proceeding to each Indemnified Party to the full extent provided in NORCAL’s or any  NORCAL Subsidiary’s Organizational Documents or under any agreement of any Indemnified  Party with NORCAL or any NORCAL Subsidiary, in each case in effect as of the date of this  Agreement, or under Applicable Law.  The Indemnified Parties may retain counsel reasonably  satisfactory  to  them;  provided,  however,  that  (A)  unless  the  Indemnified  Party  reasonably  concludes that PRA has a conflict of interest with respect to the Claim, PRA shall have the right  to  assume  the  defense  thereof,  provided  that  PRA  shall  not  effect  any  settlement  without  the  consent of the Indemnified Party unless the settlement requires solely the payment of money by  PRA,  NORCAL  or  any  NORCAL  Subsidiary  and  the  settlement  unconditionally  releases  the  Indemnified  Party  from  all  liability  with  respect  to  the  Claim,  (B)  PRA  shall  be  obligated  pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties except  to the extent representation by a single firm or attorney is, in the absence of an informed consent  by  the  Indemnified  Party,  prohibited  in  the  judgment  of  such  firm  by  ethical  rules  relating  to  lawyers’ conflicts of interest, in which case PRA shall be obligated to pay for counsel for each  Indemnified Party, as applicable, (C) PRA shall not be liable for any settlement effected without  its prior written consent (which consent shall not be unreasonably withheld), (D) PRA shall have  no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction  shall ultimately determine, and such determination shall have become final and nonappealable,  that indemnification of such Indemnified Party in the manner contemplated by this Agreement is  prohibited  by  Applicable  Law  and  (E)  PRA  shall  have  no  obligation  hereunder  to  any  Indemnified  Party  for  which  and  to  the  extent  payment  is  actually  and  unqualifiedly  made  to  such Indemnified Party  under any insurance policy, any other agreement for indemnification or  otherwise.  Any Indemnified Party wishing to claim indemnification under this Section 8.8, upon  learning of any such claim, action, suit, proceeding or investigation, shall notify PRA thereof,  provided that the failure to so notify shall not affect the obligations of PRA under this Section  8.8 except  to  the  extent  such  failure  to  notify  materially prejudices  PRA.  PRA’s  obligations  under this Section 8.8 continue in full force and effect for a period of six years from the Purchase  Effective  Time (or  the  period  of  the  applicable  statute  of  limitations,  if  longer);  provided,  however, that all rights to indemnification in respect of any Claim asserted or made within such  period shall continue until the final disposition of such Claim.  If PRA or any of its respective  successors  or  assigns  (x)  consolidates  with  or  merges  into  any  other  Person  and  is  not  the  continuing or surviving corporation or entity of such consolidation or merger or (y) transfers or  conveys all or substantially all its properties and assets, then, and in each case, PRA shall ensure  that such surviving corporation or entity or the transferees of such properties or assets assume the  obligations set forth in this Section 8.8.  The rights of each Indemnified Party under this Section  8.8  shall  be  in  addition  to  any  rights  such  Indemnified  Party  may  have  under  Organizational  Documents  of  NORCAL  or  any  NORCAL  Subsidiary  or  under  any  agreement  of  any  Indemnified Party with NORCAL or any NORCAL Subsidiary, in each case in effect as of the  date of this Agreement, or under Applicable Law.  These rights shall survive consummation of  the Conversion and the other transactions contemplated by this Agreement and are intended to  benefit, and shall be enforceable by, each Indemnified Party.         8.9   [Reserved].           8.10  Employee Plans.                                            72  43126503 v1 

 

            (a)   From and after the Purchase Effective Time, the NORCAL Benefit Plans  in  effect  as  of the date  of this  Agreement and  at  the Purchase Effective Time shall  remain in  effect  with  respect  to  the  current  and  former  employees  of  NORCAL  and the  NORCAL  Subsidiaries  (the  “NORCAL  Employees”)  covered  by  such  NORCAL  Benefit  Plans  at  the  Purchase Effective Time, until such time as PRA shall otherwise determine.  PRA agrees that it  will honor all NORCAL Benefit Plans in accordance with their terms as in effect at the Purchase  Effective  Time,  subject  to  any  amendment  or  termination  thereof  that  may  be  required  or  permitted  by  the  plans  or  Applicable  Law.   PRA  will  review  all  NORCAL  Benefit  Plans  to  determine whether to maintain, terminate or continue such plans; provided, however, that PRA  will  not  amend  or  terminate  a  NORCAL  Benefit  Plan  with  an  effective  amendment  or  termination  date  prior  to  January  1,  2021,  will  not  amend  or  terminate  the  Medi-Gap  Health  Coverage  for  Officers  or  other  retiree  medical  benefit  arrangements  for  retirees  or  officers  receiving  such  post-retirement  medical  benefit  arrangements  immediately  prior  to  Closing  (provided, however, that for purposes of clarity, nothing in this Section 8.10 shall obligate PRA  or  NORCAL  (following  the  Closing)  to  continue  to  offer  Medi-Gap  Health  Coverage  to  any  officers  or  other  retirees  who  are  not  receiving  or  eligible  to  receive  such  benefits  as  of  the  Closing Date), and will not stop payment on bonus or incentive compensation that (1) is earned  for calendar year 2020 pursuant to a formal written incentive plan that has been disclosed to PRA  and (2) has not been paid prior to January 1, 2021, other than as may be required by Applicable  Law;  provided  that  in  any  event  no  incentive  compensation  described  herein  shall  be  due  or  payable to any NORCAL employee who is not an employee of PRA, NORCAL, or a NORCAL  Subsidiary at the time such compensation ordinarily would be paid in March 2021.  In the event  employee  compensation  and/or  benefits  as  currently  provided  by  NORCAL  or  any  NORCAL  Subsidiary  are  changed  or  terminated  by  PRA,  in  whole  or  in  part,  PRA  shall  provide  any  NORCAL  Employees  who  continue  in  employment  with  PRA  or  any  of  its  Subsidiaries  (“Continuing  Employees”)  with  compensation  and  benefits  that  are,  in  the  aggregate,  substantially similar to the compensation and benefits provided to similarly situated employees  of  PRA  or  applicable  PRA  Subsidiary  (as  of  the  date  any  such  compensation  or  benefit  is  provided).  In the event of any termination of any NORCAL health plan, or consolidation of any  health plan with any PRA health plan, any coverage limitation under the PRA health plan due to  any  pre-existing  condition  shall  be  waived  by  the  PRA  health  plan  to  the  degree  that  such  condition was covered by the NORCAL health plan and such condition would otherwise have  been covered by the PRA health plan in the absence of such coverage limitation.  All NORCAL  employees  who  cease  participating  in  a  NORCAL  health  plan  and  become  participants  in  a  comparable  PRA  health  plan  during  any  plan  year  shall  receive  credit  toward  the  applicable  deductible under the PRA health plan for any amounts paid by the employee under NORCAL’s  health plan during the applicable plan year, upon substantiation, in a form satisfactory to PRA,  that such payments have been made.               (b)   Employees  of  NORCAL  or  any  NORCAL  Subsidiary  who  become  participants in an Employee Plan of PRA shall, for purposes of determining eligibility for and for  any  applicable  vesting  periods  of  such  employee  benefits  only  (and  not  for  benefit  accrual  purposes unless specifically set forth herein) be given credit for meeting eligibility and vesting  requirements in such plans for service as an employee of NORCAL or any predecessor thereto  prior to the Purchase Effective Time; provided, however, that credit for benefit accrual purposes  will  be  given  only  for  purposes  of  PRA  vacation  policies  or  programs.   In  the  event  of  any  termination or consolidation of any NORCAL health plan with any PRA health plan, PRA shall                                         73  43126503 v1 

 

make  available  to  Continuing  Employees  and  their  dependents  employer-provided  health  coverage on substantially the same basis as it provides such coverage to PRA employees.  Unless  a Continuing Employee affirmatively terminates coverage under a NORCAL health plan prior to  the time that such Continuing Employee becomes eligible to participate in the PRA health plan,  or unless a Continuing Employee  and/or a dependent  of a Continuing Employee has  an event  which, under the terms of the NORCAL health plan, results in a loss of coverage (which may  include a sale or other disposition of a NORCAL Subsidiary or substantially all of the business  operations thereof), no coverage of any of the Continuing Employees or their dependents shall  terminate under any of the NORCAL health plans prior to the time such Continuing Employees  and their dependents  become eligible to  participate in  the health plans,  programs  and benefits  common  to  all  employees  of  PRA  and  their  dependents.   In  the  event  of  a  termination  or  consolidation of  any  NORCAL  health  plan,  terminated  NORCAL  employees  and  qualified  beneficiaries  will  have  the  right  to  continued  coverage  under  group  health  plans  of  PRA  in  accordance with Code Section 4980B(f).               (c)   Nothing in this Section 8.10 shall be interpreted as preventing PRA from  terminating the employment of any individual or from amending, modifying or terminating any  Employee Plans of PRA, or any NORCAL Benefit Plans, or any benefits under any Employee  Plans  of  PRA  or  any  NORCAL  Benefit  Plans,  or  any  other  contracts,  arrangements,  commitments or understandings, in accordance with their terms and Applicable Law.               (d)   The  parties  agree  that  the  transactions  contemplated  by  this  Agreement  shall  not  constitute a separation, termination or  severance of  employment  of any  employee of  NORCAL  or  any  of  the  NORCAL  Subsidiaries,  including  for  purposes  of  any  benefit  or  compensation  arrangement,  plan,  policy,  contract  or  practice  that  provides  for  separation,  termination  or  severance  benefits.  The  parties  further  agree  that  the  employment  of  each  employee of NORCAL and the NORCAL Subsidiaries who was such an employee immediately  prior  to  the  Closing  shall  continue,  uninterrupted,  immediately  after  the  Closing;  provided,  however, that this Section 8.10(d) shall not apply to executives or other employees of NORCAL  or a NORCAL Subsidiary if the executive or employee is a party to an agreement that provides  certain benefits upon a change in control of NORCAL that occurs upon Closing.  The rights and  obligations set forth in this Section 8.10(d) shall inure solely to the benefit of the parties hereto  and shall not create any rights in any employee as a third-party beneficiary.               (e)   Except as described in Section 8.10(d), if within the first ninety (90) days  of the Closing Date (the “Post-Closing Employment Period”) PRA terminates without cause the  employment  of  an  employee  who  was  employed  by  NORCAL  or  any  NORCAL  Subsidiary  immediately  prior  to  the  Closing,  PRA  shall  pay  and/or  provide  to  such  terminated  employee  compensation and benefits to which such employee was entitled for a period equal to the number  of days remaining in the Post-Closing Employment Period from the date of such termination (the  “Post-Closing Severance”); provided, however, that if such terminated employee is eligible to  receive  severance  in  accordance  with  the  severance  plan  set  forth  in  Section  8.10(e)  of  the  NORCAL  Disclosure  Schedule  (the  “NORCAL/PRA  Severance  Plan”),  such  terminated  employee  shall  receive  severance  in  accordance  with  the  NORCAL/PRA  Severance  Plan  and  shall  not  receive  any  Post-Closing  Severance  if  the  NORCAL/PRA  Severance  Plan  provides  greater  benefits  than  the  Post-Closing  Severance.  Notwithstanding  the  foregoing,  (i)  nothing  herein is intended to prevent the termination of any employee for misconduct and (ii) PRA shall                                         74  43126503 v1 

 

not, and shall cause NORCAL and the NORCAL Subsidiaries not to, take any action within the  Post-Closing Employment Period that could result in WARN Act liability.         8.11  ProAssurance  Board  of  Directors.   NORCAL  may  nominate  two  individuals  (the  “NORCAL  Nominees”),  at  least  one  of  whom  is  a  physician,  for election  as  directors  of  ProAssurance.   The  NORCAL  Nominees  shall  be  vetted  by  the  ProAssurance  Nominating  Corporate Governance Committee and in the event either or both of such individuals does not  satisfy the criteria for service on the PRA Board in the reasonable judgment of the ProAssurance  Nominating  Corporate  Governance  Committee  then  NORCAL  may  nominate  alternative  individuals  as  NORCAL  Nominees  who  satisfy  such  criteria.   ProAssurance  shall  cause  the  NORCAL Nominees to be elected as directors of ProAssurance promptly after the Closing Date.   In  accordance with  the Bylaws of ProAssurance, the NORCAL Nominees  will be slotted into  one of the three director classes and will serve on the PRA Board for the remainder of the term  of the class into which he or she has been slotted (the “Initial Term”); provided, however, that at  least  one  of  the  NORCAL  Nominees  shall  have  an  Initial  Term  of  at  least  two  (2)  years  following the Closing Date.  After the Initial Term, each NORCAL Nominee shall be eligible for  nomination for a term of three (3) years, provided that he or she (i) consents to being named as a  director  in  the  proxy  statement  of  ProAssurance  for  such  annual  meeting  and  to  serving  as  a  director of ProAssurance, (ii) provides such information relating to him or her as is required to  be  disclosed  in  such  proxy  statement  under  Regulation  14A  of  the  Exchange  Act,  and  (iii)  qualifies  as  an  independent  director  under  the  policy  established  by  the  PRA  Board  for  determining director independence.  If the NORCAL Nominees are nominated for election to a  three-year term, the PRA Board shall recommend to the stockholders of ProAssurance that they  vote  for  the  election  of  the  NORCAL  Nominees  as  directors  of  ProAssurance  in  the  proxy  statement  for  the  meeting  of  stockholders  at  which  the  election  will  occur.   The  NORCAL  Nominees may serve additional three-year terms subject to the rules and nomination procedures  generally applicable to all ProAssurance directors.                                    ARTICLE 9                            CONDITIONS PRECEDENT         9.1   Conditions to Each Party’s Obligation.  The respective obligation of each party  to  consummate  the  transactions  contemplated  by  the  Plan  of  Conversion  and  this  Agreement  shall be subject to the satisfaction of the following conditions:               (a)   The  Plan  of  Conversion,  including  the  Articles  of  Incorporation  and  Bylaws  and  the  issuance  of  the  NORCAL  Common  Stock  as  herein  contemplated,  shall  have  been approved and adopted by at least two-thirds of the NORCAL Board and by at least two- thirds affirmative vote of the Record Date Policyholders of NORCAL entitled to vote thereon.               (b)   All  Requisite  Regulatory  Approvals  and  all  approvals  referred  to  in  Section  5.5(c)  of  this  Agreement  shall  have  been  obtained  and  shall  remain  in  full  force  and  effect and all statutory waiting periods in respect thereof shall have expired or been terminated.               (c)   No order, injunction or decree issued by any Governmental Authority of  competent jurisdiction or other legal restraint or prohibition preventing the consummation of the                                         75  43126503 v1 

 

Plan of Conversion or any of the transactions contemplated by this Agreement shall be in effect.  No  statute,  rule,  regulation,  order,  injunction  or  decree  shall  have  been  enacted,  entered,  promulgated or enforced by any Governmental Authority which prohibits, materially restricts or  makes illegal consummation of the Plan of Conversion, including the transactions contemplated  by this Agreement.               (d)   NORCAL  has  been  converted  from  a  mutual  insurance  company  to  a  stock  insurance  company  in  accordance  with  the  Applicable  Law  of  the  State  of  California,  including  the  Conversion  Statute  and  the  shares  of  NORCAL  Common  Stock  issued  in  connection with the Conversion shall be duly authorized and validly issued.          9.2   Conditions to Obligation of PRA.  The obligation of PRA to consummate the  transactions contemplated by the Plan of Conversion and this Agreement is also subject to the  satisfaction or waiver by PRA of the following conditions:               (a)   NORCAL  shall  have  performed  in  all  material  respects  all  material  obligations required to be performed by it under this Agreement at or prior to the Closing Date,  and PRA shall have received a certificate signed on behalf of NORCAL by the Chief Executive  Officer and Chief Financial Officer of NORCAL to such effect.               (b)   (i) The representations and warranties of NORCAL (other than in Section  5.1(a), Section 5.2(a) and (c), Section 5.4, Section 5.5(a) and (d) and Section 5.8) contained in  Article  5  of  this  Agreement  shall  be  true  and  correct  on  and  as  of  the  Closing  Date  without  giving  effect  to  any  limitation  as  to  “materiality”,  “in  all  material  respects”,  “in  any  material  respect” or “Material Adverse Effect” set forth in such representations and warranties as if made  on and as of such date (except to the extent that any such representation or warranty has by its  terms been made as of a specific date in which case such representation and warranty shall have  been true and correct as of such specific date), except where the failure of such representations  and warranties to be so true and correct would not reasonably be expected to have, individually  or  in  the  aggregate,  a  Material  Adverse  Effect  on  NORCAL,  and  (ii)  the  representations  and  warranties of NORCAL set forth in Section 5.1(a), Section 5.2(a) and (c), Section 5.4, Section  5.5(a) and (d) and Section 5.8 shall be true and correct on and as of the Closing Date.  The Chief  Executive Officer and Chief Financial Officer of NORCAL shall deliver, on behalf of NORCAL,  a certificate to PRA to such effect.               (c)   NORCAL  shall  not  have  suffered  a  Material  Adverse  Effect  and  there  shall have been no occurrence, circumstance or combination thereof (whether arising on or after  the  date  hereof),  which,  as  of  the  Closing  Date,  is  reasonably  likely  to  result  in  a  Material  Adverse  Effect  on  NORCAL  and  PRA  shall  have  received  a  certificate  signed  on  behalf  of  NORCAL  by  the  Chief  Executive  Officer  and  Chief  Financial  Officer  of  NORCAL  to  such  effect.               (d)   The  Offer  Conditions  set  forth  in  Section  3.1(b)(ii)  and  (iii)  shall  have  been satisfied.                                          76  43126503 v1 

 

            (e)   NORCAL shall have deposited the items required to be deposited by it in  trust with the Exchange Agent for the benefit of the Policyholders as required by Section 4.4(a)  of this Agreement.         9.3   Conditions  to  Obligation  of  NORCAL.   The  obligation  of  NORCAL  to  consummate the transactions contemplated by the Plan of Conversion and this Agreement is also  subject to the satisfaction or waiver by NORCAL of the following conditions:               (a)   PRA shall have performed in all material respects all material obligations  required  to  be  performed  by  it  under  this  Agreement  at  or  prior  to  the  Closing  Date,  and  NORCAL  shall  have  received  a  certificate  signed  on  behalf  of  PRA  by  the  Chief  Executive  Officer and the Chief Financial Officer of PRA to such effect.               (b)   PRA shall have deposited the items required to be deposited by it in trust  with  the  Exchange  Agent  for  the  benefit  of  the  Policyholders  and  Selling  Stockholders,  as  applicable, as required by Section 4.4(b) of this Agreement.               (c)   The representations and warranties of PRA contained in Article 6 of this  Agreement shall be true and correct on and as of the Closing Date without giving effect to any  limitation as to “materiality”, “in all material respects”, “in any material respect” or “Material  Adverse Effect” set forth in such representations and warranties as if made on and as of such  date (except to the extent that any such representation or warranty has by its terms been made as  of a specific date in which case such representation and warranty shall have been true and correct  as of such specific date), except where the failure of such representations and warranties to be so  true and correct would not reasonably be expected to have, individually or in the aggregate, a  Material Adverse Effect on PRA.  NORCAL shall have received a certificate signed on behalf of  PRA by the Chief Executive Officer and Chief Financial Officer of PRA to such effect.                                    ARTICLE 10                        TERMINATION AND AMENDMENT         10.1  Termination.   This  Agreement  may  be  terminated  at  any  time  prior  to  the  Closing Date, whether before or after approval of the matters presented in connection with the  Plan of Conversion by the Record Date Policyholders of NORCAL:               (a)   by mutual consent of PRA and NORCAL in a written instrument, if the  PRA Board and the NORCAL Board so determine to terminate this Agreement by an affirmative  vote of a majority of the members of the PRA Board or the NORCAL Board, as the case may be;               (b)   by either PRA or NORCAL if (i) any Governmental Authority which must  grant  a  Requisite  Regulatory  Approval  has  denied  approval  of  the  Plan  of  Conversion  or  approval  of  the  Form  A  as  herein  contemplated,  and  such  denial  has  become final  and  nonappealable or any Governmental Authority of competent jurisdiction shall have issued a final  nonappealable  order  permanently  enjoining  or  otherwise  prohibiting  the  consummation  of  the  transactions contemplated by this Agreement, and (ii) the PRA Board or the NORCAL Board, as  the case may be, decides to terminate this Agreement by an affirmative vote of a majority of the  directors of PRA or a majority of the members of the NORCAL Board, as the case may be;                                         77  43126503 v1 

 

            (c)   by  either  PRA  or  NORCAL  (provided  that  the  terminating  party  is  not  then in material breach of any representation, warranty, covenant or other agreement contained  in  this  Agreement)  if  (i)  (x)  there  shall  have  been  a  breach  of  any  of  the  representations  and  warranties set forth in this Agreement on the part of the other party (without giving effect to any  limitation as to “materiality” or “Material Adverse Effect” set forth in such representations and  warranties), which breach is not cured within forty-five (45) days following written notice to the  party committing such breach, or which breach, by its nature or timing, cannot be cured prior to  the  date  specified  in  Section 10.1(i),  and  (y)  such  material  breach  or  breaches  of  the  representations  and  warranties,  individually  or  in  the  aggregate,  has  resulted  in  a  Material  Adverse Effect on such party and its Subsidiaries taken as a whole and (ii) the non-breaching  party decides to terminate this Agreement by an affirmative vote of a majority of the members of  its entire board of directors;               (d)   by PRA upon written notice to NORCAL if (i) the NORCAL Board shall  indicate  in  writing  to  PRA  that  the  NORCAL  Board  is  unwilling  or  unable  (other  than  in  connection with the failure to satisfy the conditions set forth in Sections 9.1(b) and (c) hereof) to  adopt  the  Plan  of  Conversion;  (ii)  the  NORCAL  Board  is  unwilling  or  unable  (other  than  in  connection with the failure to satisfy the conditions set forth in Sections 9.1(b) and (c) hereof) to  recommend  to  its  Record  Date  Policyholders  that  they  approve  and  adopt  the  Plan  of  Conversion; (iii) the NORCAL Board is unwilling or unable (other than in connection with the  failure to satisfy the conditions set forth in Sections 9.1(b) and (c) hereof) to recommend to the  Eligible  Policyholders  the  Stock  Offer;  or  (iv)  after  recommending  that  its  Record  Date  Policyholders approve and adopt the Plan of Conversion or recommending the Stock Offer to the  Eligible Policyholders, the NORCAL Board shall have withdrawn, modified or amended such  recommendation in any respect materially adverse to PRA, without PRA’s prior written consent  (each  an  “NORCAL  Recommendation  Event”);  provided  that  any such  notice  of  termination  must be provided to NORCAL not later than ten (10) Business Days after the later of the date  PRA shall have been advised by NORCAL in writing of a NORCAL Recommendation Event, or  such later date as may be agreed upon by PRA and NORCAL in writing;               (e)   by  PRA  upon  written  notice  to  NORCAL,  if  a  NORCAL  Acquisition  Event (as herein defined) has occurred;               (f)   by  either  PRA  or  NORCAL  if  (i)  a  meeting  of  the  Record  Date  Policyholders  has  been  duly  held  for  purposes  of  voting  on  the  Plan  of  Conversion  and  the  transactions contemplated by this Agreement, and (ii) approval of the Record Date Policyholders  required for the consummation of the Plan of Conversion shall not have been obtained by reason  of the failure to obtain the required vote at such duly held meeting of Record Date Policyholders  or at any adjournment or postponement thereof;               (g)   by PRA if the condition set forth in Section 3.1(b)(iii) is not satisfied;               (h)   by  PRA  if  on  the  Closing  Date  the  NORCAL  Disclosure  Schedule  discloses  any  Material  Adverse  Effect  on  NORCAL  or  any  change  from  the  NORCAL  Disclosure Schedules which has, or is reasonably likely to have, a Material Adverse Effect on  NORCAL;                                          78  43126503 v1 

 

            (i)   by written notice from NORCAL to PRA, or from PRA to NORCAL, if  the Closing does not occur on or before the two-year anniversary of the date of this Agreement  (the “Outside Date”) for any reason other than breach of this Agreement by the party giving such  notice; provided, however, that if the Offer extends beyond the two-year anniversary of the date  of this Agreement pursuant to Section 3.1(d), then the Outside Date shall be extended until the  expiration of the Offer; or               (j)   by  NORCAL  upon  the  occurrence of  a  NORCAL  Acquisition  Event  or  NORCAL Recommendation Event.         10.2  Effect of Termination.  In the event of termination of this Agreement by either  PRA  or  NORCAL  as  provided  in  Section 10.1 of  this  Agreement,  (i)  this  Agreement  shall  forthwith become void and have no effect, except that Sections 8.2(b) (Access to Information),  10.2 (Effect of Termination), 10.5 (Liquidated Damages; Termination Fee), 11.1 (Non-survival  of  Representations,  Warranties  and  Agreements), 11.2 (Expenses), 11.3 (Notices), 11.5  (Assignment; No Third Party Beneficiaries), 11.6 (Presumptions) 11.7 (Exhibits and Schedules),  11.8 (Interpretation),  11.10  (Entire  Agreement), 11.11 (Governing  Law), 11.12 (Severability),  and 11.13 (Publicity) of this Agreement shall survive any termination of this Agreement, and (ii)  neither  PRA  or NORCAL,  nor  any  of  their  respective  Subsidiaries  or  any  of  the  officers  or  directors of any of them shall have any liability of any nature whatsoever under this Agreement,  or  in  connection  with  the  transactions  contemplated  by  this  Agreement,  except  as  otherwise  provided in Section 10.5 of this Agreement; provided, however, that notwithstanding anything to  the  contrary  contained  in  this  Agreement,  neither  PRA  nor  NORCAL  shall  be  relieved  or  released from any liabilities or damages arising out of its willful breach of any provision of this  Agreement.         10.3  Amendment.  This Agreement may not be amended except by an instrument in  writing signed on behalf of each of the parties hereto.  Subject to the previous sentence and in  compliance  with  Applicable  Law,  this  Agreement  may  be  amended  by  the  parties  hereto,  by  action taken or authorized by the PRA Board and the NORCAL Board, at any time before or  after  approval  of  the  matters presented  in  connection  with  the  Plan  of  Conversion  and  this  Agreement  by  the  Eligible  Policyholders  of  NORCAL; provided,  however,  that  after  any  approval  of  the  Plan  of  Conversion  and  transactions  contemplated  by  this  Agreement  by  the  Eligible Policyholders of NORCAL, there may not be, without further approval of such Eligible  Policyholders,  any  amendment  of  this  Agreement  which  changes  or  otherwise  modifies  or  amends the amount or the form of the Conversion Consideration or the PRA Consideration other  than as contemplated by this Agreement.         10.4  Extension;  Waiver.   At  any  time  prior  to  the  Closing  Date,  the  parties  to  this  Agreement  may,  to  the  extent  permitted  by  Applicable  Law,  (a)  extend  the  time  for  the  performance of any of the obligations or other acts of the other parties to this Agreement, (b)  waive any inaccuracies in the representations and warranties contained in this Agreement or in  any document delivered pursuant hereto, or (c) waive compliance with any of the agreements or  conditions contained in this Agreement; provided, however, that after any approval of the Plan of  Conversion and the transactions contemplated by this Agreement by the Eligible Policyholders  of  NORCAL,  there  may  not  be,  without  further  approval  of  such  Eligible  Policyholders,  any  extension  or  waiver  of  this  Agreement  or  any  portion  thereof  which  reduces  the  amount  or                                         79  43126503 v1 

 

changes  the  form  of  the  Conversion  Consideration  or  the  PRA  Consideration  other  than  as  contemplated by this Agreement.  Any agreement on the part of a party to this Agreement to any  such extension or waiver shall be valid only if set forth in a written instrument signed on behalf  of  such  party,  but  such  extension  or  waiver  or  failure  to  insist  on  strict  compliance  with  an  obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with  respect to, any subsequent or other failure.         10.5  Liquidated  Damages;  Termination  Fee.   Notwithstanding  anything  to  the  contrary  contained  in  this  Agreement,  in  the  event  that  any  of  the  following  events  or  circumstances  shall  occur,  NORCAL  shall,  within  ten  (10)  Business  Days  after  notice  of  the  occurrence thereof by PRA, pay to PRA the sum equal to the Termination Fee (which the parties  agree and stipulate as reasonable and full liquidated damages and reasonable compensation for  the involvement of PRA in the transactions contemplated in this Agreement and is not a penalty  or forfeiture): (i) PRA shall terminate this Agreement pursuant to Section 10.1(d) or (e) (other  than, for the avoidance  of doubt,  a termination relating  to  the conditions  set  forth  in  Sections  9.1(b)  and  (c)  not  being  satisfied);  (ii)  NORCAL  shall  terminate  this  Agreement  pursuant  to  Section 10.1(j) (other than, for the avoidance of doubt, a termination relating to the conditions set  forth in Sections 9.1(b) and (c) not being satisfied); or (iii) if the Record Date Policyholders of  NORCAL fail to hold the Special Meeting as required by Section 8.3 of this Agreement within  120 days after the Commissioner issues his decision and order approving the Plan of Conversion.   For purposes of this Agreement a “NORCAL Acquisition Event” shall mean that NORCAL shall  have authorized, recommended, approved, or entered into an agreement with any Person (other  than any of the parties to this Agreement) to effect an Acquisition Proposal.  Upon the making  and receipt of such payment under this Section 10.5, NORCAL shall have no further obligation  of any kind  under this  Agreement  and PRA shall  not  have any further  obligation of any kind  under this Agreement, except in each case under Section 10.2 of this Agreement, and no party  shall have any liability for any breach or alleged breach by such party of any provision of this  Agreement.                                    ARTICLE 11                             GENERAL PROVISIONS         11.1  Non-survival of Representations,  Warranties  and Agreements.  None of the  representations, warranties, covenants and agreements of NORCAL or PRA in this Agreement or  in any instrument delivered by NORCAL or PRA pursuant to this Agreement shall survive the  Closing  Date,  except  as  otherwise  provided  in  Section 10.2 of  this  Agreement  and  except  for  those covenants and agreements contained in this Agreement and in any such instrument which  by their terms apply in whole or in part after the Closing Date.         11.2  Expenses.  Except as otherwise expressly provided in this Agreement, all costs  and expenses incurred in connection with this Agreement and the transactions contemplated by  this Agreement shall be paid by the party incurring such expense; provided, however, that (a)  NORCAL  shall  pay  all  expenses  relating  to  the  approval  of  the  Plan  of  Conversion  by  the  Commissioner, (b) PRA shall pay all expenses in connection with the approval of the Form A as  contemplated by this Agreement by the Commissioner, and any other required filings with any                                          80  43126503 v1 

 

Insurance Regulator, and (c) the cost of the HSR Act filing fee shall be borne 70% by PRA and  30% by NORCAL.         11.3  Notices.  All notices and other communications hereunder shall be in writing and  shall  be  deemed  given  if  delivered  personally,  by  facsimile  or  email  (with  confirmation)  followed  by  delivery  of  an  original  via  overnight  courier  service,  mailed  by  registered  or  certified  mail  (return  receipt  requested)  or  delivered  by  an  overnight  courier  service  (with  confirmation) to the parties at the following addresses (or at such other address for a party as  shall be specified by like notice):         if to PRA, to:                     ProAssurance Corporation                    100 Brookwood Place                    Birmingham, Alabama 35209                    Attention:   Chief  Executive  Officer,  copy  to  Corporate                    Secretary                    Fax: (205) 877-4405                    Email: edwardrand@proassurance.com                            with copies to:                                        Burr & Forman LLP                    420 N. 20th Street, Suite 3400                    Birmingham, Alabama 35203                    Attention:  Edward R. Christian, Esq.                    Fax: (205) 458-5100                    Email: echristian@burr.com                            and                                        if to NORCAL, to:                     NORCAL Mutual Insurance Company                    575 Market Street, Suite 1000                    San Francisco, CA 94105                    844.4NORCAL                    Attention:  Chief Executive Officer                    Fax: (415) 520-5570                    Email: sdiener@norcal-group.com          with copies to:                                        McDermott Will & Emery LLP                    444 West Lake Street, Suite 4000                    Chicago, Illinois 60606                    Attention: Robert K. Clagg                                         81  43126503 v1 

 

                  Fax: 312-277-1936                    Email: rclagg@mwe.com           11.4  Further Assurances.  Prior to the Closing, at the reasonable request of any party  to  this  Agreement,  the  other  parties  shall  execute,  acknowledge  and  deliver  such  other  documents and/or instruments as may be reasonably required by the requesting party to carry out  the purposes of this Agreement.  In the event any party to this Agreement shall be involved in  litigation, threatened litigation or government inquiries with respect to a matter covered by this  Agreement,  every  other  party  to  this  Agreement  shall  also  make  available  to  such  party,  at  reasonable times and subject to the reasonable requirements of its own businesses, such of its  personnel  as  may  have  information  relevant  to  such  matters;  provided  that  such  party  shall  reimburse the providing party for its reasonable costs for employee time incurred in connection  therewith if more than one (1) Business Day is required.           11.5  Assignment; No Third Party Beneficiaries.  Neither this Agreement nor any of  the  rights,  interests  or  obligations,  shall  be  assigned  by  any  of  the  parties  to  this  Agreement  (whether by operation of law or otherwise) without the prior written consent of the other parties  to  this  Agreement.   Subject  to  the  preceding  sentence,  this  Agreement  will  be  binding  upon,  inure  to  the  benefit  of  and  be  enforceable  by  the  parties  and  their  respective  successors  and  assigns.  Except  as  otherwise expressly set  forth herein,  including, without  limitation, Section  8.8, this Agreement (including the documents and instruments referred to in this Agreement) is  not intended to confer upon any person other than the parties to this Agreement any rights or  remedies under this Agreement.         11.6  Presumptions.   It  is expressly  acknowledged  and  agreed  that  all  parties  have  been  represented  by  counsel  and  have  participated  in  the  negotiation  and  drafting  of  this  Agreement,  and  that  there  shall  be  no  presumption  against  any  party  on  the  ground  that  such  party was responsible for preparing this Agreement or any part of it.         11.7  Exhibits  and  Schedules.   Each  of  the  Exhibits  and  Schedules  referred  to  in,  and/or attached to, this Agreement is an integral part of this Agreement and is incorporated in  this Agreement by this reference.         11.8  Interpretation.   When  a  reference  is  made  in  this  Agreement  to  Sections,  Exhibits  or  Schedules,  such  reference  shall  be  to  a  Section  of  or  Exhibit  or  Schedule  to  this  Agreement  unless  otherwise  indicated.   The  headings  contained  in  this  Agreement  are for  reference  purposes  only  and  shall  not  affect  in  any  way  the  meaning  or  interpretation  of  this  Agreement.  Whenever  the  words  “include,”  “includes”  or  “including”  are  used  in  this  Agreement, they shall be deemed to be followed by the words “without limitation”.  Whenever  the context may require, any pronoun shall include the corresponding masculine, feminine and  neuter forms.  References to “funds,” “US dollar,” “dollars,” “US$” or “$” in this Agreement are  to the lawful currency of the United States of America.  No provision of this Agreement shall be  construed to require PRA, NORCAL or any of their respective Subsidiaries or Affiliates to take  any action which would violate any Applicable Law, rule or regulation.                                          82  43126503 v1 

 

      11.9  Counterparts.  This Agreement may be executed in counterparts, each of which  shall be deemed an original and all of which shall be considered one and the same agreement and  shall become effective when counterparts have been signed by each of the parties and delivered  to the other parties, it being understood that all parties need not sign the same counterpart.  A  signed  copy  of  this  Agreement  delivered  by  facsimile,  email  or  other  means  of  electronic  transmission shall be deemed to have the same legal effect as delivery of the original signed copy  of this Agreement.         11.10 Entire  Agreement.   This  Agreement  (including  the  documents  and  the  instruments  referred  to  in  this  Agreement)  constitutes  the  entire  agreement  and  supersedes  all  prior agreements and understandings, both written and oral, among the parties with respect to the  subject matter of this Agreement.         11.11 Governing Law; Submission to Jurisdiction.                 (a)   This Agreement shall be governed and construed in accordance with the  laws  of  the  State  of  Delaware,  without  regard  to  any  applicable  conflicts  of  law  principles,  except that the Plan of Conversion shall be effected in accordance with and governed by the laws  of  the  State  of  California,  and  the  insurance  laws  of  the  State  of  California  as  they  relate  to  NORCAL shall govern to the extent the application of such laws would be inconsistent with or in  contravention of the laws of the State of Delaware.                (b)   Each of the parties hereto irrevocably agrees that any Action with respect  to  this  Agreement  and  the  rights  and  obligations  arising  hereunder,  or  for  recognition  and  enforcement of any judgment in respect of this Agreement and the rights and obligations arising  hereunder brought  by  any  other party  hereto  or its  successors or assigns  shall  be brought  and  determined exclusively in the Court of Chancery of the State of Delaware, or in the event (but  only in the event) that such court does not have subject matter jurisdiction over such Action, in  the federal courts located within the State of Delaware. Notwithstanding anything herein to the  contrary, each of the parties hereto irrevocably agrees that any Action with respect to any act of  the Commissioner or any other Governmental Authority concerning or arising out of the Plan of  Conversion or any amendment thereto shall be brought and determined exclusively in the state  courts of the State of California in accordance with the Insurance Laws of the State of California.   Each of the parties hereto agrees that mailing of process or other papers in connection with any  such Action in the manner provided in Section 11.3 or in such other manner as may be permitted  by  Applicable  Laws,  will  be  valid  and  sufficient  service  thereof.  Each  of  the  parties  hereto  hereby  irrevocably  submits  with  regard  to  any  such  Action  for  itself  and  in  respect  of  its  property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and  agrees  that  it  will  not  bring  any action  relating  to  this  Agreement  or  any  of  the  transactions  contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of  the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a  defense, counterclaim, or otherwise, in any Action with respect to this Agreement and the rights  and obligations arising hereunder, or for recognition and enforcement of any judgment in respect  of this Agreement and the rights and obligations arising hereunder: (a) any claim that it is not  personally subject  to  the jurisdiction of the above named courts for any  reason  other than the  failure  to  serve  process  in  accordance  with  this  Section  11.11(b);  (b)  any  claim  that  it  or  its  property  is  exempt  or  immune  from  jurisdiction  of  any  such  court  or  from  any  legal  process                                         83  43126503 v1 

 

commenced  in  such  courts  (whether  through  service  of  notice,  attachment  prior  to  judgment,  attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the  fullest extent permitted by the Applicable Law, any claim that (i) the suit, action, or proceeding  in  such  court  is  brought  in  an  inconvenient  forum,  (ii)  the  venue  of  such  suit,  action,  or  proceeding is improper, or (iii) this Agreement, or the subject matter hereof, may not be enforced  in or by such courts.           11.12 Severability.   Any  term  or  provision  of  this  Agreement  which  is  invalid  or  unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such  invalidity  or  unenforceability without  rendering  invalid  or  unenforceable  the  remaining  terms  and provisions of this Agreement or affecting the validity or enforceability of any of the terms or  provisions of this Agreement 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  is  enforceable.         11.13 Publicity.   PRA  and  NORCAL  shall  develop  a  joint  communications  plan  and  each party shall (i) ensure that all press releases and other public statements and communications  (including any communications that would require a filing under Rule 425, Rule 165 and Rule  166 under the 1933 Act or Rule 14a-2, Rule 14a-12 or Rule 14e-2 under the Exchange Act) with  respect to this Agreement and the transactions contemplated hereby shall be consistent with such  joint  communications  plan  and  (ii)  unless  otherwise  required  by  Applicable  Law  or  by  obligations pursuant to any listing agreement with or rules of the NYSE, consult with each other  for a reasonable time before issuing any press release or otherwise making any public statement  or communication (including any communications that would require a filing with the SEC), and  mutually agree upon any such press release or any such public statement or communication, with  respect to this Agreement or the transactions contemplated hereby. In addition to the foregoing,  except to the extent disclosed in the proxy statement, unless otherwise required by Applicable  Law or by obligations pursuant to any listing agreement with or rules of the NYSE, neither PRA  nor NORCAL shall issue any press release or otherwise make any public statement or disclosure  concerning  the  other  party  or  the  other  party’s  business,  financial  conditions  or  results  of  operations without the consent of the other party.         11.14 Specific Performance.  Subject to Section 10.5, each party hereto hereby agrees  that, in the event of breach of this Agreement, damages would be difficult, if not impossible, to  ascertain,  that  irreparable  damage  would  occur  in  the event  that  any  of  the  provisions  of  this  Agreement  were  not  performed  in  accordance  with  their  specific  terms  or  were  otherwise  breached and that money damages or other legal remedies would not be an adequate remedy for  any  such  breach.   It  is  accordingly agreed  that,  in  addition  to  and  without  limiting  any  other  remedy or right it may have, each party shall be entitled to seek an injunction or other equitable  relief in any court of competent jurisdiction, without any necessity of proving damages or any  requirement for the posting of a bond or other security, enjoining any such breach, and enforcing  specifically the terms and provisions of this Agreement.                                                                 [SIGNATURES ON FOLLOWING PAGE]                                          84  43126503 v1 

 

                                                                                       IN  WITNESS  WHEREOF,  PRA  and  NORCAL  have  caused  this  Agreement  to  be  executed by their respective officers thereunto duly authorized as of the date first above written.                                          PROASSURANCE CORPORATION,                                      a Delaware corporation                                       By: /s/ Edward L. Rand, Jr.                                         Name: Edward L. Rand, Jr.                                      Title: President and Chief Executive Officer                                                                                                                  PRA PROFESSIONAL LIABILITY GROUP,                                      INC., a Delaware corporation                                                                            By: /s/ Edward L. Rand, Jr.                                         Name: Edward L. Rand, Jr.                                       Title: Chairman                                                                               NORCAL MUTUAL INSURANCE COMPANY,                                       a California mutual insurance company                                                                                                                  By: /s/ Theodore Scott Diener                                       Name: Theodore Scott Diener                                      Title: President and Chief Executive Officer                          [Signature Page to Agreement and Plan of Acquisition]  43126503 v1 

 

Exhibits    Exhibit A – Knowledge of NORCAL  Exhibit B – Knowledge of PRA  Exhibit C – Officers and Directors of NORCAL INC.    NORCAL Disclosure Schedules    Section 5.1 – Corporate Organization  Section 5.2 – Subsidiaries   Section 5.4 – Capitalization  Section 5.5 – Authority; No Violation; Consents and Approvals  Section 5.6 – Insurance Reports  Section 5.7 – Financial Statements; Financial Reporting  Section 5.8 – Broker’s Fees  Section 5.9 – Absence of Certain Changes or Events  Section 5.10 – Legal Proceedings and Judgments  Section 5.11 – Insurance   Section 5.12 – Taxes and Tax Returns  Section 5.13 – Employee Plans; Labor Matters  Section 5.14 – Employees  Section 5.15 – Compliance with Applicable Law  Section 5.16 – Certain Contracts  Section 5.17 – Investments and Interest Rate Risk Management Instruments  Section 5.18 – Intellectual Property/Social Media  Section 5.19 – Real Property; Environmental Liability  Section 5.20 – Personal Property  Section 5.21 – Insurance Matters  Section 5.23 – Privacy and Data Security   Section 7.2 – NORCAL Forbearances     Section 8.10(e) – NORCAL/PRA Severance Guidelines    PRA Disclosure Schedules    Section 6.3 – SEC Reports; Financial Statements  Section 6.4 – Broker’s Fees  Section 6.6 – Compliance with Applicable Law  Section 7.3 – PRA Forbearances    43126503 v1

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