Document:

Exhibit 10.11

 

STOCK PURCHASE AGREEMENT

 

BETWEEN

 

CONTINENTAL CASUALTY COMPANY, AS SELLER

 

AND

 

OCTAGON RISK SERVICES, INC., AS PURCHASER

 

RELATING TO

 

MANAGED CARE HOLDINGS CORPORATION

and its Subsidiary, CARONIA
CORP.

 

DATED MARCH        ,
2005

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  PURCHASE
  OF SHARES AND CLOSING 

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Purchase of the
  Shares 

  	
   

  
	
  2.2

  	
  Cash Consideration
  for Purchase of the Shares 

  	
   

  
	
  2.3

  	
  The Closing 

  	
   

  
	
  2.4

  	
  Closing Adjustment
  

  	
   

  
	
  2.4.1

  	
  Prototype
  Financial Information 

  	
   

  
	
  2.4.2

  	
  Closing
  Financial Information 

  	
   

  
	
  2.4.3

  	
  Closing
  Working Capital Adjustment

  	
   

  
	
  2.4.4

  	
  Preliminary
  Pro Forma Balance Sheet and Income Statement 

  	
   

  
	
  2.4.5

  	
  Mutual Right
  to Review

  	
   

  
	
  2.4.6

  	
  Dispute
  Resolution

  	
   

  
	
  2.4.7

  	
  Accounting
  Firm’s Determination

  	
   

  
	
  2.4.8

  	
  Final
  Adjustment

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS
  AND WARRANTIES OF SELLER

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Organization and
  Good Standing

  	
   

  
	
  3.1.1

  	
  Parent

  	
   

  
	
  3.1.2

  	
  The Company

  	
   

  
	
  3.1.3

  	
  Seller

  	
   

  
	
  3.2

  	
  Capitalization of
  the Company; Title to Shares

  	
   

  
	
  3.2.1

  	
  Parent

  	
   

  
	
  3.2.2

  	
  Company

  	
   

  
	
  3.2.3

  	
  Claims Against
  the Company

  	
   

  
	
  3.3

  	
  Enforceability

  	
   

  
	
  3.3.1

  	
  Enforceability
  of this Agreement

  	
   

  
	
  3.3.2

  	
  Enforceability
  of the Related Agreements

  	
   

  
	
  3.4

  	
  Financial
  Statements

  	
   

  
	
  3.4.1

  	
  Delivery of
  Financial Statements

  	
   

  
	
  3.4.2

  	
  Parent
  Financial Statements

  	
   

  
	
  3.4.3

  	
  Contingent
  Liabilities

  	
   

  
	
  3.5

  	
  Assets

  	
   

  
	
  3.5.1

  	
  Company Assets

  	
   

  
	
  3.5.2

  	
  CNA
  Transferred Assets

  	
   

  
	
  3.5.3

  	
  Tax Basis of
  Transferred Assets

  	
   

  
	
  3.6

  	
  Litigation

  	
   

  

 

 

	
  3.7

  	
  Books and Records

  	
   

  
	
  3.8

  	
  Contracts

  	
   

  
	
  3.8.1

  	
  Company
  Contracts

  	
   

  
	
  3.8.2

  	
  CNA Assigned
  Contracts 

  	
   

  
	
  3.9

  	
  Intellectual
  Property 

  	
   

  
	
  3.9.1

  	
  Patents,
  Trademarks, Trade Names, Service Marks and Copyrights 

  	
   

  
	
  3.9.2

  	
  Know-How,
  Methods of Operation, Customer Lists and Business Records 

  	
   

  
	
  3.9.3

  	
  Computer
  Programs 

  	
   

  
	
  3.9.4

  	
  Third Party
  Infringement 

  	
   

  
	
  3.10

  	
  Customer
  Agreements 

  	
   

  
	
  3.11

  	
  Compliance with
  Legal Requirements 

  	
   

  
	
  3.12

  	
  Licenses

  	
   

  
	
  3.13

  	
  Taxes and Tax
  Returns

  	
   

  
	
  3.13.1

  	
  Affiliated
  Group Taxes

  	
   

  
	
  3.13.2

  	
  Taxes for
  which Either of the Companies is Taxpayer

  	
   

  
	
  3.14

  	
  Employees

  	
   

  
	
  3.15

  	
  Employee
  Benefits 

  	
   

  
	
  3.16

  	
  Labor Relations

  	
   

  
	
  3.17

  	
  Insurance

  	
   

  
	
  3.18

  	
  Brokers or
  Finders

  	
   

  
	
  3.19

  	
  Absence of
  Certain Changes and Events

  	
   

  
	
  3.20

  	
  Seller’s
  Approvals

  	
   

  
	
  3.21

  	
  Sufficiency of
  Assets and Contracts

  	
   

  
	
  3.22

  	
  Real Property

  	
   

  
	
  3.22.1

  	
  Owned Real
  Property

  	
   

  
	
  3.22.2

  	
  Leased Real
  Property

  	
   

  
	
  3.23

  	
  Excluded
  Affiliates

  	
   

  
	
  3.24

  	
  Deferred Revenue

  	
   

  
	
  3.25

  	
  Environmental
  Matters

  	
   

  
	
  3.25.1

  	
  Hazardous
  Materials

  	
   

  
	
  3.25.2

  	
  Hazardous
  Materials Activities

  	
   

  
	
  3.25.3

  	
  Permits

  	
   

  
	
  3.25.4

  	
  Environmental
  Liabilities

  	
   

  
	
  3.26

  	
  Accounts Receivable

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS
  AND WARRANTIES OF PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Status of Purchaser

  	
   

  
	
  4.2

  	
  Enforceability 

  	
   

  
	
  4.3.

  	
  Enforceability of
  Security Capital Guarantee

  	
   

  
	
  4.4

  	
  Certain Proceedings

  	
   

  
	
  4.5

  	
  Financial
  Statements

  	
   

  
	
  4.6

  	
  Brokers or Finders

  	
   

  
	
  4.7

  	
  Purchaser’s
  Approvals

  	
   

  
	
  4.8

  	
  Securities Laws

  	
   

  

 

ii

 

	
  4.9

  	
  Investment Company

  	
   

  
	
  4.10

  	
  Financing

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  ADDITIONAL
  AGREEMENTS OF SELLER AND PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Closing Adjustments

  	
   

  
	
  5.2

  	
  Conduct of the
  Business

  	
   

  
	
  5.3

  	
  Expenses

  	
   

  
	
  5.4

  	
  Purchaser’s Access
  to the Business Prior to Closing

  	
   

  
	
  5.5

  	
  Performance of
  this Agreement

  	
   

  
	
  5.6

  	
  Notification of
  Certain Matters

  	
   

  
	
  5.7

  	
  Employee Matters

  	
   

  
	
  5.8

  	
  Computer Programs

  	
   

  
	
  5.9

  	
  Communications

  	
   

  
	
  5.10

  	
  Execution
  and Delivery of Documents

  	
   

  
	
  5.11

  	
  Cooperation after
  the Closing

  	
   

  
	
  5.11.1

  	
  Further Assurances

  	
   

  
	
  5.11.2

  	
  Seller’s Access to Records

  	
   

  
	
  5.11.3

  	
  Purchaser’s Access to Records

  	
   

  
	
  5.11.4

  	
  Records of the Business

  	
   

  
	
  5.11.5

  	
  Storage of Records of the Business

  	
   

  
	
  5.11.6

  	
  Subpoenas of Business Records

  	
   

  
	
  5.12

  	
  Third Party Consents

  	
   

  
	
  5.12.1

  	
  Obtaining Third
  Party Consents

  	
   

  
	
  5.12.2

  	
  Agreements
  Affecting the Other Party

  	
   

  
	
  5.13

  	
  Regulatory Compliance

  	
   

  
	
  5.14

  	
  No Solicitations

  	
   

  
	
  5.15

  	
  Use of Names

  	
   

  
	
  5.16

  	
  Non-Competition

  	
   

  
	
  5.16.1

  	
  Seller

  	
   

  
	
  5.16.2

  	
  Restricted Area

  	
   

  
	
  5.16.3

  	
  Exceptions

  	
   

  
	
  5.16.4

  	
  Disposition
  of Business Activities

  	
   

  
	
  5.16.5

  	
  Due Diligence
  Materials

  	
   

  
	
  5.16.6

  	
  Enforcement

  	
   

  
	
  5.16.7

  	
  No-Hire

  	
   

  
	
  5.16.8

  	
  Confidential Information

  	
   

  
	
  5.16.9

  	
  Rights Retained by
  Seller

  	
   

  
	
  5.17

  	
  Monthly
  Financial Statements of the Company

  	
   

  
	
  5.18

  	
  Bidder Agreements

  	
   

  
	
  5.19

  	
  Facilities Plan

  	
   

  
	
  5.20

  	
  Audit of
  Parent Financial Statements

  	
   

  
	
  5.21.

  	
  Confidentiality

  	
   

  

 

iii

 

	
  ARTICLE VI

  	
  CONDITIONS PRECEDENT TO THE OBLIGATION OF
  PURCHASER TO CLOSE

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Representations,
  Warranties and Covenants

  	
   

  
	
  6.2

  	
  Related Agreements

  	
   

  
	
  6.3

  	
  Secretary’s Certificate

  	
   

  
	
  6.4

  	
  Approvals and Consents

  	
   

  
	
  6.5

  	
  Injunction and
  Litigation

  	
   

  
	
  6.6

  	
  Bank Financing

  	
   

  
	
  6.7

  	
  Companies’ Releases

  	
   

  
	
  6.8

  	
  Closing Material
  Adverse Effect

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  CONDITIONS PRECEDENT TO THE OBLIGATION OF
  SELLER TO CLOSE

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Representations,
  Warranties and Covenants

  	
   

  
	
  7.2

  	
  Related Agreements

  	
   

  
	
  7.3

  	
  Secretary’s Certificate

  	
   

  
	
  7.4

  	
  Approvals and Consents

  	
   

  
	
  7.5

  	
  Companies’ Releases

  	
   

  
	
  7.6

  	
  Injunction and
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  TAX MATTERS

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Post-Closing
  Access to Records; Cooperation

  	
   

  
	
  8.2

  	
  Liability
  for Taxes and Related Matters

  	
   

  
	
  8.2.1

  	
  Seller’s
  Liability for Taxes

  	
   

  
	
  8.2.2

  	
  Purchaser’s
  Liability for Taxes

  	
   

  
	
  8.2.3

  	
  Taxes for Short
  Taxable Year

  	
   

  
	
  8.2.4

  	
  Adjustment
  to Cash Consideration Amount

  	
   

  
	
  8.2.5

  	
  Preparation
  and Filing of Tax Returns

  	
   

  
	
  8.2.6

  	
  Contest Provisions

  	
   

  
	
  8.3

  	
  Survival
  of Obligations

  	
   

  
	
  8.4

  	
  Refunds and Tax Benefits

  	
   

  
	
  8.4.1

  	
  Income Tax Refunds

  	
   

  
	
  8.4.2

  	
  Carryback of Tax
  Attributes

  	
   

  
	
  8.5

  	
  Tax Sharing Agreements

  	
   

  
	
  8.6

  	
  Certain Taxes

  	
   

  
	
  8.7

  	
  Disclosure
  of U.S. Federal Income Tax Treatment

  	
   

  

 

iv

 

	
  ARTICLE IX

  	
  TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Termination

  	
   

  
	
  9.2

  	
  Procedure on Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Seller’s
  Indemnification

  	
   

  
	
  10.2

  	
  Purchaser’s Indemnification

  	
   

  
	
  10.3

  	
  Conditions of
  Indemnification

  	
   

  
	
  10.4

  	
  Indemnification Limits

  	
   

  
	
  10.4.1

  	
  Exclusions
  from Indemnification

  	
   

  
	
  10.4.2

  	
  Time Limits

  	
   

  
	
  10.4.3

  	
  Limitations on Amount

  	
   

  
	
  10.4.4

  	
  Exclusive Remedy

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  MISCELLANEOUS PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Notices

  	
   

  
	
  11.2

  	
  Sole Agreement

  	
   

  
	
  11.3

  	
  Successors and Assigns

  	
   

  
	
  11.4

  	
  Captions

  	
   

  
	
  11.5

  	
  Disputes Resolution

  	
   

  
	
  11.6

  	
  Governing Law and
  Jurisdiction

  	
   

  
	
  11.7

  	
  No Third Party
  Beneficiaries

  	
   

  
	
  11.8

  	
  Expenses

  	
   

  
	
  11.9

  	
  Counterparts

  	
   

  
	
  11.10

  	
  Severability

  	
   

  
	
  11.11

  	
  Waiver of Jury
  Trial; Damages

  	
   

  

 

v

 

STOCK PURCHASE AGREEMENT

 

THIS
STOCK PURCHASE AGREEMENT is made and entered into this          
day of March, 2005, by and between CONTINENTAL CASUALTY COMPANY, an Illinois
stock insurance company (“Seller”) and OCTAGON RISK SERVICES, INC., a Minnesota
corporation (“Purchaser”).

 

ARTICLE I

 

Definitions

 

The
following terms, when used in this Agreement, shall have the meanings described
in this Section:

 

AAA
shall have the meaning given in Section 5.16.4(f).

 

Accounting Firm
means Price Waterhouse Coopers, or if Price Waterhouse Coopers is disqualified
or unwilling to serve, a public accounting firm with a United States national
practice that is mutually acceptable to the Parties.

 

Accounting Firm’s
Dispute Work Papers shall have the meaning given in Section 2.4.5(a).

 

Acquisition Date
means July 23, 1997, the date on which Seller acquired Parent and the
Company through purchase of Parent’s issued and outstanding capital stock.

 

Adjusted Working
Capital shall have the meaning given in Section 2.4.1(b).

 

Affiliate
means a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified; provided, however, that with respect to CNA Financial, Seller and
any other Persons controlled by CNA Financial, “Affiliate” (i) shall
include only CNA Financial and Persons controlled by CNA Financial, and (ii) shall
exclude CNA Surety Corporation, a Delaware corporation, First Insurance Company
of Hawaii, a Hawaii stock insurance company, Accord Underwriting Agency, Ltd.,
a Bermuda company, and RVI Guaranty Co., Ltd., a Bermuda insurance company.

 

Affiliated Group
means any affiliated group within the meaning of Section 1504(a) of
the Code or any similar group defined under a similar provision of state, local
or foreign law.

 

Alternative
Transaction shall have the meaning given in Section 5.14.

 

Base Working
Capital shall have the meaning given in Section 2.4.1(b).

 

Bidder Agreements
shall have the meaning given in Section 5.18.

 

 

Books and Records
means all records and all other data and information (in whatever form
maintained) in the possession or control of Seller, its Affiliates or the
Companies and relating primarily to the Business as currently conducted,
including administrative records, sales records, files and records relating to
regulatory matters and accounting records, but excluding any Tax records and
all other data and information with respect to Tax; provided, however, that if
any such financial or accounting records contain information which does not
relate to the Business, such information shall not constitute “Books and Records”.

 

Business
means all of the business of the Companies.

 

Business
Activities shall have the meaning given in Section 5.16.3(f).

 

Business Day
means any day other than a Saturday, Sunday or a day on which commercial banks
in New York City or Chicago are authorized or required by law to be closed.

 

Business Employees
means each Person having the status of an employee substantially all of whose
working time is spent serving in the Business as of the Closing Date,
including, without limitation, each such Person currently on leave of absence,
vacation, sick days, short or long term disability or workers’ compensation,
and includes the persons listed on Schedule 1(A).

 

Business Leases
shall have the meaning given in Section 3.22.2.

 

Cash Consideration
Amount shall have the meaning given in Section 2.2.

 

Closing
and Closing Date shall have the meanings given in Section 2.3.

 

Closing
Adjustments shall have the meaning given in Section 5.1.

 

Closing Material Adverse Effect means a material adverse effect on the financial
condition or results of operations of the Business; provided, however, that the
following shall be excluded from the definition of “Closing Material Adverse
Effect” and from any determination as to whether a Closing Material Adverse
Effect has occurred or may occur:  (i) any
adverse change or effect that is caused by or that arises out of the closing of
any securities or financial markets, or conditions affecting the economy or
financial, banking, currency or capital markets in general; (ii) any adverse
change or effect that is caused by or that arises out of conditions affecting
the property and casualty third party claim administration industry, or the
insurance or financial services industries generally; (iii) any adverse
change or effect that is caused by or arises out of any downgrade or potential
downgrade of the financial strength, capital adequacy or other ratings of
Seller or any of its Affiliates, that is not caused by Seller’s breach of the
representations, warranties, covenants or terms of this Agreement; (iv) any
adverse change or effect that is caused by or arises out of any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any attack or act of terrorism; and (v) any adverse change or effect
resulting from the announcement or the pendency of the transactions 

 

2

 

contemplated
by this Agreement or from Purchaser’s violation of Section 5.9 (including,
but not limited to, changes in relations with Business Employees and customers
of the Business).

 

Closing Pro Forma Balance Sheet shall have the meaning given in Section 2.4.2.

 

Closing Working
Capital Adjustment shall have the meaning given in Section 2.4.2.

 

CNA Assigned
Contracts means the contracts of Seller and its Affiliates
that are listed in Schedule 1(B), and that are to be assigned to
the Company on or before the Closing Date pursuant to this Agreement.

 

CNA Assignment and
Assumption Agreement shall have the meaning given in Section 2.3(f).

 

CNA Bill of Sale
shall have the meaning given in Section 2.3(g).

 

CNA Financial
means CNA Financial Corporation, a Delaware corporation, and the direct parent
company of Seller.

 

CNA Interim
Services Agreement shall have the meaning given in Section 2.3(j).

 

CNA Release
shall have the meaning given in Section 2.3(o).

 

CNA Subleases
shall have the meaning given in Section 2.3(i).

 

CNA Transferred
Assets means those assets to be transferred to the Company by
Seller or Affiliates of Seller on or before the Closing Date pursuant to the
terms of this Agreement, a complete list of which, including in each case the
identity of the transferor, is set forth on Schedule 1(C).

 

Code
means the Internal Revenue Code of 1986 and regulations promulgated thereunder.

 

Companies
means Parent and Company.

 

Company
means Caronia Corp., a corporation organized under the laws of the State of
Delaware.

 

Company Assets
shall have the meaning given in Section 3.5.1.

 

Company Bill of
Sale shall have the meaning given in Section 2.3(h).

 

Company Common
Stock means the Company’s Common Stock without par value.

 

Company Hazardous
Material Activities shall have the meaning given in Section 3.25.2.

 

Company Interim
Services Agreement shall have the meaning given in Section 2.3(k).

 

3

 

Companies’ Release
shall have the meaning given in Section 2.3(o).

 

Company Shares
means the 100 shares of the issued and outstanding Company Common Stock that
are owned by Parent.

 

Company
Transferred Assets means those assets to be transferred to
Seller by the Company on or before the Closing Date pursuant to the terms of
this Agreement, a complete list of which is set forth on Schedule 1(E).

 

Computer Program
means current versions of existing (i) computer programs, including all
object code, all executables and all available source code, (ii) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, and (iii) documentation, including user manuals and
training materials, relating to any of the foregoing.

 

Confidential
Information means (i) all confidential or proprietary
information concerning the Business, including, but not limited to, Business
Employees and (ii) all nonpublic personal information of the Company’s
customers.

 

Confidentiality
Agreement means the Confidentiality Agreement between Seller
and Capital Partners, Inc. dated as of September 22, 2004.

 

Contract Interest
Rate means the prime rate for money center banks as reported
in the Wall Street Journal from time to time plus 2% per annum.

 

Delayed
Transferred Employees shall have the meaning given in Section 5.7(e).

 

Dispute Officer
shall have the meaning given in Section 10.3(a).

 

Embedded Computer
Programs means utilities, executables, and other components
owned by third persons and incorporated into the Owned Principally Used
Computer Programs or the Owned Generally Used Computer Programs.

 

Employee Benefit
Arrangement means each deferred compensation plan, bonus
plan, stock option plan, employee stock purchase plan, incentive compensation
plan, executive compensation plan, whether formal or informal, and any other
employee benefit (including, but not limited to, fringe benefits as defined in Section 132
of the Code, and whether or not in writing) that is not salary, an ERISA Plan,
or an individual employment or severance agreement.

 

Encumbrance
means any pledge, security interest, mortgage, community property interest,
lien (including but not limited to liens for unpaid taxes), attachment, automatic
or other stay in a bankruptcy or insolvency proceeding, trust agreement,
constructive or resulting trust, voting trust or agreement, restricted stock
agreement, right of first refusal, or option, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership, except such 

 

4

 

restrictions as may be
contained in the articles of incorporation or the by-laws of the Company and
restrictions on subsequent transfer contained in U.S. federal and state
securities and insurance laws.

 

Enforceability
Exceptions shall have the meaning given in Section 3.3.1.

 

ERISA
means the Employee Retirement Income Security Act of 1974.

 

ERISA Group
shall have the meaning given in Section 3.15.

 

ERISA Plan
means an employee benefit plan as defined in Section 3(3) of ERISA.

 

Final Income
Statement shall have the meaning given in Section 2.4.4.

 

Final Pro Forma
Balance Sheet shall have the meaning given in Section 2.4.4.

 

Final Working
Capital Adjustment shall have the meaning given in Section 2.4.7.

 

GAAP
means United States generally accepted accounting principles.

 

Governmental
Authority means any government or political subdivision,
board, commission or other instrumentality thereof, whether federal, state,
local or foreign.

 

Hazardous Material
shall have the meaning given in Section 3.25.1.

 

Income Tax
means any federal, state, local or foreign income tax, including any interest,
penalty or addition thereto, whether disputed or not.

 

Income Tax Return
means any return, declaration, report, claim for refund, or information return
or statement relating to Income Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

 

Incurred means the occurrence of an
event, act or omission giving rise to an obligation or liability.

 

Indemnified Party
shall have the meaning given in Section 10.3.

 

Indemnifying Party
shall have the meaning given in Section 10.3.

 

Individual
Licenses shall have the meaning given in Section 3.12.

 

Knowledge
means actual knowledge, following reasonable inquiry, of those individuals
listed in Schedule 1(F).

 

5

 

Legal Requirement
means any law, statute, ordinance, regulation, writ, injunction, rule,
established principle of common law, directive, decree, administrative ruling
or enforceable supervisory policy of any Governmental Authority or applicable
court decision.

 

License
means any license, permit, order, approval or non-objection, registration,
membership, authorization or qualification under any federal, state or local
law or with any Governmental Authority or under any industry or
non-governmental self-regulatory organization.

 

Licensed Computer
Programs shall have the meaning given in Section 3.9.3(b).

 

Loss
means all losses, costs, obligations, liabilities, settlement payments, awards,
judgments, fines, penalties, damages, and expenses (including but not limited
to reasonable and necessary fees of counsel, investigators, expert witnesses,
consultants and other professionals, court filing fees, court costs,
arbitration fees or costs, witness fees and other similar expenses).

 

Material
means (i) with respect to any representation, warranty or covenant
containing a specific quantitative amount, ratio or other test, such
quantitative amount, ratio or test; (ii) with respect to any
representation, warranty or covenant of any Party under this Agreement related
to financial condition, financial obligations, or values and not containing a
specific quantitative amount, ratio or test, a change having an adverse impact
of $10,000 or more; and (iii) with respect to any representation, warranty
or covenant under this Agreement that is not related to financial condition,
financial obligations or values and that does not contain a specific
quantitative amount, ratio or test, a change having an impact that materially
and adversely affects the business, financial condition and prospects of the
relevant Person, taken as a whole.

 

Most Recent Parent
Financial Statements means the consolidated GAAP unaudited
balance sheets and statements of income for Parent as of and for the month
ended January 31, 2005.

 

Non-Compete Term
shall have the meaning given in Section 5.16.1.

 

Outside Closing
Date shall have the meaning given in Section 2.3.

 

Owned Generally
Used Computer Programs shall have the meaning given in Section 3.9.3(a).

 

Owned Principally
Used Computer Programs shall have the meaning given in Section 3.9.3(a).

 

Parent
means Managed Care Holdings Corporation., a corporation organized under the
laws of Delaware.

 

Parent Capital
Stock has the meaning given in Section 3.2.1.

 

Parent Financial
Statements shall have the meaning given in Section 3.4.1.

 

6

 

Parent Shares
means the 900 issued and outstanding shares of Parent’s Class A Common
Stock, par value $0.001 per share, that are owned by Seller.

 

Parties
means Seller and Purchaser.

 

Pension Plan
means an employee pension benefit plan within the meaning of Section 3(2) of
ERISA.

 

Permitted
Encumbrances, as to any asset, means each of the following: (i) Encumbrances
for Taxes, assessments and governmental charges or levies not yet due and
payable or which are being contested in good faith; (ii) Encumbrances
imposed by law, including without limitation materialmen’s, mechanics’,
carriers’, workmen’s and repairmen’s liens and other similar liens arising in
the ordinary course of business, that do not in the aggregate impair the value
of or interfere with or prohibit the current use or operation of such asset by
the Company, and (iii) Encumbrances related to deposits to secure
policyholder obligations as required by the insurance departments of the
various states.

 

Person
means any natural person, corporation, partnership, limited liability company,
trust, joint venture or other entity.

 

Preliminary
Financial Statements shall have the meaning given in Section 2.4.3.

 

Preliminary Income
Statement shall have the meaning given in Section 2.4.3.

 

Preliminary Pro
Forma Balance Sheet shall have the meaning given in Section 2.4.3.

 

Proposal
shall have the meaning given in Section 5.14.

 

Prototype Pro
Forma Balance Sheet shall have the meaning given in Section 2.4.1.

 

Purchaser
shall have the meaning given in the Preamble.

 

Purchaser
Financial Statements shall have the meaning given in Section 4.4.

 

Purchaser Offer
shall have the meaning given in Section 5.16.4(b).

 

Purchaser’s
Approvals shall have the meaning given in Section 4.7.

 

Records of the
Business shall have the meaning given in Section 5.11.4.

 

Related Agreements
means this Agreement, the CNA Assignment and Assumption Agreement, the CNA Bill
of Sale, the Company Bill of Sale, the CNA Subleases, the CNA Interim Services
Agreement, the Company Interim Services Agreement, the Software License
Agreement, the Company Release and the Seller Release.

 

7

 

Representative
shall have the meaning given in Section 5.14.

 

Restricted Area
shall have the meaning given in Section 5.16.2.

 

Retained Employee
Liabilities shall have the meaning given in Section 5.7(g).

 

Securities Act
means the federal Securities Act of 1933 and rules, regulations and applicable
administrative rulings and court decisions issued thereunder.

 

Security Capital
Guarantee shall have the meaning given in Section 4.3.

 

Seller
shall have the meaning given in the Preamble.

 

Seller’s Approvals
shall have the meaning given in Section 3.20.

 

Service Computer
Programs means those Computer Programs (other than the Owned
Principally Used Computer Programs, the Owned Generally Used Computer Programs,
the Licensed Computer Programs and the Shrink Wrap Computer Programs) that are
used in the conduct of the Business as of the date of this Agreement.

 

Severance Benefits
means payments or benefits extended under any applicable and effective written
policy of any Business Employee’s employer providing for payments or benefits
upon termination of employment (other than qualified or non-qualified
retirement plans) (including, but not limited to, outplacement services).

 

Shares
means the 900 issued and outstanding shares of the Class A Common Stock of
Parent, par value $0.001 per share, owned by Seller and that are to be sold to
Purchaser pursuant to this Agreement.

 

Shrink Wrap
Computer Programs shall have the meaning given in Section 3.9.3(c).

 

Software License
Agreement shall have the meaning given in Section 2.3(l).

 

Straddle Period
shall have the meaning given in Section 8.2.5(b).

 

Subsidiary
means any corporation, trust, partnership, joint venture or other entity of
which 50% or more of the voting interest or ownership interest is owned,
legally or beneficially, by any Person and its Affiliates.

 

Tax
means any federal, state or local income, gross receipts, premium, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, ad valorem/personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated
or other tax, including any interest, penalty or addition thereto, whether
disputed or not.

 

8

 

Tax Return
means any return, report, declaration, claim for refund, or other return or
statement, including any schedule or attachment thereto, filed or required
to be filed with any Governmental Authority in connection with the
determination, assessment or collection of any Tax.

 

Title IV Plan
shall have the meaning given in Section 3.15.

 

Transferred
Employee shall have the meaning given in Section 5.7(a).

 

Unavailable
Computer Programs shall have the meaning given in Section 5.8(i).

 

Working Capital
means assets (excluding good will) minus liabilities.

 

Working Capital
Adjustment shall have the meaning given in Section 2.4.1(b).

 

ARTICLE II

 

Purchase of Shares and Closing

 

2.1.                              Purchase
of the Shares.  On the terms and
conditions set forth herein, Seller shall sell, transfer, convey and assign the
Shares to Purchaser and Purchaser shall purchase the Shares from Seller.

 

2.2.                              Cash Consideration for Purchase of the
Shares.  The cash purchase price for the Shares
payable by Purchaser to Seller at Closing shall equal $16,000,000 (the “Cash
Consideration Amount”).

 

2.3.                              The
Closing.  Subject to the terms and
conditions of this Agreement, the Closing of the purchase and sale under this
Agreement (the “Closing”) shall take place at the offices of Mayer, Brown, Rowe &
Maw LLP, Chicago, Illinois, on the Closing Date.  The “Closing
Date” shall be the last Business Day of the month in which all of the
conditions set forth in Articles VI and VII have been satisfied; provided that
if such conditions are satisfied in the five Business Day period preceding the
last Business Day of the month, the Closing Date shall be the last Business Day
of the immediately following month. 
The Closing shall be effective as of the close of business on the
Closing Date.  The Parties agree to use
reasonable best efforts to satisfy the conditions set forth in Articles VI and
VII that are within their respective control on or before March 31, 2005.  Notwithstanding any other provision of this
Agreement, if the Closing Date shall not have taken place on or before May 31,
2005 (the “Outside Closing Date”), either Party may terminate this Agreement as
permitted pursuant to Sections 9.1(d) or (e).  At the Closing, the Parties will deliver to
one another the following funds, documents and such other agreements,
instruments and documents as are required under this Agreement to be executed
and delivered by the Parties:

 

(a)                                  Resolutions
of the Boards of Directors of Seller and Purchaser approving the transactions
described in this Agreement and the Related Agreements;

 

9

 

(b)                                 A
wire transfer of the Cash Consideration Amount in immediately available funds
to the account designated by Seller;

 

(c)                                  A
certificate or certificates for the Shares, accompanied by a stock power duly
endorsed in blank by Seller;

 

(d)                                 Seller’s
Approvals;

 

(e)                                  Purchaser’s
Approvals;

 

(f)                                    The
Assignment and Assumption Agreement in the form of Exhibit A,
pursuant to which Seller and its Affiliates shall assign certain rights and
obligations to the Company (the “CNA Assignment and Assumption Agreement”);

 

(g)                                 The
Bill of Sale in the form of Exhibit B, pursuant to which Seller and
its Affiliates shall transfer certain assets to the Company (the “CNA Bill of
Sale”);

 

(h)                                 The
Bill of Sale in the form of Exhibit C, pursuant to which the
Company shall transfer certain assets to Seller and one or more of its
Affiliates (the “Company Bill of Sale”);

 

(i)                                     License
agreements in the form of Exhibit D for offices of the Company designated
in the Facilities Plan, and to be occupied after the Closing by the Company
(the “CNA Subleases”);

 

(j)                                     The
Interim Services Agreement in the form of Exhibit E, pursuant to which
Seller and one or more of its Affiliates will provide services to the Company
(the “CNA Interim Services Agreement”);

 

(k)                                  The
Interim Services Agreement in the form of Exhibit F, pursuant to
which the Company will provide services to Seller and its Affiliates (the “Company
Interim Services Agreement”);

 

(l)                                    The
Software License Agreement between Seller and the Company in the form of Exhibit G
(the “Software License Agreement”);

 

(m)                               Resignations
of such officers and directors of the Companies as may be requested by
Purchaser;

 

(n)                                 Original
minute books and stock record books of the Companies; and

 

(o)                                 The
releases in the form of Exhibit H (to be delivered by Seller) (the “CNA
Release”) and Exhibit I (to be delivered by Purchaser) (the “Companies’
Releases”).

 

10

 

Except as otherwise
expressly provided in this Agreement or in any Related Agreement, all actions
required to be taken at the Closing shall be deemed to have occurred
simultaneously, and all documents delivered at the Closing shall be deemed to
have been delivered simultaneously.

 

2.4.                              Closing
Adjustment.

 

2.4.1.                     Prototype
Financial Information.

 

(a)                                  Prototype
Pro Forma Balance Sheet.  Seller has
prepared a prototype pro forma balance sheet of the Companies on a consolidated
basis as of September 30, 2004, illustrating the consolidated balance
sheet of the Companies as of September 30, 2004, as if the Closing had
occurred on September 30, 2004 (the “Prototype Pro Forma Balance Sheet”),
which is Schedule 2.4.1(A). 
The Prototype Pro Forma Balance Sheet illustrates all transfers
contemplated by Seller as of the Closing Date.

 

(b)                                 Prototype
Working Capital Adjustment. 
Notwithstanding Section 2.4.1(a), the Parties agree that Working
Capital as of the Closing Date shall not be less than Working Capital as of September 30,
2004, as stated on Schedule 2.4.1(B) in the column headed “Base
Amount” (the “Base Working Capital”). 
Seller has prepared a pro forma working capital adjustment calculation
using stipulated values as of September 30, 2004, and actual values as of December 31,
2004 (“Adjusted Working Capital”), which is Schedule 2.4.1(B), to
illustrate the calculation of the working capital adjustment.  The amount so determined by subtracting the
Base Working Capital from the Adjusted Working Capital is the “Working Capital
Adjustment.”

 

2.4.2.                     Closing
Financial Information.  On or before
a date five Business Days prior to the Closing Date, Seller shall deliver to
Purchaser a pro forma balance sheet of the Companies on a consolidated basis as
of the end of the month preceding the month in which the Closing Date occurs
(the “Closing Pro Forma Balance Sheet”), which shall be prepared in a manner
consistent with the preparation of the Prototype Pro Forma Balance Sheet.  The transfers illustrated in the Closing Pro
Forma Balance Sheet shall be made on or before the Closing Date in the amounts
provided on the Closing Pro Forma Balance Sheet.  On the same date, Seller shall prepare and deliver
to Purchaser a calculation of the Working Capital Adjustment in accordance with
Schedule 2.4.1(B) using Working Capital as reflected in the
Closing Pro Forma Balance Sheet (the “Closing Working Capital Adjustment”).

 

2.4.3.                     Closing
Working Capital Adjustment  If the
Closing Working Capital Adjustment is negative, cash in an amount equal to the
Closing Working Capital Adjustment shall be retained in the Company at the
Closing.   If the Closing Working Capital
Adjustment is positive, cash in an amount equal to the Closing Working Capital
Adjustment shall be distributed to Seller at the Closing, provided, however,
that if such distribution, together with all other permitted distributions of
cash shown on the Closing Pro Forma Balance Sheet, would exceed the amount of
cash on the Closing Pro Forma Balance Sheet, the Cash Consideration Amount
shall be increased by the amount of such excess.

 

11

 

2.4.4.                     Preliminary
Pro Forma Balance Sheet and Income Statement.  Within 75 days after the
Closing Date, Seller shall prepare and deliver to Purchaser, a preliminary pro
forma balance sheet of the Companies on a consolidated basis as of the close of
business on the Closing Date (the “Preliminary Pro Forma Balance Sheet”)
and an income statement of the Companies on a consolidated basis for the period
from January 1, 2005, through the Closing Date (the “Preliminary Income
Statement”).  The Preliminary Pro
Forma Balance Sheet and the Preliminary Income Statement are collectively
referred to herein as the “Preliminary Financial Statements.”  The Preliminary Pro Forma Balance Sheet will
be substantially in the format of the Prototype Pro Forma Balance Sheet and
will comply with Section 3.4.2.  The
Preliminary Income Statement will present the Parent’s consolidated and
consolidating results of operations for the period for which it is prepared,
will comply with Section 3.4.2 and will be prepared in a manner and using
accounting policies consistent with the unaudited year end financial statements
of Parent and the Company for the year ended December 31, 2004.  Purchaser agrees that Purchaser’s personnel
will use reasonable best efforts to assemble and provide to Seller the work
papers and records necessary for Seller to prepare the Preliminary Financial
Statements and to deliver the Preliminary Financial Statements to Purchaser.

 

2.4.5.                     Mutual
Right to Review.  For a period ending
on the 60th day after delivery of the Preliminary Pro Forma Balance
Sheet (the “Review Period”), Seller and Purchaser shall consider and
determine whether or not they agree on the Preliminary Financial Statements.  Purchaser and its Representatives shall have
the right to review all of Seller’s work papers and any other financial and
accounting records of Seller and the Companies relevant to the Preliminary Financial
Statements.  Seller and its
Representatives shall have the right to review Purchaser’s relevant financial
and accounting records relating to the Business.  If agreement is reached on or before the end
of the Review Period as to the consolidated pro forma balance sheet or the
consolidated income statement of the Companies as of Closing Date, Seller and
Purchaser shall agree upon and deliver to one another (i) a pro forma
balance sheet that will be the Preliminary Pro Forma Balance Sheet adjusted by
amounts agreed to by Seller and Purchaser, and that, if so agreed, shall be the
Final Pro Forma Balance Sheet (the “Final Pro Forma Balance Sheet”), or (ii) a
consolidated income statement that will be the Preliminary Income Statement
adjusted by amounts agreed to by Seller and Purchaser that, if so agreed, shall
be the Final Income Statement (the “Final Income Statement”).  If Purchaser or Seller does not timely
dispute the Preliminary Pro Forma Balance Sheet or the Preliminary Income
Statement in accordance with Section 2.4.6, the Preliminary Pro Forma
Balance Sheet shall be deemed to be the Final Pro Forma Balance Sheet and the
Preliminary Income Statement shall be deemed to be the Final Income Statement.  Neither Purchaser nor Seller shall have the
right to obtain indemnification under Article X, or to make a claim for
breach of any other provision of this Agreement or to any other remedy at law
or in equity with respect to any matter (i) agreed in writing by the Parties
in resolving any difference under Section 2.4.6, or (ii) determined
by the Accounting Firm under Section 2.4.6.

 

12

 

 2.4.6.                  Dispute
Resolution.

 

(a)                                  If,
following the conclusion of the Review Period, Purchaser or Seller disagrees
with any items on either the Preliminary Pro Forma Balance Sheet or the
Preliminary Income Statement, Purchaser or Seller, as the case may be, shall
give written notice to the other party and to the Accounting Firm of such
disagreement, stating such objection and a reasonably detailed explanation of
the reasons therefor.  Such notice shall
be delivered within 5 days following the end of the Review Period.  Neither Purchaser nor Seller shall be
entitled to invoke this dispute resolution procedure by notice to the
Accounting Firm unless at least $100,000 in the aggregate is claimed by such
party in good faith as adjustments to be made under Section 2.4.8, or as
corrections to the Preliminary Income Statement.  The professional fees of the Accounting Firm
will be shared equally by Purchaser and Seller. 
Within 15 days following receipt of such notice, Seller or Purchaser, as
the case may be, shall submit to the Accounting Firm and to the other party all
of the material written information upon which Purchaser or Seller, as the case
may be, intends to rely in rebutting Purchaser’s or Seller’s claim.  The Accounting Firm may, but is not required
to, request a meeting of Purchaser and Seller and their Representatives to
discuss Purchaser’s or Seller’s claim. 
The Accounting Firm may request additional information from Seller,
Purchaser and their Representatives and copies of any such requested
information shall also be provided to the other party to the dispute.  All materials provided by Seller, Purchaser
and their Representatives to the Accounting Firm are referred to herein as the “Accounting
Firm’s Dispute Work Papers.”  Both
Seller and Purchaser and their Representatives shall have the right to review
all of either Seller’s or Purchaser’s Accounting Firm’s Dispute Work Papers, as
the case may be.  Within 30 days after
the Accounting Firm’s receipt of all information (including any information
requested by the Accounting Firm from Purchaser or Seller), the Accounting Firm
shall provide its written decision on the dispute between Seller and Purchaser.

 

(b)                                 The
scope of the review and determination of the Accounting Firm shall be limited
to compliance of the Preliminary Pro Forma Balance Sheet with the Prototype Pro
Forma Balance Sheet and with the terms of Section 3.4.2, and the
compliance of the Preliminary Income Statement with Section 3.4.2 and its
preparation in a manner and using accounting policies consistent with the
unaudited year end financial statements of Parent and the Company for the year
ended December 31, 2004.

 

(c)                                  The
decision of the Accounting Firm on Purchaser’s or Seller’s claim under this Section 2.4.6
shall be final and binding on Purchaser and Seller, unless it is vacated on any
of the grounds provided by the Federal Arbitration Act.  The decision of the Accounting Firm may be
confirmed by and enforced as a judgment of any State or Federal Court sitting
in Cook County, Illinois, and each party hereto irrevocably and unconditionally
submits to the exclusive jurisdiction and venue of those courts in any
proceeding to confirm, vacate, or enforce any such decision.

 

2.4.7.                     Accounting
Firm’s Determination.

 

(a)                                  If
the dispute resolution procedure in Section 2.4.6 is requested by Seller
or Purchaser as to the Preliminary Pro Forma Balance Sheet, the Preliminary Pro
Forma Balance Sheet 

 

13

 

shall be adjusted as
determined by the Accounting Firm by the full amount of such adjustment and any
other adjustments agreed to by the parties and shall be deemed to be the Final
Pro Forma Balance Sheet.  The Working
Capital Adjustment determined using the Final Pro Forma Balance Sheet shall be
the “Final Working Capital Adjustment.”  There shall be no recovery by
either party under this Section 2.4.7 unless the difference between the
Closing Working Capital Adjustment and the Final Working Capital Adjustment is at
least $100,000 following adjustments to the Preliminary Pro Forma Balance Sheet
as determined by the Accounting Firm.  If
the difference between the Closing Working Capital Adjustment and the Final
Working Capital Adjustment is less than $100,000 following adjustments to the
Preliminary Pro Forma Balance Sheet as determined by the Accounting Firm, the
Preliminary Working Capital Adjustment shall be deemed to be the Final Working
Capital Adjustment.

 

(b)                                 If
the dispute resolution procedure in Section 2.4.6 is requested by Seller
or Purchaser as to the Preliminary Income Statement, the Preliminary Income
Statement shall be adjusted as determined by the Accounting Firm by the full
amount of such adjustment and any other adjustments agreed to by the parties
and shall be deemed to be the Final Income Statement.  There shall be no adjustment to the
Preliminary Income Statement unless at least $100,000 in the aggregate is
determined by the Accounting Firm as adjustments to the Preliminary Income
Statement.  If the aggregate adjustment
to the Preliminary Income Statement as determined by the Accounting Firm is
less than $100,000, the Preliminary Income Statement shall be deemed to be the
Final Income Statement.  Adjustments, if
any, to the Preliminary Income Statement shall not affect the Final Pro Forma
Balance Sheet unless corresponding adjustments are made in accordance with the
provisions of this Section 2.4 to the Preliminary Pro Forma Balance Sheet.

 

2.4.8.                     Final
Adjustments.

 

(a)                                  Within
five Business Days after the earlier of (x) delivery of an agreed Final Pro
Forma Balance Sheet under Section 2.4.5 or (y) delivery of the Final Pro
Forma Balance Sheet as determined by the Accounting Firm under Section 2.4.7
or as deemed if the difference between the Closing Working Capital Adjustment
and the Final Working Capital Adjustment is less than $100,000, a settlement
will be made as follows:

 

(i)                                     if
the difference between the Final Working Capital Adjustment and the Closing
Working Capital Adjustment is positive, the amount of such difference shall be
paid by Purchaser to Seller; or

 

(ii)                                  if
difference between the Final Working Capital Adjustment and the Closing Working
Capital Adjustment is negative, the amount of such difference shall be paid by
Seller to Purchaser.

 

(b)                                 Any
amount due pursuant to this Section 2.4.8 shall include interest thereon
from the Closing Date through the payment date calculated at an annual rate of
5% per annum.

 

14

 

ARTICLE III

 

Representations and Warranties of Seller

 

Seller
hereby represents and  warrants as of the
Closing Date:

 

3.1.                              Organization
and Good Standing.

 

3.1.1.                     Parent.  Parent is a corporation duly organized,
validly existing and in good standing under the laws of Delaware.  A true and correct copy of the Certificate of
Incorporation and By-Laws of Parent have been delivered to Purchaser and Parent
is not in violation of any of the provisions thereof.  Parent has full corporate power and authority
to conduct its business as it is now being conducted.  Parent is a holding company, the sole
activity of which is the ownership of the Company Shares, and does not conduct
any business.  Parent is not qualified to
do business in any jurisdiction other than Delaware.

 

3.1.2.                     The
Company.  The Company is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware.  A true and correct
copy of the Certificate of Incorporation and By-Laws of the Company have been
delivered to Purchaser and the Company is not in violation of any of the
provisions thereof.  The Company has full
corporate power and authority to conduct its business as it is now being
conducted.  The  Company is duly qualified to do business in
the jurisdictions listed in Schedule 3.1, and is in good standing
in each such jurisdiction, and such jurisdictions constitute each jurisdiction
in which the Company is required to be so qualified as a result of the nature
of its business or the ownership or use of property.

 

3.1.3.                     Seller.  Seller is a stock insurance company duly
organized, validly existing and in good standing under the laws of
Illinois.  Seller has full corporate
power and authority to conduct its business as it is now being conducted.  Seller is not in violation of any the
provisions of its Articles of Incorporation or By-Laws.

 

3.2.                              Capitalization;
Title to Shares.

 

3.2.1.                     Parent.  The authorized capital stock of Parent
consists of 2,000 shares of Class A Common Stock, par value $.001 per
share, 2,000 shares of Class B common stock, par value $.001 per share,
and 2,000 shares of Preferred Stock, par value $0.001 per share (collectively,
the “Parent Capital Stock”), of which 900 shares of Class A Common Stock
are issued and outstanding.  Seller is
the sole record and beneficial owner of the issued and outstanding Parent
Capital Stock.  The Parent Shares have
been duly authorized and validly issued, and are fully paid and nonassessable.  Seller owns the Parent Shares free and clear
of any Encumbrances.  Except to the
extent provided in the Parent’s Certificate of Incorporation, there is no call,
option, warrant, subscription, preemptive right, conversion right, redemption
right or other right with respect to shares of the Parent Capital Stock.  There is no obligation to pay any dividend or
distribution with respect to the Parent Capital Stock.  No shares of the Parent Capital Stock were
issued in violation of the Securities Act or any other Legal Requirement.  Parent has no Subsidiaries other than the
Company, and, except for 

 

15

 

investments in the
ordinary course of its business, no ownership interest or right or obligation
to acquire any ownership interest in any other corporation, trust, partnership,
joint venture or other legal entity.  No
promissory notes have been issued to or are held by Parent.

 

3.2.2.                     Company.  The authorized capital stock of the Company
consists of 3,000 shares of Common Stock without par value, of which 100 shares
are issued and outstanding.  Parent is
the sole record and beneficial owner of the issued and outstanding Company
Common Stock.  The Company Shares have
been duly authorized and validly issued, and are fully paid and
nonassessable.  Parent owns the Company
Shares free and clear of any Encumbrances. 
There is no call, option, warrant, subscription, preemptive right,
conversion right, redemption right or other right with respect to shares of the
Company Common Stock.  There is no
obligation to pay any dividend or distribution with respect to the Company
Common Stock.  No shares of the Company
Common Stock were issued in violation of the Securities Act or any other Legal
Requirement.  The Company has no Subsidiaries,
and, except for investments in the ordinary course of its business, no
ownership interest or right or obligation to acquire any ownership interest in
any other corporation, trust, partnership, joint venture or other legal entity.  No promissory notes have been issued to or
are held by the Company.

 

3.2.3.                     Claims
Against the Company.  Except with
respect to agreements or open accounts under which Seller and its Affiliates
(other than Parent and the Company) obtain services as customers of the Business
from the Company, as of the Closing Date, Seller will not have any claims
against the Companies, including rights to indemnification under the Companies’
Certificates of Incorporation or By-Laws. 
As of the Closing Date, no officer or director of the Companies will
have any claim against the Companies except for rights to indemnification under
the Companies’ Certificates of Incorporation or By-Laws, as to which no claim
has been asserted.

 

3.3.                              Enforceability.

 

3.3.1.                     Enforceability
of this Agreement.  Seller has full
corporate power and authority to execute and to deliver this Agreement, and to
carry out the transactions contemplated herein. 
Seller has taken all necessary corporate action to authorize Seller’s
execution and performance of this Agreement. 
This Agreement is the valid and binding obligation of Seller, and is
enforceable against Seller in accordance with its terms under the laws of
Illinois, except as such enforceability may be limited by laws affecting the
rights and remedies of creditors and applicable principles of equity (the “Enforceability
Exceptions”).  The execution, delivery
and performance of this Agreement by 
Seller will not, with or without the giving of notice or passage of time
or both, (i) conflict with, result in a default, right to accelerate or
loss of rights under, or result in the creation of any lien, charge or
encumbrance pursuant to any provision of any mortgage, deed of trust, lease,
license agreement or other agreement to which Seller or either of the Companies
is a party or by which any of them is bound or affected, (ii) conflict
with or result in a default under any provision of the articles of
incorporation or by-laws of Seller or the articles of incorporation or by-laws
of either of the Companies, or any effective resolution of the Directors or
Stockholders of Seller or either of the Companies, or (iii) conflict with
or result in a violation of any contract, License or Legal 

 

16

 

Requirement, the conflict
with or violation of which would have a Material adverse effect on the Company
or its assets.

 

3.3.2.                     Enforceability
of the Related Agreements.  Each of
Seller, the Company and                
has full corporate power and authority, respectively, to execute and to deliver
the Related Agreements to which such entities are parties, and to carry out the
transactions contemplated therein.  Each
of Seller and the Company, respectively, has taken all necessary corporate
action to authorize the execution and performance of the Related
Agreements.  The Related Agreements are,
if executed by Seller and the Company, the valid and binding obligations,
respectively, of  Seller and the Company,
and enforceable against Seller and the Company in accordance with their terms
under the laws of Illinois, subject to the Enforceability Exceptions.  The execution, delivery and performance of
the Related Agreements by Seller and the Company will not, with or without the
giving of notice or passage of time or both, (i) conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien, charge or encumbrance pursuant to any provision of any mortgage,
deed of trust, lease, license agreement or other agreement to which Seller and
the Company is a party or by which it is bound or affected, (ii) conflict
with or result in a default under any provision of the articles of
incorporation or by-laws of Seller or the articles of incorporation or by-laws
of the Company, or any effective resolution of the Directors or Stockholders of
Seller and the Company, or (iii) conflict with or result in a violation of
any Legal Requirement.

 

3.4.                              Financial
Statements.

 

3.4.1.                     Delivery
of Financial Statements.  Seller has
delivered to Purchaser the following financial statements:  the unaudited consolidated GAAP balance
sheets and statements of income of Parent and the Company as of and for the
fiscal years ended December 31, 2002, December 31, 2003, and December 31,
2004, and the unaudited consolidated GAAP balance sheet and statement of income
of Parent as of January 31, 2005 (collectively, the “Parent Financial
Statements”).

 

3.4.2.                     Parent
Financial Statements.  The Parent
Financial Statements fairly present the respective financial condition and
results of operations of Parent at the dates thereof or for the periods
referred to therein, all in accordance with GAAP, provided, however, that (i) revenue
has been treated as deferred and earned in accordance with Schedule 3.4.2(A),
(ii) good will is stipulated to be $17,183,293, and (iii) the Most
Recent Parent Financial Statements do not contain statements of changes in
stockholder equity and cash flow and footnote disclosure, and are subject to
normal year-end adjustments.  Since January 1,
2002, except as set forth in Schedule 3.4.2(B), Parent has not made
any Material change in the accounting methods employed by the Companies, except
as may be required by GAAP accounting practices.  Notwithstanding the foregoing, (x) provided
that revenue has been treated as deferred and earned in the Parent Financial
Statements in accordance with Schedule 3.4.2A, the Parties agree
that Purchaser shall have no claim under this Section 3.4.2 or any other
provision of this Agreement with respect to the timing or method of revenue
deferral or earning in the Parent Financial Statements, and (y) the Parties
agree that Purchaser shall have no claim under this Section 3.4.2 or any
other provision of this Agreement with respect to good will.  

 

17

 

The foregoing stipulation
as to timing and method of revenue deferral or earning shall not apply to, or
exclude claims by Purchaser on account of, manifest errors.

 

3.4.3.                     Contingent
Liabilities.  Except as set forth in Schedule 3.4.3,
Parent does not have any liabilities that should be reflected in the Parent
Financial Statements, including, without limitation, contingent liabilities
required to be disclosed under GAAP except for liabilities that were incurred
after the last day of the period covered in the Most Recent Parent Financial
Statements  in the ordinary course of
business.  There are no Material
deficiencies or shortages of funds owing to customers of the Company with
respect to any customer funds over which the Company has had signature
authority or access.

 

3.5.                              Assets.

 

3.5.1.                     Company
Assets.  Schedule 1(D) is
a complete list of assets owned by Parent and the Company as of September 30,
2004 (the “Company Assets”).  As of the Closing Date, the
Parent or the Company, as applicable, will own all of the Company Assets,
except for (i) the Company Transferred Assets, (ii) cash, cash
equivalents, intercompany accounts receivable or payable and intercompany
obligations that will be paid to Seller or settled as Closing Adjustments as
provided in Section 5.1
prior to or at the Closing, (iii) acquisitions, dispositions or
retirements of Company Assets in the ordinary course of business and (iv) any
other dispositions described in Schedule 3.5.1.  Except as stated in Schedule 3.5.1,
Parent or the Company, as applicable, has good and marketable title to the
Company Assets, respectively, and none of the Company Assets is subject to any
Encumbrance except Permitted Encumbrances.

 

3.5.2.                     CNA
Transferred Assets.  As of the
Closing Date, each of the transferors identified on Schedule 1(C) shall
have transferred to the Company good and marketable title to its respective
assets constituting the CNA Transferred Assets free of any Encumbrance, except
for (a) Encumbrances identified on Schedule 3.5.2, or (b) Permitted
Encumbrances.

 

3.5.3.                     Tax
Basis of Transferred Assets.  To the
Knowledge of Seller, the Income Tax basis of the movable personal property
constituting Company Assets and CNA Transferred Assets is shown on Schedule 3.5.3.

 

3.6.                              Litigation.  There is no litigation, investigation,
arbitration or other proceeding of any court or other Governmental Authority
pending or, to Seller’s Knowledge, threatened against the Companies seeking or
asserting (i) damages in excess of $10,000 individually or $160,000 in the
aggregate, (ii) injunctive relief or other mandatory relief that would
restrict the Companies’ business operations or (iii) a claim that
constitutes or if brought would constitute a Retained Employee Liability,
except as listed in Schedule 3.6 to this Agreement by date of
filing, names of parties, court or agency and docket number, (iv) to  revoke any License, or (v) a Material
violation of any Legal Requirement. 
Except as listed in Schedule 3.6, none of Seller and the
Companies is a party to or is bound by any order, judgment, injunction, decree
or settlement agreement under which it may have continuing obligations as of
the date hereof and which may restrict or affect Seller’s ownership of the
Shares or current business operations of the Companies.  There is not pending any action against 

 

18

 

Seller or the Companies
that may reasonably be expected to have the effect of preventing, delaying or
making unlawful the consummation of the transactions contemplated by this
Agreement and the Related Agreements.  To
Seller’s Knowledge, no such proceedings have been threatened.

 

3.7.                              Books
and Records.  The Books and Records
of the Companies related to the Business and in the possession of the Companies
have been maintained in accordance with applicable Legal Requirements and the
Companies’ customary business practices and are used by the Companies in the
operation of the Business.  The minute
books, stock ledger and seal of Parent and the Company have been made available
to Purchaser for inspection and such minute books and stock ledger are complete
and correct in all material respects with respect to records dating from and
after the Acquisition Date.

 

3.8.                              Contracts.

 

3.8.1                        Company
Contracts.  Except as provided in
this Section 3.8.1, Schedule 3.8.1 lists all of the following
written contracts to which the Company is a party:

 

(a)                                  contracts
the performance of which is expected to involve consideration payable
subsequent to the date of this Agreement in excess of $25,000;

 

(b)                                 contracts
which restrict in any Material respect or contain Material limitations on the
ability of the Company to freely conduct business in the United States;

 

(c)                                  contracts
under which the Company has lent or borrowed money, or guaranteed borrowings of
money, which loans or borrowings exceed $25,000;

 

(d)                                 contracts
pursuant to which any Encumbrance, other than Permitted Encumbrances, is placed
or imposed on any Company Assets;

 

(e)                                  contracts
under which the Company is licensor or licensee of patents, trademarks, service
marks or copyrights;

 

(f)                                    partnership
or joint venture agreements; or

 

(g)                                 any
other Material contract not terminable on notice of 90 days or less.

 

Parent is not a party to
any type of contract described in (a) through (g) above.  Schedule 3.8.1 excludes (i) agreements
with employees, (ii) Company ERISA Plans, (iii) contracts
constituting products or services sold or administered by the Company, (iv) any
customer agreements of the Company, (v) Company Assigned Contracts, (vi) computer
software agreements and (vii) leases of real property, which are discussed
elsewhere in this Agreement.  True and
correct copies of the contracts listed in Schedule 3.8.1 have been
provided to Purchaser.  Except as stated
in Schedule 3.8.1, the Company is not in default under said
contracts, and, to Seller’s Knowledge, no third parties are in default under
said contracts.  Except for unsigned
contracts, the contracts listed in 

 

19

 

Schedule 3.8.1
are enforceable by the Company in accordance with their terms, subject to the
Enforceability Exceptions.

 

3.8.2.                     CNA
Assigned Contracts.  True and correct
copies of the CNA Assigned Contracts listed in Schedule 1(B) have
been provided to Purchaser.  Except as
stated in Schedule 3.8.2, the assignor is not in default under said
contracts, and, to Seller’s Knowledge, no third parties are in default under
said contracts.  The CNA Assigned
Contracts are enforceable by the assignor or the Company as assignees, as their
interests may appear, in accordance with their terms, subject to the
Enforceability Exceptions.

 

3.9.                              Intellectual
Property.

 

3.9.1.                     Patents,
Trademarks, Trade Names, Service Marks and Copyrights.  Neither of the Companies owns, and is not the
licensee of, any patents.  The Company
currently uses the trademarks, service marks, trade names, registered
copyrights and domain names listed in Schedule 3.9.1.  Except as provided in Schedule 3.6,
to Seller’s Knowledge, the Company’s current use of its trademarks, service marks,
domain names and copyrights does not infringe upon the rights of any
Person.  Except as provided in Schedule 3.6,
Seller and its Affiliates (including the Companies) have not received any
written notice from any Person that the operation of the Business infringes
upon trademarks, service marks, domain names, patents and copyrights of any
other entity.

 

3.9.2.                     Know-How,
Methods of Operation, Customer Lists and Business Records.  The Company has the right to use in the
conduct of its current business its know-how, methods of operation, customer
lists and business records free and clear of any claims of third persons to
compensation for the use thereof.  Seller
and its Affiliates (including the Companies) have not received any written
notice that the Company’s use in the conduct of the Business of its know-how,
methods of operation, customer and producer lists and business records
infringes upon or otherwise violates the rights of any Person.

 

3.9.3.                     Computer
Programs.

 

(a)                                  Schedule 3.9.3(a) sets
forth a true and complete listing of all Computer Programs owned by Seller or
its Affiliates (including the Companies) and used by the Company in the conduct
of the Business.  Schedule 3.9.3(a) sets
forth (i) the owner of each such Computer Program and (ii) whether
such Computer Program is (A) principally used in the Business (the “Owned
Principally Used Computer Programs”) or (B) used in the Business and in
business units of Seller and its Affiliates other than the Business (the “Owned
Generally Used Computer Programs”), and identifies any Embedded Computer
Programs contained in any of the Owned Principally Used Computer Programs and
Owned Generally Used Computer Programs.

 

(b)                                 Schedule 3.9.3(b) sets
forth a true and complete listing of all Computer Programs used in the conduct
of the Business that are licensed either to Seller or to other Affiliates of
Seller (including the Companies) by unrelated third party licensors, other 

 

20

 

than
the Shrink Wrap Computer Programs, the Embedded Computer Programs and the
Service Computer Programs (the “Licensed Computer Programs”).

 

(c)                                  Schedule 3.9.3(c) sets
forth a listing of all Computer Programs that, to the Knowledge of Seller, have
been purchased by Seller or its Affiliates (including the Companies) in
off-the-shelf, commercial packaging and are currently used by the Company in
the conduct of the Business (“Shrink Wrap Computer Programs”).

 

(d)                                 Subject
to the terms, conditions and limitations of Section 5.8, on the Closing
Date the Company will have:

 

(i)                                     exclusive
ownership of the Owned Principally Used Computer Programs, free and clear of
any licenses or any royalty to third persons (except for Embedded Computer
Programs) or other payment obligations or Encumbrances;

 

(ii)                                  the
right to use the Embedded Computer Programs as embedded in the Owned
Principally Used Computer Programs in the same manner used by Seller or its
Affiliates in the conduct of the Business as of the Closing Date;

 

(iii)                               the right to use the
Owned Generally Used Computer Programs (including the Embedded Computer
Programs as embedded therein) in the same manner used by Seller or its
Affiliates in the conduct of the Business as of the Closing Date;

 

(iv)                              the
right to use the Licensed Computer Programs, in the same manner used by Seller
or the Company as of the Closing Date, solely in connection with the Business,
subject to the terms of the license agreements disclosed in Schedule 3.9.3(b) or
to such other written agreements as may be entered into in accordance with Section 5.8;

 

(v)                                 the
right to use the Shrink Wrap Computer Programs, in the same manner used by
Seller or the Company as of the Closing Date, solely in connection with the
Business; and

 

(vi)                              the
right to receive services from Seller using the Service Computer Programs in
accordance with the terms of the CNA Interim Services Agreement.

 

(e)                                  To
the Knowledge of Seller, the use of the Owned Principally Used Computer
Programs and the Owned Generally Used Computer Programs in the Business as
currently conducted (including the Embedded Computer Programs) does not
infringe upon or otherwise violate the rights of any Person.  Seller and its Affiliates (including the
Companies) have not received any written notice that the use in the 

 

21

 

Business
of the Owned Principally Used Computer Programs, the Owned Generally Used
Computer Programs, the Embedded Computer Programs, the Licensed Computer
Programs or the Shrink Wrap Computer Programs infringes upon or otherwise
violate the rights of any Person.

 

(f)                                    The
Owned Principally Used Computer Programs (including the Embedded Computer
Programs), the Owned Generally Used Computer Programs, the Licensed Computer
Programs, the Shrink Wrap Computer Programs and the Service Computer Programs
constitute all of the Computer Programs used in the conduct of the Business as
of the date of this Agreement.

 

(g)                                 Neither
Seller nor any of its Affiliates is in breach of or in default under any
license or other agreements under which the Company has rights to use the
Licensed Computer Programs, the Embedded Computer Programs or the Shrink Wrap
Computer Programs.

 

(h)                                 The
Service Computer Programs do not constitute the lead applications used to
perform line business functions of the Business, including, but not limited to,
providing claim management services, investigative services and audit and
consulting services to customers of the Business.

 

3.9.4.                     Third
Party Infringement.  To the Knowledge
of Seller, no Person (other than Seller and its Affiliates) has infringed or
otherwise violated any intellectual property rights of the Company not
otherwise described in this Section 3.9 in any Material respect.  The Seller and its Affiliates (including the
Company) have not received written notice that the conduct of the Business
infringes or otherwise violates any intellectual property rights of any Person.

 

3.10.                        Customer
Agreements.  Schedule 3.10
lists all agreements in effect as of the date hereof that constitute the
Business and pursuant to which the Company or any Affiliate receives fees in
excess of $25,000 per year with respect to the Business.  True and correct copies of the contracts
listed in Schedule 3.10 have been provided to Purchaser.  Except as stated in Schedule 3.10,
the Company is not in default under any contracts listed in Schedule 3.10.  Schedule 3.10 separately
identifies the ten customers that have generated the most revenues in
connection with the Business during the 2003 and 2004 calendar years in the
aggregate.  Schedule 3.10
lists all contracts currently in effect with any Governmental Authority, and
names any other Governmental Authority with which the Company has had any
contract or contracts in effect during calendar years 2002, 2003 or 2004 under
which the Company received aggregate revenues from such Governmental Authority
in excess of $10,000 or more in any such calendar year, separately listing such
revenues by Governmental Authority and by calendar year.

 

3.11.                        Compliance
with Legal Requirements.  Except as
disclosed in Schedule 3.11, the Company is in compliance in all
Material respects with Legal Requirements applicable to the Company and to its
business.  To Seller’s Knowledge, except
as described in Schedule 3.11, 
the Company has not committed any breach of any Legal Requirement that
may reasonably be expected 

 

22

 

to result in any Material
penalty or fine, suspension or loss of any License listed in Schedule 3.12,
or other adverse or remedial action that would Materially interfere with the
conduct of the Business.

 

3.12.                        Licenses.  Schedule 3.12 lists each License
of the Company.  Schedule 3.12
lists by individual each professional License, including but not limited to
claim adjuster licenses, held by the Business Employees (the “Individual
Licenses”).  Except as described in Schedule 3.11,
each such License and, to the Knowledge of Seller, each Individual License is
currently effective and is not the subject of any proceedings by which such
License or Individual License might reasonably be expected to be suspended,
restricted, revoked or nonrenewed.  The
Licenses listed in Schedule 3.12 constitute all of the Licenses
that are necessary for the conduct of the Business as the Business is currently
conducted, except for municipal or county business licenses and similar local
licenses obtainable as a matter of right upon payment of a fee. Except with
respect to Licenses issued to natural persons that are listed in Schedule 3.12,
no person other than the Company owns any interest in any License listed in Schedule 3.12.  Since the Acquisition Date, no License issued
to the Company has been revoked or suspended for any reason other than the
Company’s failure to renew such License.

 

3.13.                        Taxes
and Tax Returns.

 

3.13.1.               Affiliated Group Taxes.  All U.S. federal Income Tax Returns and all
other Tax Returns that were required to be filed through the Closing Date by an
Affiliated Group on a consolidated basis including the Companies have been
filed.

 

3.13.2.               Taxes for which Either of the
Companies is Taxpayer.  The Companies
have filed with the appropriate Governmental Authorities all Tax Returns
required to be filed through the Closing Date by the Companies or appropriate
extensions have been obtained therefor. 
All of the foregoing have been filed on a timely basis and are correct
and complete.  All Taxes which have
become due have been or will be fully paid. 
This Section 3.13.2 does not apply to any Tax for which either of
the Companies is or may become liable as a member of an Affiliated Group.

 

3.14.                        Employees.  Neither of the Companies has any
employees.  Except as set forth on Schedule 3.14,
none of the Companies, Seller or its Affiliates is a party to any employment
agreement or severance agreement with any of the Business Employees (except for
personnel policies applicable to all employees generally, true and complete
copies of which have previously been made available to Purchaser).  True and correct copies of any contracts
listed in Schedule 3.14 have been provided to Purchaser.  Schedule 1(A) contains a
complete and accurate list of the following information for each Business
Employee, including each employee on leave of absence: name, position title,
date of hire, and current rate of compensation payable.

 

3.15.                        Employee
Benefits.  Neither of the Companies
has (i) contributed to a multiemployer plan as defined in Section 3(37)
of ERISA, (ii) sponsored or participated in any plan subject to Title IV
of ERISA (a “Title IV Plan”), or (iii) maintained any Pension Plan of any
predecessor employer, as contemplated by Section 414(a) of the
Code.  Neither of the Companies has been
a member of a commonly controlled group of businesses required to be aggregated
under 

 

23

 

Sections 414(b) or (c) of
the Code or Section 4001(b) of ERISA other than (A) the Loews
Corporation group (the “ERISA Group”) and (B) prior to July 23, 1997,
a group consisting solely of the Companies. 
The ERISA Group has not contributed to a multiemployer plan as described
above, but sponsors Title IV Plans.  As
of the date of this Agreement, there is no accumulated funding deficiency, as
defined in Section 412(a) of the Code, in any Title IV Plan of the
ERISA Group, nor have either of the Companies incurred any liability under
Subtitle D of Title IV of ERISA, with respect to any Title IV Plan of the ERISA
Group.  Other than as required by Section 4980B
of the Code or Part 6 of Title IV of ERISA, neither of the Companies
sponsors or contributes to any ERISA Plan that reimburses or funds health or
other insurance benefits to retired employees, or otherwise has any obligation
to reimburse or fund health or other insurance benefits for retired employees,
provided, however, that Seller has obligations of the type described in this
sentence.  Neither of the Companies has
terminated any ERISA Plan with respect to which there remains any unpaid
liability.  Each ERISA Plan that the
Companies maintain or to which either of the Companies has any contractual
obligation to contribute is listed in Schedule 3.15(a).  True and correct copies of each ERISA Plan
listed in Schedule 3.15(a) have been made available to
Purchaser.  Each ERISA Plan that is
intended to be qualified under Section 401 of the Code has a determination
letter from the Internal Revenue Service stating it is so qualified.  Except as stated in Schedule 3.15(a),
the administrator of each ERISA Plan has administered each ERISA Plan in
accordance with the provisions thereof and reasonable interpretations
thereof.  Each Employee Benefit
Arrangement of the Company is listed in Schedule 3.15(b).  True and correct copies of each such Employee
Benefit Arrangement have been made available to Purchaser.  There are no pending audits or examinations
of any of any ERISA Plan covering any Business Employees by any Governmental
Authority, except to the extent that CNA Financial is under continuous audit by
the Internal Revenue Service, nor has any notice of any such audit been
received.  As of the Closing Date, the
Companies will have no unpaid obligations or allocations with respect to any
Business Employee participants in any ERISA Plan, except for future
contributions that may be due from members of the ERISA Group to any Title IV
Plan or Plans.  All amounts withheld from
any Business Employee’s pay for any ERISA Plan shall have been paid to such
ERISA Plan within the period required by Legal Requirements.  No benefit due to any Business Employee under
any ERISA Plan has been wrongfully withheld or left unpaid.

 

3.16.                        Labor
Relations.

 

(a)                                  The
Business is and has been since the Acquisition Date in compliance in all
Material respects with all Legal Requirements respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation any such laws respecting employment and
discrimination, workers’ compensation, family and medical leave, the
Immigration Reform and Control Act, and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice;

 

(b)                                 There
is not now, nor within the past three years has there been, any unfair labor
practice complaint against the Business pending, or to the Knowledge of Seller,
threatened, before the National Labor Relations Board or any other comparable 

 

24

 

Governmental
Authority, and there is not now any pending labor dispute or grievance with
respect to any Business Employee;

 

(c)                                  There
is no known, nor within the past three years has there been, any labor strike,
slowdown or stoppage actually pending, or to the Knowledge of Seller,
threatened, against or directly affecting the Business;

 

(d)                                 To
the Knowledge of Seller, no labor representation organization effort exists nor
has there been any such activity within the past three years with respect to
the Business;

 

(e)                                  No
employee of the Business has been covered in such capacity by a collective
bargaining agreement since the Acquisition Date; and

 

(f)                                    To
the Knowledge of Seller, since the Acquisition Date, all persons engaged by the
Business as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the entity engaging such persons
has fully and accurately reported their compensation on Internal Revenue
Service Forms 1099 when required to do so.

 

3.17.                        Insurance.  Schedule 3.17 lists all insurance
policies covering the Companies by type of insurance, name of insurer,
expiration date, deductibles and policy limits. 
Seller has provided Purchaser with loss runs with respect to the Company
for 2004, provided, however, that such loss run with respect to workers
compensation includes the calendar years 2002, 2003 and 2004.

 

3.18.                        Brokers
or Finders.  Other than with respect
to Sandler O’Neill & Partners, L.P., the fees and expenses of which
shall be paid by Seller, neither Seller nor the Companies have incurred any
obligation or liability, contingent or otherwise, for brokerage or finders’
fees or agents’ commissions or other similar payment in connection with this
Agreement and the transactions contemplated hereby.

 

3.19.                        Absence
of Certain Changes and Events. 
Except as stated in Schedule 3.19 and, between the date of
this Agreement and the Closing, as permitted by Section 5.2, since September 30,
2004, the Company has conducted the Business in the ordinary course of
business, and none of Seller and either of the Companies have (without
limitation):

 

(a)                                  Increased
the rate of compensation to any Business Employee, except for such changes as
do not, in the aggregate for all Business Employees (including increases in
bonuses and accruals under any non-qualified deferred compensation plan) exceed
an increase of 5% or more on an annualized basis;

 

(b)                                 Paid
any bonus or extraordinary compensation to any shareholder, director or officer
of the Companies, or entered into any severance agreement or other contract or
agreement with any shareholder, director or officer of the Companies;

 

25

 

(c)                                  Adopted
or modified any ERISA Plan or Employee Benefit Arrangement applicable to any
Business Employee;

 

(d)                                 Granted
or modified any employment contract, severance agreement, Severance Benefit or
other benefit not constituting an ERISA Plan or Employee Benefit Arrangement
applicable to any Business Employee;

 

(e)                                  With
respect to the Companies, paid any dividend or made any distribution with
respect to its stock, or split, combined, reclassified or otherwise amended the
terms of such stock (except as permitted under Section 5.1), or made any
direct or indirect redemption, purchase or other acquisition of shares of such
stock;

 

(f)                                    With
respect to the Companies, issued any voting securities (including, but not
limited to, additional shares of its authorized but not issued capital stock as
of September 30, 2004);

 

(g)                                 Suffered
or initiated the loss or termination of any agreement set forth on Schedule 3.10,
or received notice from the customer under any such agreement under which
annual revenues of $100,000 or more were received in 2004 of any intent to
terminate such agreement or materially decrease the volume of services
currently being purchased thereunder;

 

(h)                                 Sold,
leased or otherwise disposed of any assets that are individually or in the
aggregate Material to the operation of the Business;

 

(i)                                     Incurred
any damage, destruction or loss to any asset or property dedicated to the use
of the Business that resulted in Material damages in the aggregate;

 

(j)                                     Made
capital expenditures related to the Business in excess of $25,000;

 

(k)                                  With
respect to the Companies, merged with or acquired capital stock in any
corporation;

 

(l)                                    With
respect to either of the Companies in its own name, or with respect to Seller
with respect to the Business, made any loan or advance under any loan to or
guaranteed any obligation of any Person (except for travel advances and
endorsement of checks for collection);

 

(m)                               Incurred
or assumed any indebtedness for money borrowed by the Companies that is not
consistent with past practice;

 

(n)                                 Made
any change in the accounting methods employed by the Companies, except as may
be required by GAAP accounting practices;

 

26

 

(o)                                 Made
any amendment to the Companies’ articles of incorporation or by-laws;

 

(p)                                 Changed
the Company’s practices with respect to billing for services in advance of the
date such services are rendered; or

 

(q)                                 Entered
into any agreement to do any of the foregoing.

 

All of the foregoing
representations and warranties of this Section 3.19 exclude any changes
resulting from transactions contemplated by this Agreement.

 

3.20.                        Seller’s
Approvals.  Except as provided in
this Section, none of Seller and the Companies require any approvals of or
notice filings with any Governmental Authority or other third party except for
those to be obtained prior to the Closing Date and listed in Schedule 3.20
(the “Seller’s Approvals”) in order to consummate the transactions described in
this Agreement and the Related Agreements.

 

3.21.                        Sufficiency
of Assets and Contracts.  The Company’s
assets, properties and rights as of the Closing Date, including the CNA
Transferred Assets, the CNA Assigned Contracts and the rights of the Company
under the Related Agreements (including, without limitation, the Trademark and
Trade Name License Agreement, the Software License Agreement and the CNA
Interim Services Agreement) will constitute all of the assets, properties and
rights used by the Company in the conduct of the Business as of the Closing
Date (except to the extent that Purchaser shall elect not to purchase services
from Seller that are currently being provided by Seller or its Affiliates to
the Company).

 

3.22.                        Real
Property.

 

3.22.1.               Owned Real Property.  The Company does not own any real property.

 

3.22.2.               Leased Real Property.  Schedule 3.22.2 lists all real
property leased or subleased to  Seller
or its Affiliates and used in connection with the Business, and states the date
and parties to the applicable lease or sublease (the “Business Leases”).  Except as stated in Schedule 3.22.2,
there are no defaults under the Business Leases, provided that as to defaults
by parties to the Business Leases other than the Company or Seller or any
Affiliate of Seller, the only defaults required to be disclosed in Schedule 3.22.2
are those of which Seller has Knowledge. 
Seller and the Company have not assigned or placed any Encumbrance upon
any Business Lease.

 

3.23.                        Excluded
Affiliates.  None of the Affiliates
of Seller described in item (ii) of the definition of Affiliates are
currently engaged in a business that would violate the terms of Sections 5.16.1
through 5.16.3 as of the Closing Date, if such provisions were applicable to
such Affiliates.

 

3.24.                        Deferred
Revenue.  With respect to in force life
of file contracts, deferred revenue recorded on the Most Recent Financial
Statements has been determined in accordance with GAAP 

 

27

 

and reflects deferred
revenue so determined for each in force customer agreement for which current
life of file obligations exist as of the date of the Most Recent Financial
Statements.  With respect to in force
contracts other than life of file contracts, deferred revenue recorded on the
Most Recent Financial Statements has been determined in accordance with GAAP,
and is adequate to satisfy future service obligations to customers under in
force contracts other than life of file contracts.

 

3.25.                        Environmental
Matters 

 

3.25.1.               Hazardous Materials.  Except as set forth in Schedule 3.25,
to the Knowledge of Seller, no underground storage tanks are present in, on or
under any property that the Company has owned, operated, occupied or leased
since the Acquisition Date.  Since the
Acquisition Date, the Company has not violated any Legal Requirement by disposing
of any substance that has been designated by any Governmental Authority or by
any Legal Requirement to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended, and
the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies properly and safely maintained (a “Hazardous Material”) in,
on, or under any property that the Company has at any time owned, operated,
occupied or leased.

 

3.25.2.               Hazardous Materials Activities.    To the Knowledge of Seller, since the
Acquisition Date, the Company has not transported, stored, used, manufactured,
released, or exposed its employees or others to, Hazardous Materials in
Material violation of any Legal Requirement in effect on or before the Closing
Date, nor to Seller’s Knowledge, has the Company transported, sold or
manufactured any product containing a Hazardous Material (collectively, “Company
Hazardous Materials Activities”) in Material violation of any Legal
Requirement.

 

3.25.3.               Permits.  The Company does not hold, and is not
required to hold, any environmental License in order to conduct the Business.

 

3.25.4.               Environmental Liabilities.          No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Company threatened against the Company
concerning any Hazardous Material or any Company Hazardous Materials Activity.

 

3.26.                        Accounts
Receivable.  To the knowledge of
Seller, the accounts receivable set forth in the balance sheet of the Company
as of December 31, 2004, represent bona fide claims of the Company against
debtors for sales, services performed or other charges arising on or before the
date thereof.  To the Knowledge of Seller,
all accounts receivable set forth in the Final Pro Forma Balance Sheet will
represent bona fide claims of the Company against debtors for sales, services
performed or other charges arising on or before the Closing Date.  To the Knowledge of Seller, such accounts
receivable are subject to no claims, defenses, counterclaims or rights of
setoff.

 

28

 

ARTICLE IV

 

Representations and Warranties of Purchaser

 

Purchaser
hereby warrants and represents to Seller that:

 

4.1.                              Status
of Purchaser.  Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota. 
Purchaser has full corporate power and authority to conduct its business
as it is now being conducted.  Purchaser
is duly qualified to do business as a foreign corporation in the jurisdictions
listed in Schedule 4.1, and is in good standing in each such
jurisdiction, and such jurisdictions constitute each jurisdiction in which
Purchaser is required to be so qualified as a result of the nature of its
business or the ownership or use of property.

 

4.2.                              Enforceability.  Purchaser has full corporate power and
authority to execute and to deliver this Agreement and the Related Agreements,
and to carry out the transactions contemplated herein and therein.  Purchaser has taken all necessary corporate
action to authorize its execution and performance of this Agreement and the
Related Agreements.  This Agreement and
each of the Related Agreements is the valid and binding obligation of
Purchaser, and enforceable against Purchaser in accordance with its terms,
except as such enforceability may be limited by the Enforceability
Exceptions.  The execution, delivery and
performance of this Agreement and each of the Related Agreements by Purchaser
will not, with or without the giving of notice or passage of time or both, (i) conflict
with, result in a default, right to accelerate or loss of rights under, or
result in the creation of any lien, charge or encumbrance pursuant to any
provision of any mortgage, deed of trust, lease, license agreement or other
agreement to which Purchaser is a party or by which it is bound or affected, (ii) conflict
with or result in a default under any provision of the certificate of
incorporation or by-laws of Purchaser, or any effective resolution of the
Directors or Stockholders of Purchaser, or (iii) conflict with or result
in a violation of any Legal Requirement.

 

4.3.                              Enforceability
of Security Capital Guarantee. 
Security Capital Corporation, a Delaware corporation and the indirect
parent company of Purchaser, has full corporate power and authority to execute
and to deliver its Guarantee of the obligations of Purchaser under this
Agreement and the Related Agreements that has been executed and delivered to
Seller by Security Capital Corporation simultaneously with the execution by the
Parties of this Agreement (the “Security Capital Guarantee”).  Security Capital Corporation has taken all
necessary corporate action to authorize its execution and performance of the
Security Capital Guarantee.  The Security
Capital Guarantee is the valid and binding obligation of Security Capital
Corporation, and enforceable against Security Capital Corporation in accordance
with its terms, except as such enforceability may be limited by the
Enforceability Exceptions.  The
execution, delivery and performance of the Security Capital Guarantee by
Security Capital Corporation will not, with or without the giving of notice or passage
of time or both, (i) conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any provision of any mortgage, deed of trust,
lease, license agreement or other agreement to which Security Capital 

 

29

 

Corporation is a party or
by which it is bound or affected, (ii) conflict with or result in a
default under any provision of the certificate of incorporation or by-laws of
Security Capital Corporation, or any effective resolution of the Directors or
Stockholders of Security Capital Corporation, or (iii) conflict with or
result in a violation of any Legal Requirement

 

4.4.                              Certain
Proceedings.  There is no pending
action against Purchaser in any court or administrative agency that challenges
or may reasonably be expected to have the effect of preventing or delaying or
making unlawful the consummation of the transactions contemplated by this
Agreement and the Related Agreements or the Security Capital Guarantee.  To Purchaser’s Knowledge, no such proceeding
has been threatened.

 

4.5.                              Financial
Statements.  Seller has received the consolidating
and consolidated audited balance sheet and income statement of WC Holdings, Inc.,
the parent company of Purchaser, as of December 31, 2003, and the consolidating
and consolidated unaudited balance sheet and income statement of WC Holdings, Inc.,
as of December 31, 2004
(the “Purchaser Financial Statements”). 
The Purchaser Financial Statements fairly present the financial
condition of WC Holdings, Inc., and Purchaser as of and for the periods
ending on the dates thereof.  As of the
Closing Date, there shall not have been any material adverse change in the
financial condition of Purchaser, and Purchaser shall be solvent and paying its
obligations in the ordinary course of business. 
Except as set forth in Schedule 4.4, Purchaser has no
liability, including, without limitation, contingent liabilities required to be
disclosed under GAAP, except for (i) liabilities set forth in the balance
sheet included in the Purchaser Financial Statements and (ii) liabilities
which were incurred on and after December 31,
2004, in the ordinary course of business.

 

4.6.                              Brokers
or Finders.  Purchaser has incurred
no obligation or liability, contingent or otherwise, for brokerage or finders’
fees or agents’ commissions or other similar payment in connection with this
Agreement and the transactions contemplated hereby.

 

4.7.                              Purchaser’s
Approvals. Purchaser requires no approvals of or notice filings with any
Governmental Authority or other third party except for those listed in Schedule 4.7
(the “Purchaser’s Approvals”) in order to consummate the transactions described
in this Agreement and the Related Agreements.

 

4.8.                              Securities
Laws.  Purchaser is acquiring the
Parent Shares (and through ownership of the Parent Shares, the Company Shares)
for investment for its own account, not as a nominee or agent, and not with a
view to, or for resale in connection with, any distribution thereof.  Purchaser understands that the Parent Shares
and the Company Shares have not been, and will not be, registered under the
Securities Act or any applicable state securities law by reason of specific
exemption from the registration provision of the Securities Act or such state
securities laws that depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the representations expressed in this
Section 4.8.  Purchaser agrees that
the certificates representing the Parent Shares and Company Shares may bear
legends to the effect that such shares have not been registered under the
Securities Act, or such other state securities laws, and that no interest
therein may be transferred or otherwise disposed of in violation of the provisions
thereof.

 

30

 

4.9.                              Investment
Company.  Purchaser is not an
investment company subject to registration and regulation under the Investment
Company Act of 1940, as amended.

 

4.10.                        Financing.  Purchaser has available, and
at the Closing will have available, sufficient cash and debt capacity to
consummate the transactions contemplated by this Agreement and the Related
Agreements and to pay all related fees and expenses required to be paid by
Purchaser hereunder and thereunder.

 

ARTICLE V

 

Additional Agreements of Seller and Purchaser

 

5.1                                 Closing
Adjustments.  Seller and Purchaser
covenant and agree that the transfers, payments and intercompany transactions
described in the Prototype Pro Forma Balance Sheet (the “Closing Adjustments”),
which are described therein on a pro forma basis as of September 30,
2004, will be made at or prior to the Closing. 
Except as set forth in the Prototype Pro Forma Balance Sheet, any
agreements between Seller or its Affiliates, on the one hand, and either of the
Companies, on the other hand, shall be terminated at or prior to the Closing.  For avoidance of doubt, (i) Seller will
not cause to be terminated prior to the Closing any customer agreement or open
account under which Seller and its Affiliates (except for Parent and the
Company) obtain services from the Company as customers of the Business, unless
the related obligation of Seller or any of its Affiliates to their customer is
terminated by such customer prior to the Closing, and (ii) Seller will not
eliminate as an intercompany obligation any account receivable of the Company
with respect to any of such services. 
Notwithstanding the covenant of Seller and its Affiliates in the preceding
sentence, nothing in this Agreement or any Related Agreement shall modify or
otherwise affect the existing right of Seller and its Affiliates as customers
of the Business to terminate agreements or open accounts with the Company subsequent
to the Closing.

 

5.2.                              Conduct of the Business.

 

(a)                                  Prior to the Closing Date or the termination
of this Agreement pursuant to the terms hereof, except as contemplated hereby
(including, without limitation, as set forth on Schedule 5.2(b)),
Seller will cause the Company (and will cause Parent to cause the Company) to
conduct the Business only in the ordinary course of business, substantially
consistent with past practice and with current business plans, and will use
commercially reasonable efforts to preserve the business organization and
relationships of the Company as they relate to the Business, preserve the
rights, franchises, good will and relations of its clients, preserve the
Licenses issued to the Company in full force and effect consistent with past
practice, keep available the services of the Business Employees and other
employees directly involved in the Business (provided, however, that Seller
shall have no obligation to pay stay bonuses not already committed to), preserve the Company’s relationships
with its clients and 

 

31

 

others having business dealings with the Business
and continue to market new Business consistent with past practice.

 

(b)                                 Without limiting the generality of Section 5.2(a),
during the period from the date of this Agreement to the Closing Date, to the
extent it affects the Business and except as set forth on Schedule 5.2(b) or
as expressly permitted by this Agreement, Seller shall not, and shall cause the
Company (and shall cause the Parent to cause the Company) not to, without the
prior written consent of Purchaser:

 

(i)                                     other than in the ordinary course of business
consistent with past practice, (A) terminate, transfer or otherwise
dispose of any Company Assets or assets which would otherwise be CNA
Transferred Assets, (B) enter into, modify or make any substantial change
to any CNA Assigned Contract, (C) acquire any assets (other than
investment securities acquired in the ordinary course of business) related to
the Business which in the aggregate exceed $25,000, or (D) reallocate any assets
currently owned, used or held for use by the Business to any other line of
business, unit or division of the Company or to any Affiliate of Seller or any
other line of business, unit or division of Seller or any Affiliate of Seller;

 

(ii)                                  (A) permit or allow any of the Company
Assets, CNA Transferred Assets or
agreements with customers or distributors of the Business to become
subject to any Encumbrance except Permitted Encumbrances, (B) waive any
claims or rights relating to the Business, except in the ordinary course of
business consistent with past practices, (C) without reference to
practices followed in the ordinary course of business, grant any increase in
the compensation or benefits of or increase or promise to increase, or
establish any new Plan or Employee Benefit Arrangement for any of the Business
Employees (including any such increase pursuant to any wage, salary, incentive,
bonus, pension, profit-sharing or other plan or commitment), except for payments
of bonuses earned by Business Employees according to the CNA Annual Incentive
Bonus plan for the 2004 calendar year, or (D) adopt, enter into or amend
any Severance Benefits, except as provided in Section 5.7(i);

 

(iii)                               make any change, in a manner which would be
adverse to the Business, in accounting methods, principles or practices used by
the Company in connection with the Business, including, without limitation with
respect to maintenance of capital adequacy requirements, except insofar as may
be required by a change in U.S. generally accepted accounting principles or tax
accounting principles or as may be required by law or any Governmental
Authority;

 

(iv)                              permit any Business Employee’s employment to
be transferred to any other business of Seller or any Affiliate of Seller other
than the Business at any 

 

32

 

time from the date of this Agreement to the date
which is one day after the Closing Date;

 

(v)                                 other than in the ordinary course of the
Business, terminate the services of any Business Employee (other than for
cause) or substantially change the duties of any Business Employee;

 

(vi)                              solicit the employment of any Business
Employee unless Purchaser has notified Seller in writing that it will not make
an offer of employment to the Business Employee, or that Purchaser’s offer of
employment has been rejected by the Business Employee and Purchaser has elected
to waive the prohibition of this subsection 5.2(b)(vi);

 

(vii)                           cause the Company to maintain the Books and
Records other than in the same manner and with the same care that such Books
and Records have been maintained prior to the execution of this Agreement;

 

(viii)                        fail to pay any undisputed accounts payable
in accordance with existing practices, including, but not limited to, the
timing of such payments in relation to the date the invoice is received; or

 

(ix)                                agree in writing or otherwise to take any of
the actions described above in this Section 5.2(b).

 

5.3.                              Expenses.  Except as otherwise expressly provided herein
and regardless of whether any or all of the transactions contemplated by this
Agreement are consummated, Seller and Purchaser shall each be responsible,
respectively, for the payment of expenses incurred in connection with the
transactions contemplated by this Agreement

 

5.4.                              Purchaser’s Access to the Business Prior to
Closing.  Between the date of this Agreement and the
Closing Date, subject to Legal Requirements relating to the exchange of
information, Seller shall afford to Purchaser and its authorized agents and
representatives access, upon reasonable notice and during normal business
hours, to all contracts, documents and information of or relating to the
assets, liabilities, business, operations and other aspects of the Business,
provided, however, that Purchaser’s agents and representatives shall not have
access to (i) information that is legally privileged or to which Purchaser’s
access is not permitted pursuant to any contractual obligation or Legal
Requirement, (ii) Tax records and information, and (iii) contracts,
documents and information pertaining to the operations of the Seller or its
Affiliates (not including the Company) other than the Business.  Seller shall cause the Business Employees and
other employees of Affiliates of Seller to provide reasonable assistance to
Purchaser in Purchaser’s investigation of matters relating to the transactions
contemplated hereby; provided, however, that Purchaser’s investigation shall be
conducted in a manner which does not interfere with the normal operations,
client and employee relations of Seller and Seller’s Affiliates.  Without limiting any of the terms thereof, (i) the
terms of the Confidentiality Agreement shall govern Purchaser’s and its 

 

33

 

representatives’
obligations with respect to all confidential information with respect to the
Business, Seller and its respective Affiliates and other related Persons, which
has been provided or made available to them at any time, including during the
period between the date of this Agreement and the Closing Date, provided,
however, that this sentence shall not apply to communications approved by the
Parties in accordance with Section 5.9, and (ii) Purchaser shall
maintain the confidentiality of all nonpublic personal information of the Company’s
customers as required under applicable Legal Requirements.

 

5.5.                              Performance of this Agreement.  Each
of the Parties hereto shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the provisions
hereof and the transactions contemplated hereby.  Each such party shall, at or prior to the
Closing Date, use its commercially reasonable efforts to fulfill or obtain the
fulfillment of the conditions precedent to the consummation of the transactions
contemplated hereby, including the execution and delivery of any documents,
certificates, instruments or other papers that are reasonably required for the
consummation of the transactions contemplated hereby.

 

5.6.                              Notification of Certain Matters.

 

(a)                                  Each party shall give notice to the other
party within 3 Business Days of (i) the occurrence, or failure to occur,
of any event or the existence of any condition that has caused or could
reasonably be expected to cause any of its representations or warranties
contained in this Agreement to be untrue or inaccurate at any time after the
date of this Agreement, up to and including the Closing Date (except to the
extent such representations and warranties are given as of a particular date or
period and relate solely to such particular date or period), and (ii) any
failure on its part to comply with or satisfy any covenant, conditions or
agreement to be complied with or satisfied by it under this Agreement.

 

(b)                                 Seller shall by written notice to Purchaser
provide or supplement any Schedule to reflect any change or event that
occurs after the date of this Agreement and prior to Closing.

 

(c)                                  Such supplemental schedules shall be deemed
to cure any breach of any of Seller’s representations or warranties only to the
extent that changes reflected in such supplemental schedules result from normal
retirements and replacements of CNA Transferred Assets, including normal
upgrades or replacements of Computer Programs (other than replacements of
Computer Programs constituting the lead applications for key line operations of
the Business), and the hiring, resignation and termination of Business
Employees, all of which shall otherwise be in compliance with the terms of this
Agreement.

 

34

 

5.7.                              Employee
Matters.

 

(a)                                  Purchaser
or the Company shall offer to employ each Business Employee effective as of the
Closing Date in each case for a base annual salary that will not be less than
the base annual salary shown for such Business Employee in Schedule 1(A),
and with a pay grade or officer level that corresponds reasonably within
Purchaser’s organization to their current grade or officer level with Seller,
except for the excepted Business Employees designated on Schedule 1A.  Seller agrees
that it will reasonably cooperate with Purchaser with respect to the transition
of Business Employees as provided above. 
Each Business Employee who accepts employment with Purchaser or the
Company to commence following the Closing Date shall be treated as a “Transferred
Employee” for purposes hereof.

 

(b)                                 From and after the Closing Date, Purchaser or
the Company shall grant all Transferred Employees, for purposes of employee
benefit rights, the following privileges:

 

(i)                                     With respect to any Pension Plan in which a
Transferred Employee is covered, Purchaser shall grant (i) immediate
participation to any Transferred Employee who was employed by Seller for a
period of at least one year prior to the Closing Date, and for any such
Transferred Employee who was not employed by Seller for a period of at least
one year prior to the Closing Date, Purchaser shall grant credit for service
with Seller and its Affiliates for purposes of determining eligibility to
participate in such Pension Plan, and (ii) credit for service as an
employee of Seller and its Affiliates shall be credited as service with
Purchaser for purposes of vesting of benefits and early retirement under any
such Pension Plan, provided, however, that service with Seller and its
Affiliates shall not be credited for purposes of benefit accrual or in any
formula affecting the accrual of benefits under any such Pension Plan;

 

(ii)                                  When applicable with respect to any medical
benefit, dental benefit, group life insurance, business travel and short term
disability plan of Purchaser, (A) Purchaser shall waive, with respect to
any Transferred Employee, any pre-existing condition exclusion and
actively-at-work or waiting period requirements (to the extent such exclusion
or requirement would not have applied under the applicable corresponding plan
of Seller or its Affiliates covering such Business Employee immediately prior
to the Closing), (B) with respect to any long term disability plan of
Purchaser, Purchaser shall waive any actively-at-work requirements and (C) any covered expenses incurred on
or before the Closing Date by a Transferred Employee or a Transferred Employee’s
covered dependents shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions after
the Closing Date to the same extent as such expenses would 

 

35

 

be taken into account if incurred by similarly
situated employees of Purchaser; and

 

(iii)                               For purposes of determining the vacation and
holiday paid time off benefits to which any Transferred Employee is eligible,
Purchaser agrees to credit Transferred Employees with service accrued as
employees of Seller and any of its Affiliates.

 

Nothing in this Section shall obligate
Purchaser to retain any Transferred Employee as an employee of the Company or
any Affiliate of Purchaser for any fixed period of time, or to provide any form
of employee benefit to Transferred Employees, nor shall Purchaser be obligated
to provide service credits for prior service with Seller and its Affiliates to
Transferred Employees other than the service credits described in this Section.

 

(c)                                  Seller agrees to provide COBRA continuation
coverage for all Business Employees (and their covered dependents) to the extent
required by applicable law.

 

(d)                                 At
the Closing, Seller will to pay to each Transferred Employee his or her accrued
paid time off as of the Closing Date.

 

(e)                                  Business Employees who (i) are receiving
short term disability benefits, workers compensation benefits, sick day
benefits, or who are on leave of absence on the date hereof, as identified on Schedule 5.7(e) (which
shall be updated one day prior to the Closing Date), (ii) return to active
employment with Seller or any of their Affiliates within a 26-week
continuous cumulative period of absence, which absence is approved by Seller, (iii) accept
employment with Purchaser or the Company (effective the day following the date
the Business Employee returns to active employment with Seller or its
Affiliates) and (iv) are actively at work for Purchaser or the Company on
such day, shall be referred to as “Delayed Transferred Employees.”  Seller shall terminate the employment of all
Transferred Employees as of the Closing Date, and the employment of all Delayed
Transferred Employees effective the date they return to active employment with
Seller on and after the Closing Date (except as otherwise prohibited by law) or
the expiration of the 26-week cumulative approved period of absence,
whichever is sooner.  Seller may
terminate the employment of any Business Employees who are not Transferred
Employees or Delayed Transferred Employees as of the Closing Date or
thereafter.

 

(f)                                    Except as provided in this subsection, all
employment records of the Business Employees compiled prior to the Closing will
be retained by Seller or its designee. 
At the Closing, Seller shall deliver to Purchaser an electronic
employment record for each Transferred Employee in the form of, and containing
the fields specified in, Schedule 5.7(f).  Seller will retain all other employment
records of the Transferred Employees and will grant access by Purchaser to such
records, subject to Seller 

 

36

 

personnel policies and applicable Legal Requirements
related to disclosure of personnel files.

 

(g)                                 For
the avoidance of doubt, Purchaser will not be responsible for or assume any
liability or loss incurred or suffered as a result of any claim by any present
or former employee who performed or performs services in or for the Business,
including, without limitation, the Transferred Employees and the Delayed
Transferred Employees, that (x) relates to the employment relationship of such
present or former employee with Seller or any of its Affiliates, (y) arose out
of actions, events or omissions that occurred (or, in the case of omissions,
failed to occur) prior to the Closing Date, and (z) arises either under
federal, state or local statute (including, without limitation, Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1990, the Equal Pay Act, the Americans with
Disabilities Act of 1990, ERISA and all other statutes regulating the terms and
conditions of employment or the payment of compensation or benefits),
regulation or ordinance, under the common law or in equity (including any
claims for wrongful discharge or otherwise), or under any policy, agreement,
understanding or promise, written or oral, formal or informal, between Seller
or any of its Affiliates, and the Person (collectively, the “Retained Employee
Liabilities”).

 

(h)                                 Purchaser
agrees to pay severance and provide benefits to any Transferred Employee whose
employment terminates or is terminated on or before the first anniversary of the
Closing Date that are substantially equivalent to the Severance Benefits such
Transferred Employee would have received under and in accordance with severance
arrangements or plans covering such Transferred Employees immediately prior to
the Closing Date and disclosed on Schedule 5.7(h).

 

(i)                                     Seller
agrees to continue to employ the Business Employees located at the Company’s
office at 40 Wall Street, New York, New York, for a period up to six months
after the Closing Date, subject to the terms and conditions of their employment
that are applicable as of the date of this Agreement or as they may be modified
by changes to Seller’s general employment policies and practices.  Seller agrees to make such employees
available to provide services to the Company for a period of six months after
the Closing as provided in the CNA Interim Services Agreement, at the sole cost
of the Company.  Seller further agrees to
offer and pay to each such Business Employee a stay bonus equal to 25% of each
such Business Employee’s annual base salary provided that each such Business
Employee successfully completes his or her service for Seller during the period
provided for such service in the CNA Interim Services Agreement.  Such stay bonus, including any employment and
withholding Taxes thereon, shall be reimbursed to Seller by Purchaser or the
Company.  Seller shall have no obligation
to such Business Employees other than as specified in this Section 5.7(i) and,
provided that Seller fulfills such obligations, Seller shall have no liability
to Purchaser or the Company 

 

37

 

should
Seller fail to retain any of such Business Employees as Seller’s employees for
all or any portion of the period specified in this Section 5.7(i).

 

5.8.                              Computer
Programs.  The obligations of Seller
and Purchaser with respect to Computer Programs used in the Business shall be
satisfied as of the Closing as follows:

 

(a)                                  The
Owned Principally Used Computer Programs that are owned by Seller and its
Affiliates (excluding the Company) shall be conveyed to the Company as CNA
Transferred Assets.

 

(b)                                 The
Company shall be granted the rights with respect to the Owned Generally Used
Computer Programs that are described in the Software License Agreement.

 

(c)                                  With
respect to each Licensed Computer Program, Embedded Computer Program and Shrink
Wrap Computer Program that is licensed by the licensor thereof to Seller or any
of Seller’s Affiliates (except those Licensed Programs that are solely licensed
to the Company), at the Closing Seller will use reasonable best efforts to
provide to the Company as of the Closing Date the rights described in Section 3.9.3(d).  All rights proposed to be provided by Seller
to the Company as of the Closing Date with respect to each Licensed Computer
Program, Embedded Computer Program and Shrink Wrap Computer Program shall be
described in Schedule 5.8(c), which Schedule shall be
delivered to Purchaser not later than three business days prior to the Closing.

 

(d)                                 With
respect to each Service Computer Program, Seller to the extent necessary to
provide services to the Company under the CNA Interim Services Agreement shall
use reasonable best efforts to obtain from the licensor thereof at the expense
of Seller the right to use each Service Computer Program solely to provide
services to the Company under the CNA Interim Services Agreement and the
duration of the right of use so obtained shall not exceed six months after the
Closing Date, unless, subject to any necessary consents required from the applicable
licensors, the Parties in the future agree to a longer term in the CNA Interim
Services Agreement with respect to any service supported by a Service Computer
Program or Programs.

 

(e)                                  Seller
shall be responsible and liable for the first $500,000 of the cost of complying
with the provisions of this Section 5.8 and Section 3.9.3(d).  Any costs of compliance in excess of such
amount shall be shared equally by Seller and Purchaser.  For avoidance of doubt, costs other than
those for which Seller is responsible under Section 5.8(i) with
respect to Unavailable Computer Programs shall be charged to the $500,000
amount to be reimbursed by Seller under this Section 5.8(e) prior to
the charging of any costs to be reimbursed by Seller and described in Section 5.8(i).  An example of the aggregation of
reimbursement of costs under Sections 5.8(e) and 5.8(i) is Schedule 5.8(e).  

 

38

 

(f)                                    The
Company shall be exclusively responsible and liable for payment of continuing seat
charges, upgrade and maintenance fees, and for performance of other contractual
obligations arising with respect to use by the Company after the Closing Date
of the Licensed Computer Programs, the Embedded Computer Programs and the
Shrink Wrap Computer Programs licensed or assigned or otherwise provided to the
Company pursuant to this Section 5.8.

 

(g)                                 If
any Computer Programs not previously scheduled are placed in service in the
Business between the date of this Agreement and the Closing Date, such Computer
Programs shall, respectively, be subject as of the Closing Date to the
representations and warranties of Section 3.9.3 and shall be added as of
the Closing Date to the applicable schedule described in Section 3.9.3.  If any Computer Programs are removed in the
ordinary course of business by Seller from active service in the Business after
the date of this Agreement and prior to the Closing Date, and such Computer
Programs are not necessary for the conduct of the Business on the Closing Date
(to process current or previously recorded data of the Business), then Seller
may remove such Computer Programs from any Schedule described in Section 3.9.3
as of the Closing Date and may remove such Computer Programs as Service
Computer Programs; provided, that no such removal from any Schedule shall
relieve Seller of any indemnification obligation with respect to any breach of
any representation in Section 3.9.3 (other than Section 3.9.3(d))
with respect to any such Computer Programs. 
Seller shall notify Purchaser in writing as soon as reasonably
practicable after Seller’s decision to remove any such Computer Programs from a
schedule or as Service Computer Programs, but in any event such
notification shall be provided within ten business days prior to the Closing Date.

 

(h)                                 Seller’s
sole obligations to Purchaser with respect to transferring or providing rights
to use the Licensed Computer Programs, Embedded Computer Programs, the Shrink
Wrap Computer Programs and the Service Computer Programs shall be those
described in this Section 5.8.  Each
party shall bear its own costs of reviewing and negotiating any agreements
required for the implementation of this Section 5.8.  Seller shall, in using reasonable best
efforts to obtain the rights described in Sections 5.8(c) and (d) for
Purchaser, be entitled to use reasonable business judgment in negotiating with
unrelated third party licensors and agreeing to terms and conditions under
which such rights are granted or consented to by such licensors.  Seller shall keep Purchaser informed on a
contemporaneous basis as to the general progress of negotiations with each of
the unrelated third party licensors, but Purchaser shall have no right to
intervene in or participate in such negotiations or to contest, by an action
for injunction or otherwise, Seller’s decisions to accept or reject terms
offered by a licensor.  The foregoing
sentence does not apply to or limit in any way Seller’s obligations under Section 5.8(i) nor
does it limit Purchaser’s right to obtain damages if Seller fails to use
reasonable best efforts to obtain the rights for Purchaser described in
Sections 5.8(c) and (d).

 

39

 

(i)            Notwithstanding
any other provision in this Section 5.8, if despite reasonable best efforts of
Seller to obtain on behalf of Purchaser the rights described in subsections (c)
or (d) of this Section 5.8, such rights cannot be obtained at a reasonable cost,
or cannot be obtained at all, Seller shall provide, at Seller’s expense,
Computer Programs that will perform all of the functions of the Computer
Programs the rights to which Seller is otherwise obligated to obtain under
subsections (c) or (d), as applicable (the “Unavailable Computer Programs”)
that would have been Material to the operation of the Business by Seller at the
time of the Closing, in a manner that does not Materially increase the
difficulty or expense of operating the Business in comparison to its operation
using the Unavailable Computer Programs. 
To the extent that Seller delivers any substitute Computer Programs
instead of Unavailable Computer Programs in accordance with this Section
5.8(i), Seller agrees to reimburse 100% of Purchaser’s additional expenses of
implementing the use of the substitute Computer Programs, including, but not
limited to, expenses of implementing the use of such Computer Programs with
customers and other third parties that currently use or have access to the Unavailable
Computer Programs, to an aggregate total of reimbursable expenses not to exceed
$250,000, in addition to any such expenses that are charged against the
$500,000 obligation of Seller under Section 5.8(e).

 

(j)            At
the Closing, by consummating the transactions described in this Agreement,
Purchaser accepts the rights to Computer Programs described in this Section 5.8
and confirms that as to the Computer Programs (i) listed as CNA Transferred
Assets, and (ii) assigned or otherwise provided rights to the Company under
Sections 5.8(b) and 5.8(c) as satisfying Seller’s obligations to transfer to or
obtain for the Company rights with respect to each of the Computer Programs
described in the foregoing clauses (i) and (ii), provided, however, that by
making this confirmation Purchaser does not waive any rights it has or may have
in the future to claim and recover from Seller because of a breach of any of
Seller’s representations and warranties with respect to such Computer Programs
in Article  III.

 

5.9.          Communications.  Except pursuant to any Legal  Requirements (including, without limitation,
the filing of periodic and other reports with the Securities and Exchange
Commission or other Governmental Authorities concerning the transactions
contemplated by this Agreement and the Related Agreements) or the rules of any
applicable stock exchange, no release or announcement concerning this Agreement
or the transactions contemplated hereby, shall be made without advance written
approval thereof by Seller and Purchaser, which approval shall not be
unreasonably conditioned, delayed or withheld. 
All Parties shall cooperate with each other in making any such release
or announcement.  Each Party shall
request confidential treatment of information concerning the transactions
contemplated by this Agreement and the Related Agreements when filing such
information with, or communicating such information to Governmental Authorities
which allow confidential treatment of such type of information.  Seller and Purchaser have prepared a mutually
acceptable communications plan for announcing the status of the transactions
contemplated hereby, any related events that will occur prior to the Closing,
and Purchaser’s plans with respect to future relations with or employment of
the Transferred Employees and the

 

40

 

customers and distributors of the Business.  From the date of this Agreement through the
Closing Date, Purchaser and its Affiliates shall take no action that interferes
with or damages the conduct of the Business (provided, however, that Purchaser’s
lawful activities in the ordinary course of selling products that compete with
those of the Business shall not constitute a violation of this covenant).

 

5.10.        Execution
and Delivery of Documents. 
All agreements or certificates delivered in connection with the
transactions contemplated by this Agreement shall be deemed to be delivered by
the corporations or companies executing the same, and the individual officers
executing the same shall not be personally liable thereon.

 

5.11.        Cooperation
after the Closing.

 

5.11.1      Further
Assurances.  After the Closing,
Seller and Purchaser shall cooperate with each other by furnishing any
additional information and executing and delivering any additional documents as
may be reasonably requested by the other to further perfect or evidence the
consummation of, or otherwise implement, any transaction contemplated by this
Agreement and the Related Agreements, or to aid in the preparation of any
regulatory filing, financial statement or (subject to the provisions of Section
8.1) Tax Return; provided, however, that any such additional documents must be
reasonably satisfactory to each of the Parties and not impose upon either Party
any Material liability, risk, obligation, loss, cost or expense not
contemplated by this Agreement or the Related Agreements.  After the Closing, Seller and Purchaser, as
the case may be, shall afford or cause to be afforded to any Indemnifying Party
pursuant to Article X hereof such access to all books, records and personnel of
the Company during normal business hours as shall be reasonably requested with
respect to any claim or assertion of any Loss. 
Seller may retain copies of any Records of the Business (as defined in
Section 5.11.4) as of the Closing Date, which if retained shall be held subject
to Section 5.16.

 

5.11.2.     Seller’s
Access to Records.  Except as to Tax
books, records and information, which are subject to the provisions of Section
8.1, for a period of seven years after the Closing Date, Seller and its
representatives shall have reasonable access to all of the books and records of
the Company to the extent that such access may reasonably be required by Seller
in connection with matters relating to or affected by the operations of the
Company prior to the Closing Date.  Such
access shall be afforded by Purchaser upon receipt of reasonable advance notice
and during normal business hours.  Seller
shall be solely responsible for any costs or expenses incurred by it pursuant to
this Section 5.11.2.  If Purchaser shall
desire to dispose of any of such books and records after the expiration of such
seven-year period, Purchaser shall, prior to such disposition, give Seller a
reasonable opportunity, at Seller’s expense, to segregate and remove such books
and records as Seller may select.

 

5.11.3.     Purchaser’s
Access to Records.  Except as to Tax
books, records and information, which are subject to the provisions of Section
8.1, for a period of seven years after the Closing Date, Purchaser and its
representatives shall have reasonable access to all of the books and records
relating to the Company that Seller or any of its Affiliates may retain after
the Closing Date, except for consolidated Tax Returns of the Loews Corporation
Affiliated Group.  Such access shall be
afforded

 

41

 

by Seller and its Affiliates upon receipt of reasonable advance notice
and during normal business hours. 
Purchaser shall be solely responsible for any costs and expenses
incurred by it pursuant to this Section 5.11.3. 
If Seller or any of its Affiliates shall desire to dispose of any of
such books and records after the expiration of such seven-year period, Seller
shall, prior to such disposition, give Purchaser a reasonable opportunity, at
Purchaser’s expense, to segregate and remove such books and records as
Purchaser may select.

 

5.11.4.  Records of the Business.  All records of the Business except for
records transferred to or maintained at the corporate level of Seller (the “Records
of the Business”) that are not already owned by the Company prior to Closing
shall be transferred to the Company as part of the CNA Transferred Assets, to
the extent permitted by applicable Legal Requirements, and shall, as the interest
of the Company and Seller may appear, remain the property of the Company.  Records of the Business shall include,
without limitation, all client account records. 
Seller shall not move, alter or destroy any Records of the Business
without first providing Purchaser with written notice, and Seller shall not
proceed to move, alter or destroy any such records unless Purchaser expressly
consents thereto in writing.  To the
extent that any Records of the Business are in the possession of Seller, Seller
shall permit and cooperate with Purchaser’s downloading and purging of such
Records of the Business after the Closing, except to the extent that Seller or
any of its Affiliates are required to retain ownership thereof under applicable
Legal Requirements.  The cost of
retrieving Records of the Business or copies thereof from Seller after the
Closing shall be at Purchaser’s expense.

 

5.11.5.  Storage of Records of the
Business.  The Parties agree that for
the period of time that Records of the Business are maintained in storage
facilities leased by Seller or its Affiliates, Purchaser shall pay to Seller
the leasing costs associated with storage of the Records of the Business, as
mutually agreed by the Parties.

 

5.11.6.     Subpoenas of
Business Records.  If any Governmental
Authority shall after the Closing Date serve upon the Purchaser or any of its
Affiliates, including the Companies, a subpoena, civil investigative demand or
other request or demand for documents related to operation of the Business
prior to the Closing Date, Purchaser shall give prompt notice to Seller and
shall, if requested by Seller, permit Seller’s counsel a reasonable opportunity
to review, prior to delivery, any such documents proposed to be delivered by
Purchaser or any of its Affiliates to such Governmental Authority in response
to such subpoena, civil investigative demand or other request or demand for
information.  If Purchaser is advised in
writing by its counsel that the giving of such notice to Purchaser or the
inspection of documents is prohibited by any Legal Requirement, Purchaser shall
apply to the Governmental Authority at the expense of Seller for permission to
make such disclosure or permit such inspection. 
To the extent such application is denied by such Governmental Authority,
Purchaser shall be excused from performing such of its obligations under this
Section as it is prohibited from performing by such Legal Requirements.  To the extent Seller has lawful notice of
such a subpoena, civil investigative demand or other request or demand for
documents, Seller may at its own expense make any application in its own name
to obtain prior review or access to documents proposed to be delivered by
Purchaser or any of its Affiliates in response thereto.  At Seller’s expense and at Seller’s request,
Purchaser shall cause the Companies to cooperate and provide Seller access to
and copies of relevant Business Records generated prior to

 

42

 

the Closing Date with respect to Seller’s responses to any subpoena,
civil investigative demand or other request or demand for information of any
Governmental Authority that has been or shall be served on Seller or any of its
Affiliates (including the Companies), whether before or after the Closing Date.

 

5.12.        Third
Party Consents.

 

5.12.1. Obtaining
Third Party Consents. 
Seller and Purchaser shall cooperate and use commercially reasonable
efforts to obtain all approvals and consents to the transactions contemplated
by this Agreement and the Related Agreements, including the consents of third
parties under CNA Assigned Contracts or Company Assigned Contracts.  In the event and to the extent that Seller is
unable to obtain any required approval or consent of non-governmental authorities
to any agreement to be assigned to the Company hereunder, (i) Seller shall
use commercially reasonable efforts in cooperation with Purchaser to (A)
provide or cause to be provided to Purchaser or the Company the benefits of any
such agreement, (B) cooperate in any arrangement, reasonable and lawful as
to Seller and Purchaser, designed to provide such benefits to Pur­chaser or the
Company and (C) enforce for the account of Purchaser or the Company any
rights of Seller arising from such agreements, including the right to elect to
terminate in accordance with the terms thereof on the advice of Purchaser and
(ii) Purchaser shall use commercially reasonable efforts to perform or
cause the Company to perform the obligations of Seller arising under such
agreements and licenses, to the extent that, by reason of the transactions
consum­mated pursuant to this Agreement or otherwise, Purchaser has control
over the resources necessary to perform such obligations.  If and when any such approval or consent
shall be obtained or such agreement or license shall otherwise become
assignable, Seller shall promptly assign all of its rights and obligations
thereunder to the Company without the payment of further consideration (except
as may be required under Section 5.8(e)) and Purchaser shall, without the payment
of any further consideration therefor (except as may be required under Section
5.8(e)), cause the Company to assume such rights and obligations and Seller
shall be relieved of any and all obligation or liability thereunder.

 

5.12.2.     Agreements
Affecting the Other Party. 
Notwithstanding any other provision of this Section 5.12, neither Seller
nor Purchaser shall make or permit any of its Affiliates to make any agreement
or understanding affecting the assets or business of the other Party or its
Affiliates as a condition to obtaining any consents, approvals or waivers
except with the prior written approval of such other Party.

 

5.13.        Regulatory
Compliance.  Purchaser and
Seller and their agents, representatives and Affiliates shall comply  with all Legal Requirements applicable to
their conduct in performing their obligations under this Agreement and the
Related Agreements.

 

5.14.        No
Solicitations.  From and after
the date hereof until the Closing, Seller and its Affiliates shall not, and
shall direct and use its reasonable best efforts to cause each of its officers,
directors, employees, agents, advisors or other representatives (each a “Representative”)
not to, (i) directly or indirectly, solicit, initiate or knowingly
encourage the submission of any Proposal (as defined below),
(ii) participate in any discussions or negotiations regarding, or furnish
to any Person

 

43

 

any non-public
information with respect to any Proposal or Alternative Transaction, other than
with Purchaser or (iii) agree to or approve any Alternative Transaction or
authorize any of its Subsidiaries to agree to or approve any Alternative
Transaction.  For purposes of this
Agreement: (i) “Proposal” means any written proposal or offer from any
Person relating to an Alternative Transaction; and (ii) “Alternative
Transaction” means any transaction for the sale of the Company and/or the
Business.

 

5.15.        Use
of Names.  Notwithstanding any
implication contained herein or prior course of conduct to the contrary, in no
event shall Purchaser or any of its Affiliates, including the Company, have any
right to use, nor shall Purchaser or any of its Affiliates, including the
Company, use, any trademark, service mark, trade name, corporate name or acronym
of Seller or any of its Affiliates in any jurisdiction or any domain name or
URL or any application or registration therefor, owned by, licensed to or used
by Seller or any of its Affiliates, or any other mark, name, term or
identification that suggests, simulates or is otherwise confusing due to its
similarity to the foregoing, except to the extent the Company are authorized to
do so pursuant to the Trademark and Trade Name License Agreement.

 

5.16.        Non-Competition.

 

5.16.1.     Seller.  In
consideration of the benefits of this Agreement and the Related Agreements to
Seller and in order to induce Purchaser to enter into this Agreement, Seller
hereby covenants and agrees, subject to the exceptions in Section 5.16.3, that
for a period of three years after the Closing Date (the “Non-Compete Term”),
neither it nor any of its Affiliates shall, without the prior written consent
of Purchaser, directly or indirectly, operate, engage in, manage or own any
controlling equity interest in any line of business comprised of health care
professional liability or product liability claim administration, investigation
and consulting for self-insured clients in the Restricted Area (as defined
below).

 

5.16.2.     Restricted Area.  The covenants contained in Section 5.16.1
shall be construed as a series of separate covenants, one for each county or
state of the United States of America (including its territories and
possessions), and one for the United States (including its territories and
possessions), as a whole (together, the “Restricted Area”).

 

5.16.3.     Exceptions.  Notwithstanding any other provisions of this
Agreement to the contrary, the provisions of Section 5.16.1 shall not apply to:

 

(a)           Claim
administration, loss prevention, investigation and consulting for policyholders
of Seller and its Affiliates, including, but not limited to, policyholders of
fronted or captive programs sponsored, written or reinsured by Seller or its
Affiliates, in each case as originated both prior to and after the Closing
Date;

 

(b)           Insuring
of policyholders (directly or through fronted or captive programs) that obtain
claim administration services from insurance agents or other third party
administrators;

 

44

 

(c)           any
Person who acquires any interest in CNA Financial or any of its Affiliates,
contracts or policies;

 

(d)           investments
(including the retention of investments) in the ordinary course of business by
Seller and its Affiliates in less than 10% of the outstanding voting stock or
stock equivalents of entities engaging in any lines of business constituting
the Business;

 

(e)           any
transaction or transactions, as a result of which CNA Financial or any of its
Affiliates acquires any interest in the aggregate of less than 50% of the
outstanding voting stock or stock equivalents of any Person engaging in lines
of business constituting the Business, the total revenues of such Person
attributable to lines of business constituting the Business for the fiscal year
immediately preceding such acquisition are less than 50% of such Person’s total
revenues for the fiscal year immediately preceding such acquisition, and
retention of such interest; or

 

(f)            any
transaction or transactions, as a result of which CNA Financial or any of its
Affiliates acquires any interest in the aggregate equal to or greater than 50%
of the outstanding voting stock or stock equivalents of any Person engaging in
lines of business constituting the Business and the retention of such interest,
if the annual revenues of such Person from lines of business constituting the
Business are less than 25% of such Person’s total annual revenues for the
fiscal year immediately preceding such acquisition and the activities of such
Person constituting the Business (the “Business Activities”) are (i)
discontinued within 18 months after such acquisition or (ii) disposed of in
accordance with Section 5.16.4.

 

5.16.4.     Disposition
of Business Activities.

 

(a)           In
the event of any transaction described in Sections 5.16.3(e) or (f), Seller or,
to the extent applicable, its Affiliates shall take the steps provided under
Section 5.16.4(a) to attempt to dispose of Business Activities upon a price and
terms that are acceptable to Seller within two years after such
acquisition.  Seller shall provide to
Purchaser prior written notice of its intention to so dispose of the Business
Activities. Within ten Business Days after such notice, Purchaser may provide a
written offer to Seller to purchase the Business Activities, and Seller shall
respond to such offer within five Business Days of receiving such offer,
stating whether Seller desires to commence negotiations with Purchaser or take
the steps provided under Section 5.16.4(c). 
If Seller at any time thereafter in its sole discretion determines that
it will initiate the steps provided under Section 5.16.4(c), Purchaser shall
have the right to participate in such offering of the Business Activities for
sale on the same terms as other potential purchasers that are invited to
participate in such offering.

 

(b)           If
Seller or its Affiliates fail to dispose of the Business Activities in
accordance with Section 5.16.4(a), not later than three months prior to the
earlier of fifteen months 

 

45

 

after the closing of the
applicable acquisition or the end of the Non-Compete Term, Seller shall offer
the Business Activities to Purchaser at a fair value (a “Purchaser Offer”).  For purposes hereof, fair value will be
determined by Seller taking into account, among other things, an appraisal of
the Business Activities by a nationally recognized consulting firm and a
valuation of the Business Activities by a nationally recognized investment
banking firm with recognized experience in valuing third party claim
administration companies.

 

(c)           Before
making any Purchaser Offer, Seller shall have used commercially reasonable best
efforts to sell the Business Activities in accordance with Section 5.16.4(a),
including providing an offering memorandum to prospective purchasers having, to
the Knowledge of Seller, the qualifications and financial means to purchase the
Business Activities and providing such prospective purchasers reasonable access
to the Business Activities to conduct customary due diligence of such Business
Activities.

 

(d)           With
respect to any Purchaser Offer, Seller shall provide Purchaser and its
respective representatives, upon execution of customary confidentiality
agreements, reasonable access to the Business Activities to conduct customary
due diligence of such Business Activities.

 

(e)           With
respect to any Purchaser Offer, Seller and Purchaser shall, at Purchaser’s
option, use commercially reasonable best efforts to negotiate and enter into
definitive agreements upon commercially reasonable terms to sell to Purchaser
the Business Activities for fair value.

 

(f)            If
Purchaser desires to purchase the Business Activities in accordance with this
Section 5.16.4, and there is disagreement concerning the fair value as
determined by Seller in accordance herewith, the parties shall promptly submit
to binding arbitration the question as to fair value of the Business
Activities.  Binding arbitration shall be
conducted in accordance with the commercial arbitration rules of the American
Arbitration Association (“AAA”) and judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof.  The arbitrator shall be selected by AAA and
shall have at least 10 years of experience in valuing third party
administrators.  The determination of
fair value by the arbitrators shall be final. 
The parties shall use commercially reasonable best efforts to negotiate
and enter into definitive agreements upon commercially reasonable terms to sell
to Purchaser the Business Activities for fair value, as determined by the
arbitrators.

 

(g)           If
Purchaser fails to purchase the Business Activities in accordance herewith,
then Seller’s retention of the Business Activities shall be an exception to
Section 5.16.1.

 

5.16.5.  Due
Diligence Materials. 
Notwithstanding any other provision of this Agreement, following the
Closing, each of Purchaser and Seller may retain one copy of all materials
provided by

 

46

 

Seller to
Purchaser during the due diligence review of the Business by Purchaser.  Copies of “read only” materials of Seller
will be provided by Seller to Purchaser at the Closing.

 

5.16.6.     Enforcement.  Each of the Parties specifically agrees that
this covenant is an integral part of the inducement of the respective Parties
to enter into this Agreement and that each Party (or its successors or assigns)
shall be entitled to injunctive relief in addition to all other legal and
equitable rights and remedies available to it in connection with any breach by
the other Party or any of its Affiliates of any provision of this Section 5.16
and that, notwithstanding the foregoing, no right, power or remedy conferred
upon or reserved or exercised by a Party in this Section 5.16 is intended to be
exclusive of any other right, power or remedy, each and every one of which (now
or hereafter existing at law, in equity, by statute or otherwise) shall be
cumulative and concurrent.

 

5.16.7.     No-Hire.

 

(a)           Purchaser
hereby covenants and agrees that neither it nor the Company nor Security
Capital Corporation and its subsidiaries shall, during the Non-Compete Term,
without the prior written consent of Seller, directly or indirectly, solicit
for employment, hire, or enter into an agency or consulting relationship with
any personnel employed by Seller or its Affiliates identified on Schedule
5.16.7(a), or any personnel of Seller or its Affiliates working in systems
or technology, whether or not so identified, in each case during such
employment and for a period of one year after any termination thereof.

 

(b)           Seller
hereby covenants and agrees that neither it nor any of its Affiliates shall,
during the Non-Compete Term, without the prior written consent of Purchaser,
directly or indirectly, solicit for employment, hire or enter into an agency
relationship with, any employee of the Company engaged in the conduct of the
Business, during such employment and for a period of one year after any
termination thereof.

 

(c)           Purchaser
hereby covenants and agrees that in the event this Agreement is terminated at
any time prior to the Closing, neither it nor any of its Affiliates shall, for
a period of two years from and including the date of such termination, without
the prior written consent of Seller, directly or indirectly, solicit for
employment, hire or enter into an agency relationship with, any personnel of
Seller or their Affiliates identified on Schedule 5.16.7(c).

 

(d)           Nothing
in this Section 5.16.7 shall prohibit any party from hiring any person who
responds to a general solicitation of employment in any newspaper, magazine,
trade publication, electronic medium or other media or from soliciting or
hiring any person whose employment with the other party terminated one year
prior to such solicitation or hiring.

 

5.16.8.     Confidential
Information.  Except as
provided in this Section, Seller and its Affiliates will not disclose to, sell
or license to or permit the use by any other Person of any Confidential

 

47

 

Information; nor will
Seller and its Affiliates use any Confidential Information in violation of any
covenant in this Section 5.16.  The
foregoing covenant concerning Confidential Information shall not apply to any
Confidential Information that is or becomes generally known to and available
for use by the public other than as a result of Seller’s fault or the fault of
any other Person bound by a duty of confidentiality to Purchaser or the
Company.  The foregoing covenant also
shall not apply to Confidential Information that is used by the Company and
Seller and its Affiliates in common with the other businesses of Seller and its
Affiliates as of the Closing Date.

 

5.16.9.     Rights
Retained by Seller.  Purchaser
acknowledges that it is not acquiring any interest in any confidential or
proprietary information concerning the enterprise of Seller and its Affiliates
excluding  the  Business, including, but not limited to, (i)
the customers and employees of Seller and its Affiliates, or (ii) information
(x) in which the Company or Seller have an ownership interest (either through
creation, license, other contractual relation or through acquisition from
Seller and its Affiliates), (y) that is confidential, and (z) relates to the
data bases, marketing strategies, marketing relationships, products, product
development, product pricing, and customers of the enterprise of Seller and its
Affiliates excluding the Business.

 

5.17.        Monthly
Financial Statements of the Companies.  From the date hereof through the Closing
Date, Seller shall make available to Purchaser, when completed, the unaudited
financial statements of the Companies as of the end of, and for, each month as
prepared by Seller in the ordinary course of its business.

 

5.18.        Bidder
Agreements.  From the date
hereof to the Closing Date, Seller shall use its commercially reasonable
efforts to enforce its rights under all effective agreements entered into
between Seller, on the one hand, and any proposed purchaser, on the other hand,
with respect to the potential acquisition of all or any portion of the Business
or similar transaction (the “Bidder Agreements”).  Promptly following the Closing, Seller shall
use its commercially reasonable efforts to enforce its rights under the Bidder
Agreements for the return or destruction of all confidential information with
respect to the Business.  Immediately
following the Closing, Seller shall assign each of the Bidder Agreements
identified on Schedule 5.18 to Purchaser.  Following the Closing Date, Seller shall use
its commercially reasonable efforts to enforce, upon Purchaser’s consent and at
Purchaser’s expense, Seller’s rights under all Bidder Agreements not assigned
to Purchaser unless a breach of such rights under any such Bidder Agreement
would not reasonably be expected to adversely affect the Business.

 

5.19.        Facilities
Plan.  Effective as of the
Closing Date, Purchaser will cause the Company to enter into the CNA Subleases
described in the Facilities Plan that is Schedule 5.19 to this Agreement
(the “Facilities Plan”),  which
represents premises that the Company will continue to occupy after the
Closing.   Purchaser will further cause
the Company to make the monthly rental payments to Seller that are described in
the Facilities Plan with respect to space temporarily occupied by the Company
after the Closing Date in premises owned or leased by Seller.

 

5.20.        Audit
of Parent Financial Statements.  Effective
as of the date of this Agreement, Seller agrees to engage Deloitte & Touch
LLP to audit the financial statements of Parent and the

 

48

 

Company for years
ended as determined at the Closing Date, subject to terms of the engagement
agreement among Seller, Deloitte & Touche LLP and Purchaser to be entered
into prior to the Closing.  The
engagement agreement shall provide that Purchaser agrees (i) to indemnify and
hold Seller, its Affiliates, and the officers, directors and employees of each
and Deloitte & Touche harmless from and against any claim or liability
whatsoever arising from such audit, and (ii) to reimburse Seller for all costs
and expenses of Seller and its Affiliates and Deloitte & Touche LLP
associated with such audit and the negotiation and preparation of any
agreements with respect thereto, all pursuant to an engagement agreement that
is in form and substance satisfactory to Seller and Deloitte & Touche LLP.

 

5.21.        Confidentiality.  Seller and Purchaser shall hold and
cause their respective Representatives to hold in strict confidence, unless
compelled to disclose by a Governmental Authority or Legal Requirement, (i) any
term of this Agreement, the Related Agreements or the transactions contemplated
hereby and thereby, except to the extent provided for under Sections 5.9 and
5.11.6 or as otherwise mutually agreed by the Parties; and (ii) any information
that is furnished by or on behalf of the other Party or its Representatives
prior to the Closing in connection with the transactions contemplated by this
Agreement, except to the extent such information can be shown to have been (x)
previously known by the Party to which it was furnished, (y) in the public domain
through no fault of the Party to which it was furnished, or (z) later lawfully
acquired from other sources by the Party to which it was furnished, provided
that such source is not, to such Party’s Knowledge, bound by a confidentiality
agreement with the other Party or its Representatives and is not, to such
Person’s Knowledge, otherwise prohibited from transmitting the information to
such Party by a contractual, legal or fiduciary obligation.

 

ARTICLE VI

 

Conditions Precedent To
The Obligation

Of Purchaser To Close

 

Purchaser’s obligation to consummate the transactions
contemplated by this Agreement and the Related Agreements is subject to the
fulfillment on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by Purchaser.

 

6.1.          Representations,
Warranties and Covenants.  The
representations and warranties of Seller contained in this Agreement shall be
true and correct on the date of this Agreement and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and correct
as of such date or period, and (ii) except when the failure to be true and
correct (without regard to any materiality qualifiers therein), after taking
into account any amendments to the Schedules pursuant to Section 5.6(c), would
not have a Closing Material Adverse Effect. 
Seller shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by
Seller on or prior to the Closing Date, except when such failure to perform
(without regard to any materiality qualifiers

 

49

 

therein) would not have a
Closing Material Adverse Effect.  On the
Closing Date, Seller shall have delivered to Purchaser a certificate dated as
of the Closing Date, and signed by a senior officer of Seller, to the effect
contemplated by this Section 6.1.

 

6.2.          Related
Agreements.  The Related
Agreements shall have been duly executed and delivered by Seller, as
applicable, on or prior to the Closing Date and such agreements shall be in
full force and effect with respect to Seller and the Company, as applicable, on
the Closing Date.

 

6.3.          Secretaries’
Certificates.  Seller shall
have delivered to Purchaser a certificate of the secretary or assistant
secretary of Seller, dated as of the Closing Date, as to the resolutions of the
Board of Directors (or other similar governing body) of Seller authorizing the
execution, delivery and performance of this Agreement and the Related
Agreements to which it is a party, as to the status and signature of each of
its officers who executed and delivered this Agreement and such Related
Agreements and any other document delivered by it in connection with the
transactions contemplated by this Agreement and the Related Agreements, and as
to its due incorporation, existence and good standing.

 

6.4.          Approvals
and Consents.  The approvals
and consents of any Governmental Authority listed on Schedule 3.20 and Schedule
4.7 shall have been received or deemed received in each case without any
Material conditions, restrictions or limitations, and the approvals and
consents of any Person other than a Governmental Authority listed on Schedule
3.20 and Schedule 4.7 shall have been received or deemed received,
in each case without any conditions, restrictions or limitations which in the
aggregate would have a Closing Material Adverse Effect; provided, however, that if Seller cannot obtain any such consent from a
Person other than a Governmental Authority, Seller shall have the option to
provide Purchaser with substantially equivalent arrangements with respect to the
item for which such consent could not be obtained, in which event the condition
contained in this Section 6.4 shall be deemed satisfied.  All applicable waiting periods under any
federal or state statute or regulation shall have expired or been terminated.

 

6.5.          Injunction
and Litigation.  There shall
be in effect no injunction, writ, preliminary restraining order or other order
issued by any court of competent jurisdiction directing that the transactions
contemplated by this Agreement or the Related Agreements not be consummated as
herein or therein provided.

 

6.6.          Bank
Financing.  Purchaser shall
have received financing for the purchase of the Company in the principal amount
not to exceed $16,000,000 prior to the Closing on terms substantially equivalent
to those contained in terms under discussion between Purchaser and  Bank One, N.A., which terms have not been
disclosed to Seller.  Notwithstanding any
other provision of this Agreement, if such financing is not obtained, Purchaser
shall not be deemed to be in breach of this Agreement provided that Purchaser
used commercially reasonable efforts to obtain and close such financing or a
similar financing from another institution on substantially equivalent terms.

 

6.7.          CNA
Release.  Seller and such
directors and officers of the Companies as Purchaser may reasonably specify
shall have executed and delivered the CNA Release.

 

50

 

6.8.          Closing
Material Adverse Effect. 
Since the date hereof, there shall not have been any change, event or
circumstance with respect to the Company or the Business which is a Closing
Material Adverse Effect.

 

ARTICLE VII

 

Conditions Precedent To
The Obligation

Of Seller To Close

 

Seller’s obligation to consummate the transactions
contemplated by this Agreement and the Related Agreements is subject to the
fulfillment on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by Seller.

 

7.1.          Representations,
Warranties and Covenants.  The
representations and warranties of Purchaser contained in this Agreement shall
be true and correct on the date of this Agreement and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date,
except that any such representations and warranties that are given as of a
particular date and relate solely to a particular date or period shall be true
and correct as of such date or period, and except where the failure to be true
and correct (without regard to any materiality qualifiers therein) would not
impair the ability of Purchaser to perform its obligations under this Agreement
and the Related Agreements.  Purchaser
shall have performed and complied with all covenants and agreements required by
this Agreement to be performed or complied with by Purchaser on or prior to the
Closing Date.  On the Closing Date,
Purchaser shall have delivered to Seller a certificate dated as of the Closing
Date, and signed by a senior officer of Purchaser, to the effect contemplated
by this Section 7.1.

 

7.2.          Related
Agreements.  The Related
Agreements shall have been duly executed and delivered by Purchaser or a
Purchaser’s Affiliate, as the case may be, on or prior to the Closing Date and
such agreements shall be in full force and effect with respect to Purchaser.

 

7.3.          Secretary’s
Certificates.  Purchaser shall
have delivered to Seller a certificate of the secretary or assistant secretary
of Purchaser, dated as of the Closing Date, as to the resolutions of the Board
of Directors (or other similar governing body) of Purchaser authorizing the
execution, delivery and performance of this Agreement and the Related
Agreements to which it is a party, as to the status and signature of each of
its officers who executed and delivered this Agreement and such Related
Agreements and any other document delivered by it in connection with the
transactions contemplated by this Agreement and the Related Agreements and as
to its due incorporation, existence and good standing.

 

7.4.          Approvals
and Consents.  The approvals
and consents of any Governmental Authority listed in Schedule 3.20 and Schedule
4.7 shall have been received or deemed received in each case without any
Material conditions, restrictions or limitations and the approvals and consents

 

51

 

of any Person other than
a Governmental Authority listed on Schedule 3.20 and Schedule 4.7
shall have been received or deemed received in each case without any
conditions, restrictions or limitations which in the aggregate would have a
Material adverse effect on the financial condition and results of operations of
the Seller.  All applicable waiting
periods under any federal or state statute or regulation shall have expired or
been terminated.

 

7.5.          Companies’
Release.  The Companies and
such directors and officers of the Companies as Seller may reasonably specify
shall have executed and delivered the Companies’ Release.

 

7.6.          Injunction
and Litigation.  There shall
be in effect no injunction, writ, preliminary restraining order or any order of
any nature directing that the transactions contemplated by this Agreement and
the Related Agreements not be consummated as herein or therein provided.

 

 

ARTICLE VIII

 

Tax Matters

 

8.1.          Post-Closing
Access to Records; Cooperation. 
After the Closing, Seller and Purchaser will each afford (or cause the
Companies and their respective Affiliates to afford) to the other or to such
other’s representatives or agents reasonable access during normal business
hours (on terms not unreasonably disruptive to the business, operations or
employees of the party or parties of which access is sought) to the records and
all other data and information relating to Taxes pertaining to taxable years or
periods ending on or prior to the Closing Date (and the Straddle Period) and to
the Companies’ employees, the Transferred Employees, the Delayed Transferred
Employees, or such other employees providing services in respect of the
Business and auditors for the purpose of obtaining information relating to
Taxes, to the extent such access is reasonably necessary: (i) to prepare and
complete any Tax Returns required to be made hereunder; (ii) to prosecute or
defend on behalf of the Companies litigation or administrative controversies
controlled by Seller or Purchaser, as the case may be, under Section 8.2 of
this Agreement; and (iii) to comply with requests made by any Tax authority
conducting an audit, investigation or inquiry relating to the Companies’
activities; provided that in no case will Purchaser (or its Affiliates) have
access to the consolidated Tax Returns of the Loews Corporation Affiliated
Group.  After the Closing, Purchaser and
Seller agree (i) to retain, or (in the case of Purchaser) cause the Companies
to retain, all books and records with respect to Tax matters pertinent to the
Companies relating to any Tax period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent notified by
Purchaser or Seller, any extensions thereof) of the respective Tax periods, and
to abide by all record retention agreements entered into with any Governmental
Authority; and (ii) to give the other party hereto reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, Purchaser or Seller, as the case may be, shall
allow the other party hereto to take possession of such books and records.

 

52

 

8.2.          Liability
for Taxes and Related Matters.

 

8.2.1.       Seller’s Liability
for Taxes.  Seller shall be
liable for all federal income taxes imposed on the Company for any taxable year
or period that ends on or before the Closing Date.  Seller shall also be liable for all other
Taxes, including any obligation to contribute to the payment of a Tax
determined on a consolidated, combined or unitary basis, with respect to a
group of corporations that includes or included the Companies (i) imposed on
Seller or its Affiliates (other than the Companies) for any taxable year and (ii)
imposed on the Companies or for which the Companies may otherwise be liable (A)
for any taxable year or period that ends on or before the Closing Date or (B)
with respect to any taxable year or period beginning before and ending after
the Closing Date, for the portion of such taxable year or period ending on the
Closing Date, which shall be paid to Purchaser or to the Governmental Authority
imposing the tax as Purchaser and Seller shall agree.

 

8.2.2.       Purchaser’s
Liability for Taxes. 
Purchaser shall be liable to Seller for the Taxes of the Companies for
any taxable year or period that begins after the Closing Date and, with respect
to any taxable year or period beginning before and ending after the Closing
Date, the portion of such taxable year beginning after the Closing Date.

 

8.2.3.       Taxes for
Short Taxable Year.  Seller
and Purchaser shall close the taxable period of the Companies as of the close
of business on the Closing Date, unless such action is prohibited by Legal
Requirements.  In any case where a Legal
Requirement prohibits the Company from closing its taxable year on the Closing
Date then, for purposes of Sections 8.2.1 and 8.2.2, the determination of the
Taxes of the Companies for the portion of the year or period ending on, and the
portion of the year or period beginning after, the Closing Date shall be
determined on the basis of an interim closing of the books as of the close of
business on the Closing Date, except that exemptions, allowances, deductions or
minimum amounts that are calculated on an annual basis, such as the deduction
for depreciation, shall be ratably apportioned on a time basis.

 

8.2.4.       Adjustment to
Cash Consideration Amount.  Any
payment by Purchaser or Seller of any amount for which Purchaser or Seller is
liable under Section 8.2.1 and 8.2.2 will be an adjustment to the Cash
Consideration Amount and will also be a purchase price adjustment for federal
income tax purposes unless a determination (as defined in Section 1313 of the
Code) causes any such payment not to constitute an adjustment to the purchase
price for federal income tax purposes.

 

8.2.5.       Preparation
and Filing of Tax Returns.  (a) Seller shall cause to be prepared and
timely filed, taking into account all valid extensions of time to file, and pay
all Taxes due on Tax Returns of the Companies (or Tax Returns in which the
Companies are required to be included) that are due to be filed for any taxable
years or periods ending on or before the Closing Date.  Without
limiting the generality of the foregoing, Seller shall be responsible for
preparing and distributing all Internal Revenue Service Forms 1099 with respect
to the Company’s operations during the 2004 calendar year.  All such Tax Returns shall be prepared
consistent with past practices.  Seller
shall pay or cause to be paid all Taxes shown to be due on Tax Returns that it
is responsible for preparing and filing under this Agreement.

 

53

 

(b)           Purchaser
shall cause to be prepared and timely filed, taking into account all valid
extensions of time to file, all Tax Returns of the Companies that are due to be
filed for any taxable year or period that begins on or before the Closing Date
and ends after the Closing Date (“Straddle Period”).  Taxes for a Straddle Period shall be the
joint responsibility of Seller and Purchaser and shall be apportioned between
Seller and Purchaser based on an interim closing of the books.  Purchaser shall pay to the appropriate taxing
authority the full amount of Taxes shown on any Straddle Period Tax
Return.  Purchaser shall promptly provide
to Seller a copy of all such Straddle Period Tax Returns as filed and
thereafter Seller shall promptly reimburse Purchaser for Seller’s share of such
Taxes as determined under this Section 8.2.5. 
Purchaser or the Company shall
be responsible for preparing and distributing all Internal Revenue Service
Forms 1099 with respect to the Company’s operations during the 2005 and later
calendar years.

 

(c)           Purchaser
shall be responsible for preparing and filing all Tax Returns and paying all
Taxes not covered by Sections 8.2.5(a) and (b).

 

8.2.6.       Contest
Provisions.  (a) Purchaser
shall promptly notify Seller in writing upon receipt by Purchaser, any of
Purchaser’s Affiliates or the Companies of notice of any pending or threatened
federal, state, local or foreign Tax audits or assessments which may affect the
Tax liabilities of the Companies for which Seller is liable to Purchaser
pursuant to Section 8.2.1, provided that failure to comply with this provision
shall not affect Purchaser’s right to indemnification under Article X except to
the extent such failure directly results in an increase in the amount for which
Seller is liable under Section 8.2.1. 
Seller shall promptly notify Purchaser in writing upon receipt by Seller
or any of Seller’s Affiliates of notice of any pending or threatened federal,
state, local or foreign Tax audits or assessments which may affect the Tax
liabilities of the Companies for which Purchaser is liable to Seller pursuant
to Section 8.2.2, provided that failure to comply with this provision shall not
affect Seller’s right to indemnification under Article X except to the extent
such failure directly results in an increase in the amount for which Purchaser
is liable under Section 8.2.2.

 

(b)           Seller
shall have the sole right to represent the Companies’ interests in any Tax
audit or administrative or court proceeding relating to taxable years or
periods ending on or before the Closing Date, and to employ counsel of its
choice and expense.

 

(c)           With
respect to Straddle Periods, the Parties shall jointly control any audits or
proceedings, and neither Party shall settle or compromise any matter without
the prior written consent of the other Party.

 

(d)           Purchaser
shall have the sole right to represent the Companies’ interests in the defense
of any claim for Taxes relating to taxable years or periods beginning on or
after the Closing Date.

 

8.3.          Survival
of Obligations.  The obligations of
the parties set forth in Article VIII shall be unconditional and absolute and
shall remain in effect for the period of the relevant statute of limitations
applicable to the Taxes at issue.

 

54

 

8.4.          Refunds
and Tax Benefits

 

8.4.1        Income
Tax Refunds.  Any Income Tax
Refunds that are received by Purchaser or the Companies, and any amounts
credited against the Income Tax to which Purchaser or the Companies become
entitled, that relate to Tax periods or portions thereof ending on or before
the Closing Date shall be for the account of Seller, and Purchaser shall pay
over to Seller such refund or the amount of any such credit within 15 days
after receipt or entitlement thereto.

 

8.4.2.       Carryback
of Tax Attributes.  Purchaser
agrees that it will (and will cause the Companies to) make a timely election
under applicable state Legal Requirements to relinquish, with respect to all
consolidated net operating losses attributable to the Companies, the portion of
the carryback period for which the Companies were a member of an Affiliated
Group, other than the Affiliated Group of which Purchaser is the common
parent.  Purchaser shall not elect under
any applicable state Legal Requirement to carry back any item of loss,
deduction or credit of Purchaser, the Companies or any of their Affiliates that
arises in any Tax Period or portion thereof after the Closing Date into any Tax
period or portion thereof ending on or before the Closing Date.

 

8.5.          Tax
Sharing Agreements.  All tax
sharing agreements or similar agreements (other than this Agreement) with
respect to or involving the Companies shall be terminated as of the Closing,
and, after the Closing Date, neither Purchaser and the Companies nor Seller and
its ultimate tax parent (or any of its direct or indirect Subsidiaries or
Affiliates) shall be bound thereby or have any liability thereunder.

 

8.6.          Certain
Taxes.  All transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement) shall be paid by Purchaser when due, and Purchaser will, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable Legal Requirements, Seller will join
in the execution of any such Tax Returns and other documentation.

 

8.7.          Disclosure
of U.S. Federal Income Tax Treatment.  Notwithstanding any other provision of this
Agreement to the contrary, Seller and Purchaser (and each of their employees,
representatives or other agents) may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the transactions
contemplated under this Agreement and the Related Agreements and all materials
of any kind (including opinions or other tax analyses) that are provided
relating to such tax treatment and tax structure, provided, however, that such
disclosure may not be made until the earlier of the date of the public announcement
of discussions relating to the transactions contemplated by this Agreement, the
date of the public announcement of the transactions contemplated by this
Agreement, or the date of the execution of this Agreement.  For this purpose, the “tax treatment” is the
purported or claimed U.S. federal income tax treatment of the transactions
contemplated by this Agreement and the Related Agreements, and the “tax
structure” is any fact that may be relevant to understanding the purported or
claimed U.S. federal income tax treatment of such transactions.  The preceding two sentences are intended to
cause such

 

55

 

transactions not to be
treated as offered under conditions of confidentiality for purposes of Sections
1.6011-4(b)(3) and 301.6111-2(a)(2)(ii) (or any successor provisions) of the
Treasury Regulations issued under the Code, and shall be construed in a manner
consistent with such purpose.

 

 

ARTICLE IX

 

Termination

 

9.1.          Termination.
 This Agreement may be terminated
at any time prior to the Closing Date:

 

(a)           by
mutual agreement of Purchaser and Seller;

 

(b)           by
Purchaser or Seller if a Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree or ruling the
Parties shall use commercially reasonable efforts to terminate), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and nonappealable;

 

(c)           by
Purchaser if, subsequent to the date hereof and prior to the Closing Date,
there occurs any events that have had or are likely to have individually or in
the aggregate a Closing Material Adverse Effect, and such Closing Material
Adverse Effect is incapable of being cured or has continued without cure for a
period of 30 days after notice thereof by Purchaser to Seller;

 

(d)           by
Purchaser if the Closing has not occurred on or before the Outside Closing Date
(unless the failure results primarily from a breach by Purchaser of any
representation, warranty or covenant of Purchaser contained in this Agreement
or Purchaser’s failure to fulfill its obligations incidental to a condition
precedent to Closing or another default by Purchaser); or

 

(e)           by
Seller if the Closing has not occurred on or before the Outside Closing Date
(unless the failure results primarily from a breach by Seller of any
representation, warranty or covenant of Seller contained in this Agreement or
Seller’s failure to fulfill a condition precedent to Closing or another default
by Seller).

 

9.2.          Procedure
on Termination.  In the event
of termination of this Agreement pursuant to Section 9.1 hereof, written notice
of termination shall be given pursuant to the notice provisions herein, and the
transactions contemplated by this Agreement shall be terminated without further
action by any Party.  If the transactions
contemplated by this Agreement are terminated as provided herein:

 

56

 

(a)           Purchaser
and Seller shall return all documents, work papers and other material of any
other Party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, upon the written request of the Party
furnishing the same,

 

(b)           such
termination shall not in any way limit or restrict the rights and remedies of
any Party hereto against any other Party which has breached any of the
representations, warranties, covenants, agreements or other provisions of this
Agreement prior to termination hereof, and

 

(c)           any
confidentiality obligations of the Parties (arising under this Agreement or
under any other confidentiality agreement entered into by Seller and Purchaser,
including, but not limited to, the Confidentiality Agreement) shall survive the
termination of this Agreement.

 

ARTICLE X

 

Indemnification

 

10.1.        Seller’s Indemnification.  In
addition to any other provisions of this Agreement under which Seller has
agreed to indemnify Purchaser, and except as otherwise expressly provided in
this Agreement, Seller (without right of contribution from the Companies) shall
indemnify and hold Purchaser, the Company and their respective directors,
officers and employees harmless from and against any Loss arising or resulting
from:

 

(a)           Any
breach of any representation or warranty contained in this Agreement or from
any misrepresentation in any certificate furnished or to be furnished to
Purchaser hereunder;

 

(b)           Any
nonfulfillment of any agreement on the part of Seller under this Agreement;

 

(c)           Any
breach by the Companies of any agreement binding on the Companies that occurs
prior to the Closing

 

(d)           The
Retained Employee Liabilities;

 

(e)           Litigation
of the type described in Section 3.6 that arises as a result of acts or
omissions of the Company prior to the Closing Date;

 

(f)            Unpaid
Taxes of any member of the Loews Corporation Affiliated Group (other than the
Companies) under Internal Revenue Service Reg. §1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise; and

 

57

 

(g)           Any
Taxes of the Companies with respect to any Tax year or portion thereof ending
on or before the Closing Date.

 

In the case of any
action, event or omission described in Sections 10.1(a), (b), (c) and (d) that
continues after the Closing, Seller shall be responsible for indemnification
for the period prior to the Closing, and the responsibility of Seller and
Purchaser for such action, event or omission after the Closing shall be
apportioned between them according to equitable allocation principles.

 

10.2.        Purchaser’s
Indemnification.  In addition
to any other provisions of this Agreement under which Purchaser has agreed to
indemnify Seller, and except as expressly provided in this Agreement, Purchaser
shall indemnify and hold Seller and its directors, officers and employees
harmless from and against any Loss resulting from any breach of any
representation or warranty contained in this Agreement or nonfulfillment of any
agreement on the part of Purchaser under this Agreement or from any
misrepresentation in any certificate furnished or to be furnished to Seller
hereunder.

 

10.3.        Conditions
of Indemnification.  The
respective obligations and liabilities of Seller and Purchaser (herein
sometimes called the “Indemnifying Party”) to the other (herein sometimes
called the “Indemnified Party”) under Sections 10.1 and 10.2 hereof shall be
subject to the following terms and conditions:

 

(a)           Seller
and Purchaser each agree to designate a single point of contact within each of
their respective corporate organizations to give and receive notices of
disputes under this Agreement and the Related Agreements (the “Dispute Officer”),
who shall be acceptable to the other party and shall be a senior manager who
either reports directly to the Chief Executive Officer or a person who reports
to a person who reports directly to the Chief Executive Officer.  In the event of any claim by Purchaser or
Seller against the other covered by this Article X that does not involve a
claim, audit or inquiry by a third party to which a response must be served in
order to avoid default or waiver of any defense, the Parties agree that for a
period of not less than 15 days following receipt of the claim by the Party
against which the claim has been asserted, they each will respond to reasonable
inquiries by the other Party and will hold at least one meeting in person or by
telephone conference of the Dispute Officers to attempt to resolve the claim
and to provide prompt reimbursement to the claiming Party of the amount agreed
to be owed to such Party.  To the extent
that any amount of any claim remains in dispute at the end of the agreed period
for consideration by the Dispute Officers, which shall not be less than 15 days
following receipt of the claim by the Party against whom the claim has been
made, the Party seeking recovery may proceed with its claim under Section
10.3(b).  Any undisputed portion of any
invoice or other claim that has been submitted pursuant to this Section 10.3
shall be paid to the Party to which such amount is owed within 15 days of the
later of (i) the date the invoice or claim is received by the Indemnifying
Party, (ii) the date a bona fide dispute over such portion is resolved by
agreement of the Parties, or (iii) if a bona fide dispute is not resolved by
agreement,

 

58

 

the date such dispute is
otherwise finally resolved.  Amounts not
paid within the time limits provided in this Section 10.3(a) shall bear
interest at the Contract Interest Rate.

 

(b)           On
or before the earliest of (i) the 20th day after receipt of notice (referred to
herein as “notice”) of commencement of any action or the assertion in writing,
formal or informal, of any claim, audit or inquiry (referred to herein as a “claim”),
(ii) the tenth day preceding the day on which a responsive pleading must be
served in order to prevent judgment by default in favor of the person asserting
the claim, or (iii), in the case of a claim described in (a) above, the 30th
day after expiration of the agreed period of consideration by the Dispute
Officers, the Indemnified Party shall give the Indemnifying Party written
notice thereof together with a copy of the document asserting such claim.  Failure to give such notice timely shall not
relieve the Indemnifying Party from any obligation under this Agreement except
to the extent that the Indemnifying Party is prejudiced, except that the
Indemnifying Party shall not be responsible for expenses incurred during the
period within which the Indemnified Party failed to give notice.  The Indemnifying Party shall have the right
to respond to such claim and to undertake the defense thereof by a
representative of its own choosing (which shall be reasonably satisfactory to
the Indemnified Party) and to enter into a settlement or compromise thereof or
consent to a judgment with respect thereto; provided, however, the Indemnifying
Party shall not, without the prior written consent of the Indemnified Party,
settle or compromise any claim by any third party or consent to the entry of
judgment (i) that does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Party a release from all
liability in respect of such claim, or (ii) that contemplates any payment or
performance by the Indemnified Party. 
The Indemnified Party may retain separate counsel at its sole cost and
expense to represent it in any proceedings involving any claim;

 

(c)           In
the event that the Indemnifying Party, by the 20th day after receipt of notice
of a claim by a third party (or, if earlier, by the fifth day preceding the day
on which a responsive pleading must be served in order to prevent judgment by
default in favor of the person asserting such claim), (i) does not elect to
defend against such claim, or (ii) if an election to defend is made, does not
provide reasonable assurances to the Indemnified Party of (x) the Indemnifying
Party’s (or its insurer’s) ability to pay defense costs and indemnity costs
likely to be incurred with respect to the claim, or (y) the Indemnifying Party’s
active and diligent defense of the claim, the Indemnified Party will, upon
notice to the Indemnifying Party, have the right to respond to such claim and
to undertake to defend, compromise or settle such claim on behalf of and for
the account and risk of loss of the Indemnifying Party, subject to the right of
the Indemnifying Party to assume the defense of such claim upon satisfying conditions
(i) and (ii) above at any time prior to the settlement, compromise or final
determination thereof (if such assumption be permitted by any court or other
tribunal having jurisdiction thereof), provided that the Indemnifying Party
shall be

 

59

 

given at least 15 days’
prior written notice of the effectiveness of any such proposed settlement or
compromise; and

 

(d)           In
connection with any such indemnification, the Indemnifying Party shall
cooperate in all reasonable requests of the Indemnified Party.

 

10.4.        Indemnification
Limits.

 

10.4.1.     Exclusions
from Indemnification. 
Required payments by an Indemnifying Party pursuant to this Article X
shall be limited to the amount of any Loss remaining after deducting therefrom
(i) any insurance proceeds recoverable by the Indemnified Party on account of
the Loss, (ii) any Tax benefit to the Indemnified Party, and (iii) any
indemnity, contribution, or other similar payment recoverable by any
Indemnified Party from any third party, in each case with respect to such
Loss.  The Indemnified Party shall use
commercially reasonable efforts to collect all such indemnity, contribution or
other similar payments.

 

10.4.2.     Time Limits.  Neither Purchaser nor Seller shall have any obligation
to indemnify the other for any breach of any representation or breach of
warranty or a breach of Section 5.6 or from any misrepresentation in any
certificate furnished or to be furnished hereunder unless on or before a date
18 months after the Closing Date, the party seeking indemnification notifies
the other party of a claim specifying the factual basis for the claim in
reasonable detail to the extent then known by the party seeking
indemnification.  The foregoing limit
shall not apply, expressly or by implication, (i) to claims based on Sections
3.1, 3.2, 3.3, 3.5, 3.14, 3.15, 4.1, 4.2 and 4.7, each of which shall survive
indefinitely, (ii) to claims based on Sections 3.13 or 10.1(f) or 10.1(g) or
the covenants in Article VIII, which shall survive, as to each Tax Period to
which such representation applies, until the closing of the statute of
limitations with respect to such Tax period, and (iii) to claims arising under
Sections 10.1(b), (c) (d) and (e), which shall survive indefinitely subject to
statutes of limitations applicable to claims that are the subject of Sections
10.1(b), (c), (d) and (e).

 

10.4.3.     Limitations on Amount.  Seller shall have no obligation to indemnify
Purchaser under Section 10.1(a) unless (i) the amount of Purchaser’s claim
exceeds $225,000 with respect to any single Loss, (ii) the aggregate amount of
such indemnifiable claims previously paid by Purchaser shall exceed $225.000,
and thereafter Seller shall be responsible only for the excess of such
aggregate amount over $225,000, provided, however, that in no event shall the
aggregate of all indemnifiable claims paid by Seller to Purchaser hereunder
exceed $3,000,000.  The limitations on
amount set forth in this Section shall not apply to limit recovery by Purchaser
for indemnification under clauses (i), (ii) and (iii) of Section 10.4.2.

 

10.4.4.     Exclusive Remedy.  The Parties expressly acknowledge that (i)
the provisions of this Article X shall be the sole and exclusive remedy for
damages caused as a result of breaches of the representations, warranties and
agreements contained in this Agreement (except to the extent additionally
provided in Article VIII), except that the Parties shall not be limited to the
remedies provided in this Article X with respect to any agreements to be
performed after the Closing Date and except that the remedies of injunction and
specific performance shall remain available to the

 

60

 

Parties hereto,
and (ii) no Indemnifying Party shall be liable or responsible to any other
party hereto or its Affiliates for punitive, incidental and consequential or
multiplied damages or for lost profits, in accordance with Section 11.11.

 

ARTICLE XI

 

Miscellaneous
Provisions

 

11.1.        Notices.  Any notice, request or other
communication to be given by any party hereunder shall be in writing and shall
be delivered personally, sent by registered or certified mail, postage prepaid,
by overnight courier with written confirmation of delivery or by facsimile
transmission with written confirmation of error-free transmission.  Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (and immediately after
transmission confirmed by telephone), if mailed, on the date shown on the
receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery.  Such
notices shall be given to the following address:

 

To Seller:                               Continental
Casualty Company

CNA Center

Chicago, Illinois 60685

Attention:  Secretary

Telephone No.: 312-822-1384

Fax Number: 312-822-1297

 

To Purchaser:                       Security
Capital Corporation

8 Greenwich Office Park

Greenwich, CT 06831

Attention: Brian Fitzgerald, Chairman

Telephone No.:  203-625-0770

Fax Number:  203-625-0423

 

With a copy to:                    Brian
O’Connor, Esq.

Diserio Martin O’Connor & Castiglioni LLP

One Atlantic Street

Stamford, CT 06901

Telephone No.:  203-358-0800,
Ext. 334

Fax Number:  203-348-2321

 

11.2.        Sole Agreement.  This Agreement may not be amended or modified
in any respect whatsoever except by instrument in writing signed by the Parties
hereto.  This Agreement and the Related
Agreements and other documents delivered pursuant hereto, constitute the entire
agreement among the Parties hereto with respect to the subject matter hereof
and supersede all prior negotiations, discussions, writings and agreements
between them with respect thereto. 
EXCEPT TO THE EXTENT OF THE EXPRESS REPRESENTATIONS AND WARRANTIES

 

61

 

CONTAINED IN
ARTICLE III, SELLER IS SELLING THE PARENT SHARES ON AN “AS IS, WHERE IS” BASIS,
AND DISCLAIMS ALL OTHER WARRANTIES, REPRESENTATIONS AND GUARANTEES, WHETHER
EXPRESS OR IMPLIED.

 

11.3.        Successors
and Assigns.  The rights and
obligations of the Parties under this Agreement shall not be subject to
assignment except upon prior written consent of the non-assigning Party, and
any attempted assignment in violation of this Section 11.3 shall be null and
void.  The terms of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by and against
the successors and permitted assigns of the Parties hereto.

 

11.4.        Captions.  The captions of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.

 

11.5.        Disputes
Resolution.  This Section
establishes a procedure for (i) internal review of disputes between Seller and
Purchaser under this Agreement and the Related Agreements, and (ii) a procedure
for review and discussion of disputes by Seller and Purchaser prior to
initiating any litigation or arbitration with respect thereto.  The parties agree that a failure to follow
the procedures described in this Section 11.5 will constitute a breach of this
Agreement and of the standard of good faith applicable to this Agreement.  Seller and Purchaser agree to establish
procedures within their respective corporate organizations intended to result
in the prompt internal reporting of disputes by all levels of the respective organizations.  The dispute resolution procedures so
established will require Seller’s and Purchaser’s employees and representatives
to report the existence of a dispute with the other party promptly to the
Dispute Officer for such employee’s or representative’s organization.  Seller and Purchaser agree that prior to
initiating litigation or arbitration of any dispute under this Agreement or any
of the Related Agreements, notice of the dispute and a statement of the basis
therefor will be provided to the other party by the Dispute Officers for each
organization to discuss and explain their positions with respect to the
dispute.  Notice of disputes will be
given under this provision promptly after the existence of the dispute becomes
known to either Seller or Purchaser.  Any
notice of a dispute by any person other than the Dispute Officer will be
ineffective to initiate the dispute review process under this Section.

 

11.6.        Governing
Law and Jurisdiction.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois applicable to contracts entered into therein, without
reference to principles of choice of law or conflicts of laws.  Purchaser hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of any State or Federal
Court sitting in Cook County, State of Illinois, over any suit, action or
proceeding arising out of or relating to this Agreement.  Purchaser hereby agrees that service of any
process, summons, notice or document by U.S. registered mail addressed to
Purchaser shall be effective service of process for any action, suit or
proceeding brought against Purchaser in such court.  Purchaser hereby irrevocably and
unconditionally waives any objection to the laying of venue of any such suit,
action or proceeding brought in any such court and any claim that any such
action, suit or proceeding brought in any such court has been brought in an
inconvenient forum.  Purchaser agrees
that final judgment in any such action, suit or proceeding brought in any such
court shall be conclusive and binding

 

62

 

upon Purchaser and may be
enforced in any other courts to whose jurisdiction Purchaser may be subject, by
suit upon such judgment.

 

11.7.        No
Third Party Beneficiaries. 
Except as otherwise expressly set forth in any provision of this
Agreement, nothing in this Agreement is intended or shall be construed to give
any Person, other than the Parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.  For the avoidance of doubt,
nothing in this Agreement shall be construed to give any Business Employee any
legal or equitable right, remedy or claim under or in respect of this Agreement
of any provision contained herein.

 

11.8.        Expenses.  Except as otherwise provided herein, the
Parties hereto shall each bear their respective expenses incurred in connection
with the negotiation, preparation, execution, and performance of this Agreement
and the Related Agreements and the transactions contemplated hereby and
thereby, including, without limitation, all fees and expenses of agents,
representatives, investment bankers, counsel and accountants.

 

11.9.        Counterparts.
 This Agreement may be executed by
the Parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. 
Each counterpart may consist of a number of copies hereof each signed by
less than all, but together signed by all of the parties hereto.  Each counterpart may be delivered by
facsimile transmission, which transmission shall be deemed delivery of an
originally executed document.

 

11.10.      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, so long as the economic
or legal substance of the transactions contemplated hereby is not affected in
any manner Materially adverse to any party. 
If any provision of this Agreement is so broad as to be unenforceable,
that provision shall be interpreted to be only so broad as is enforceable.

 

11.11.      Waiver
of Jury Trial; Damages.  Each
of the Parties hereto irrevocably waives, with respect to any first party action
filed by the other party (but not as to any action by one party against the
other seeking indemnification for a third party claim against the party
initiating the action, to the extent that such damages may be recoverable as
part of the indemnification by the indemnified party) (i) any and all right to
trial by jury, and (ii) any right to punitive, incidental and consequential or
multiplied damages or lost profits, either pursuant to common law or statute,
in any legal proceedings arising out of or related to this Agreement or the
transactions contemplated hereby.

 

63

 

IN WITNESS
WHEREOF, the Parties hereby execute this Agreement as of the day and year first
set forth above.

 

	
  SELLER:

  	
  CONTINENTAL CASUALTY COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name

  
	
   

  	
  Title

  
	
   

  	
   

  
	
   

  	
   

  
	
  PURCHASER:

  	
  OCTAGON RISK SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

S-1

 

INDEX OF EXHIBITS

 

	
  Exhibit A

  	
   

  	
  CNA Assignment and Assumption Agreement

  
	
  Exhibit B

  	
   

  	
  CNA Bill of Sale

  
	
  Exhibit C

  	
   

  	
  Company Bill of Sale

  
	
  Exhibit D

  	
   

  	
  CNA Sublease Form

  
	
  Exhibit E

  	
   

  	
  CNA Interim Services Agreement

  
	
  Exhibit F

  	
   

  	
  Company Interim Services Agreement

  
	
  Exhibit G

  	
   

  	
  Software License Agreement

  
	
  Exhibit H

  	
   

  	
  Seller Release

  
	
  Exhibit I

  	
   

  	
  Purchaser Release

  

 

i

 

INDEX OF SCHEDULES

 

	
  Schedule 1(A)

  	
   

  	
  Business Employees

  
	
  Schedule 1(B)

  	
   

  	
  CNA Assigned Contracts

  
	
  Schedule 1(C)

  	
   

  	
  CNA Transferred Assets

  
	
  Schedule 1(D)

  	
   

  	
  Company Assets

  
	
  Schedule 1(E)

  	
   

  	
  Company Transferred
  Assets

  
	
  Schedule 1(F)

  	
   

  	
  Knowledge

  
	
  Schedule 2.4.1(A)

  	
   

  	
  Prototype Pro Forma
  Balance Sheet

  
	
  Schedule 2.4.1(B)

  	
   

  	
  Prototype Working
  Capital Adjustment

  
	
  Schedule 3.1

  	
   

  	
  The Company

  
	
  Schedule 3.4.2(A)

  	
   

  	
  Revenue Recognition
  Policy

  
	
  Schedule 3.4.2(B)

  	
   

  	
  Changes in Accounting
  Methods

  
	
  Schedule 3.4.3

  	
   

  	
  Liabilities

  
	
   

  	
   

  	
   

  
	
  Schedule 3.5.1

  	
   

  	
  Company Assets without
  Good and Marketable Title

  
	
  Schedule 3.5.2

  	
   

  	
  Encumbrances

  
	
  Schedule 3.5.3

  	
   

  	
  Income Tax Basis

  
	
  Schedule 3.6

  	
   

  	
  Litigation

  
	
  Schedule 3.8.1

  	
   

  	
  Company Contracts

  
	
  Schedule 3.8.2

  	
   

  	
  Assignors in Default of
  CNA Assigned Contracts

  
	
  Schedule 3.9.1

  	
   

  	
  Trademarks, Trade
  Names, Service Marks and Copyrights

  
	
  Schedule 3.9.3(a)

  	
   

  	
  Owned Principally Used
  Computer Programs and Owned Generally Used Computer Programs

  
	
  Schedule 3.9.3(b)

  	
   

  	
  Licensed Computer
  Programs

  
	
  Schedule 3.9.3(c)

  	
   

  	
  Shrink Wrap Computer
  Programs

  
	
  Schedule 3.10

  	
   

  	
  Customer Agreements

  
	
  Schedule 3.11

  	
   

  	
  Compliance with Legal
  Requirements

  
	
  Schedule 3.12

  	
   

  	
  Licenses

  
	
  Schedule 3.14

  	
   

  	
  Employment Agreements

  
	
  Schedule 3.15(a)

  	
   

  	
  ERISA Plans

  
	
  Schedule 3.15(b)

  	
   

  	
  Employee Benefit
  Arrangements of the Company

  
	
  Schedule 3.17

  	
   

  	
  Insurance

  
	
  Schedule 3.19

  	
   

  	
  Absence of Certain
  Changes and Events

  
	
  Schedule 3.20

  	
   

  	
  Seller’s Approvals

  
	
  Schedule 3.22.2

  	
   

  	
  Leased Real Property

  
	
  Schedule 3.25

  	
   

  	
  Hazardous Materials

  
	
  Schedule 4.1

  	
   

  	
  Status of Purchaser

  
	
  Schedule 4.4

  	
   

  	
  Financial Statements

  
	
  Schedule 4.7

  	
   

  	
  Purchaser’s Approvals

  
	
  Schedule 5.2(b)

  	
   

  	
  Conduct of the Business

  
	
  Schedule 5.7(e)

  	
   

  	
  Delayed Transferred
  Employees

  
	
  Schedule 5.7(f)

  	
   

  	
  Employment Records of
  Transferred Employees

  
	
  Schedule 5.7(h)

  	
   

  	
  Severance Benefits

  

 

ii

 

	
  Schedule 5.8(c)

  	
   

  	
  Seller’s Obligations
  with respect to Computer Programs

  
	
  Schedule 5.8(e)

  	
   

  	
  Aggregation of
  Reimbursement of Costs Example

  
	
  Schedule 5.16.7(a)

  	
   

  	
  Employees of Seller or
  Its Affiliates Subject to No-Hire

  
	
  Schedule 5.16.7(c)

  	
   

  	
  Employees of Seller or
  Its Affiliates Subject to No-Hire upon termination of this Agreement

  
	
  Schedule 5.18

  	
   

  	
  Bidder Agreements

  
	
  Schedule 5.19

  	
   

  	
  Facilities Plan

  

 

iiiEXHIBIT 10.1

 

Amended and Restated
Purchase and Sale Agreement

and Joint Escrow Instructions

 

THIS AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this “Agreement”)
is made and entered as of the Effective Date (defined below), by and between FULLERTON
HOLDINGS, INC., a California corporation (“Seller”) and OLSON URBAN
HOUSING, LLC, a Delaware limited liability company (“Buyer”).  This Agreement sometimes refers to Buyer and
Seller individually as a “Party” and collectively as the “Parties.”

 

R  e
c  i  t  a  l  s:

 

A.          Seller
owns approximately 3.8 acres of real property in the City of Fullerton (“City”),
County of Orange (“County”), State of California (“State”),
together with all appurtenant improvements, rights, interests, easements,
tenements and estates, more fully described on Exhibit A (the “Property”).

 

B.          Seller and
Buyer are parties to that certain Purchase and Sale Agreement and Joint Escrow
Instructions with an effective date of June 3, 2004 (the “Original
Agreement”), concerning the Property. 
Seller and Buyer have worked together to eliminate various potential
contingencies to the sale of the Property and now desire to amend and restate
the Original Agreement in its entirety, to document their mutual understanding
regarding the purchase and sale of the Property.

 

C.          Seller desires to sell the Property to
Buyer, and Buyer desires to purchase the Property from Seller, on the terms and
conditions contained in this Agreement.

 

NOW,
THEREFORE, in consideration of the foregoing recitals, the promises and
covenants of the Parties in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which the Parties acknowledge,
the Parties hereby amend and restate the Original Agreement in its entirety and
agree as follows:

 

1.             Definitions.  Certain capitalized terms used in this
Agreement have the meanings defined below:

 

“Agreement”
is defined in the first paragraph of this Agreement.

 

“Approved”
or “Approval” means that with respect to any item or matter for
which approval by any Authorities is required, such item has been approved by
action of the highest governing body of such Authorities, and all applicable
appeal and referenda periods and statutes of limitation for challenging or
appealing such approval have expired without the filing of an appeal or
challenge, or if an appeal or challenge has been filed, that such appeal or
challenge has been resolved on terms satisfactory to Buyer in its sole and
absolute discretion.

 

“Authorities”
means governmental or quasi-governmental agencies or authorities having any
jurisdiction over the Property.

 

“Buyer”
is defined in the first paragraph of this Agreement.

 

“City”
is defined in Recital A of this Agreement.

 

“Closing”
means the date upon which the Grant Deed is recorded in the Official Records of
the County, title to the Property is conveyed to Buyer, and possession of the
Property is delivered to Buyer, in accordance with the terms of this Agreement.

 

 

“County”
is defined in Recital A of this Agreement.

 

“Closing
Date” is defined in Section 5.1.

 

“Deposit”
means the sum of (a) an Initial Deposit of $250,000.00 already delivered
to Escrow Holder by Buyer, (b) after it has been delivered to Escrow
Holder pursuant to Section 5.1, the Extension Deposit, and (c) after
it has been delivered to Escrow Holder pursuant to Section 5.1, the
Second Extension Deposit.

 

“Effective
Date” is the date the last of the Parties signs this Agreement, as
evidenced by the dates set forth under the signatures of the Parties on this Agreement.

 

“Escrow”
means the escrow established pursuant to this Agreement through which the
purchase and sale of the Property shall be consummated.

 

“Escrow
Cancellation Changes” is defined in Section 10.2.

 

“Escrow
Holder” means Fidelity National Title Insurance Company.

 

“Extension
Deposit” is defined in Section 5.1.

 

“Feasibility
Matters” is defined in Section 4.2.

 

“Feasibility
Notice” means a written notice from Buyer to Seller delivered pursuant to Section 3.2
approving or waiving approval of the Feasibility Matters.

 

“Governmental
Approvals” is defined in Section 13.4.

 

“Grant
Deed” means a grant deed to the Property in the form of Exhibit B.

 

“Hazardous
Substances” is defined on Exhibit C.

 

“Initial
Deposit” means $250,000.00, delivered to Escrow Holder prior to the
Effective Date.

 

“Lease”
is defined in Section 13.4(c).

 

“Lease
Termination Agreement” is defined in Section 13.4(c).

 

“Parties”
and “Party” are defined in the first paragraph of this Agreement.

 

“Permitted
Exceptions” means general and special real property taxes and assessments,
a lien not yet due and payable; and any other liens, easements, encumbrances,
covenants, conditions and restrictions of record approved, or waived if a
Disapproved Exception, by Buyer pursuant to Section 4.1, or created
by Buyer.

 

“Preliminary
Report” is defined in Section 4.1.

 

“Property”
is defined in the Recital A of this Agreement.

 

“Property
Documents” is defined in Section 4.2.

 

 

“Purchase
Price” means $4,800,000.00.

 

“Second
Extension Deposit” is defined in Section 5.1.

 

“Seller”
is defined in the first paragraph of this Agreement.

 

“Seller’s
Work” is defined in Section 13.5.

 

“State”
is defined in Recital A of this Agreement.

 

“Tenant”
is defined in Section 13.4(c).

 

“Title
Company” means Fidelity National Title Insurance Company.

 

“Title
Policy” means a CLTA standard coverage owner’s policy of title insurance,
dated as of the Closing Date, in an amount equal to the Purchase Price,
insuring fee title to the Property vested in Buyer subject only to the Permitted
Exceptions, including a CLTA 104.1 mechanics’ lien endorsement.  Buyer may elect to obtain an ALTA extended
coverage owner’s policy of title insurance, but the Closing shall not be
delayed as a result, and Buyer shall pay all premium and survey costs for such
policy that exceed the cost of the standard coverage owner’s title policy.

 

2.               Purchase
and Sale.  Seller agrees to sell and
convey the Property to Buyer, and Buyer agrees to purchase the Property from
Seller, on the terms and subject to the conditions set forth in this Agreement.

 

3.             Escrow
and Deposit.

 

3.1           Escrow.  The
Parties have previously opened an Escrow at the office of Escrow Holder. The
Parties shall deliver an executed copy of this Agreement to Escrow Holder.  Upon receipt of the signed Agreement, Escrow
Holder shall notify the Parties in writing of the date of such receipt. This
Agreement shall constitute joint escrow instructions to Escrow Holder.  The Parties shall execute such additional
instructions not inconsistent with the provisions of this Agreement which may
be reasonably required by Escrow Holder and shall be bound by Escrow Holder’s
general instructions, but if any conflict between the provisions of this
Agreement and the provisions of Escrow Holder’s general instructions exists or
arises, then the provisions of this Agreement shall control.  Escrow Holder is designated the “real estate
reporting person” for purposes of Section 6045 of the Internal Revenue
Code of 1986, as amended and Treasury Regulation 1.6045-4, and any instructions
or settlement statement prepared by Escrow Holder shall so provide.  Escrow Holder shall be responsible for filing
Form 1099-S with the Internal Revenue Service.

 

3.2           Initial Deposit.

 

(a)           Buyer has previously delivered the
Initial Deposit to Escrow Holder.

 

(b)           At all times, the Initial Deposit
(and any Extension Deposit later received) shall be (a) non-refundable to
Buyer for any reason, and (b) creditable to payment of the Purchase Price
at Closing.  Seller shall have the
unimpeded right to use the Initial Deposit to pay to Tenant lease termination
fees incurred pursuant to the Lease Termination Agreement, and all such
payments shall be non-recoverable by Buyer.

 

 

(c)           Escrow Holder shall invest the
Deposit as directed by Buyer in writing; provided that the Deposit shall not be
invested in any affiliate of or party related to Buyer.  All interest earned on the Deposit shall be
added to and comprise part of the Deposit and used for payment of the Purchase
Price.

 

4.             Buyer’s
Inspections and Feasibility Investigations.

 

4.1           Title.

 

(a)           Seller, at Buyer’s sole cost and
expense, has delivered to Buyer a current Preliminary Report (“Preliminary
Report”) of title to the Property, issued by the Title Company, together
with legible copies of all documents referenced in the Preliminary Report as
exceptions to title and to a plot plan for the Property showing all the
locations of all recorded easements.  
Seller has also delivered to Buyer any survey of the Property in Seller’s
possession.  All objections to title, if
any, have been waived by Buyer.  
Additionally, all monetary liens or encumbrances, whether or not Buyer
specifically objects to them, shall be deemed “Disapproved Exceptions”
and Seller shall eliminate them before or concurrently with the Closing.

 

(b)           Seller shall deliver title to the
Property at the Closing subject only to the Permitted Exceptions.  Seller shall use reasonable efforts to remove
any exceptions to title shown on any supplement to the Preliminary Report that
may be issued from time to time by the Title Company at or before the
Closing.  Alternatively, Seller shall
cause the Title Company to endorse over such exceptions at the Closing pursuant
to title endorsements satisfactory to Buyer, unless Buyer expressly approves
such exceptions in writing, or unless such exceptions are Permitted Exceptions.

 

4.2           Feasibility Study. 
Seller has provided Buyer with complete copies of all studies, reports,
agreements, environmental assessments, surveys, soils reports, documents,
plans, maps, permits and entitlements in Seller’s possession or control
concerning the Property (the “Property Documents”).  Buyer has reviewed the suitability of the
Property for Buyer’s use and development, including, without limitation, any
governmental land regulations, zoning ordinances, development costs, financial
and market feasibility, all covenants, conditions and restrictions affecting
the Property, and the physical condition of the Property, including soil and
geological assessments and environmental assessments (the “Feasibility
Matters”) and has delivered to Seller and Escrow Holder the Feasibility
Notice.

 

4.3           Access. 
Seller grants to Buyer and Buyer’s agents, employees and consultants a
nonexclusive license to enter upon the Property for the limited purpose of
allowing Buyer to conduct soil and engineering tests, feasibility studies,
surveys and other physical examinations of the Property Buyer deems
appropriate; provided that Buyer shall not conduct any physically invasive
testing of the land or improvements on the Property without first providing to
Seller a copy of the proposed work plan for the testing and requesting Seller’s
approval of the work plan.  Seller shall
have five (5) days after receipt of the work plan in which to approve or
disapprove it.  If Seller disapproves it,
Seller shall inform Buyer in writing within the five (5) day period the
specific reasons for disapproval and give Buyer the opportunity to address
Seller’s objections.  If Seller does not
disapprove the work plan and give Buyer specific reasons for disapproval within
the five (5) day period, then Seller will be deemed to have approved the
work plan and Buyer may proceed with the testing contemplated by the work
plan.  At any time after Seller’s timely
disapproval of a work plan, Buyer may re-submit a modified work plan and
trigger another five (5) day period for Seller’s review and approval.  Buyer shall indemnify, defend and hold Seller
free and harmless from all loss and liability (including, without limitation,
attorneys’ fees) arising from such activities of Buyer and its agents and
employees upon the Property, and from all mechanic’s,

 

 

materialmen’s and other liens resulting from any such conduct of Buyer
and its agents and employees.  However,
Buyer shall have no liability for any loss or damage attributable to the acts
or omissions of Seller or Seller’s agents, employees, invitees or licensees or
resulting from latent defects or Hazardous Substances within, on or adjacent to
the Property.  Before performing any
investigations on the Property, Buyer shall furnish Seller a certificate of
general liability insurance in the amount of $2,000,000 naming Seller as an
additional insured.

 

5.             Closing;
Extensions, Payment of Purchase Price.

 

5.1           Buyer shall give Seller written notice when the
Governmental Approvals have been Approved. 
The Closing shall occur on July 14, 2005 (the “Closing Date”),
or five days after the Governmental Approvals have been Approved, whichever is
earlier.  Buyer shall have the right, in
its sole and absolute discretion, to extend the Closing Date for period not to
exceed sixty (60) days.  If Buyer so
elects to extend the Closing Date, Buyer shall deliver written notice of such
election to Seller and Escrow Holder and deliver $50,000 (the “Extension
Deposit”) to Escrow Holder at least five days before the date on which the
Closing otherwise would have occurred. 
Escrow Holder shall invest the Extension Deposit in an interest bearing
account with interest usable to pay a portion of the Purchase Price.  Once delivered by Buyer as provided in this
Agreement, the Extension Deposit shall be (a) non-refundable to Buyer for
any reason, and (b) credited to payment of the Purchase Price at
Closing.  Buyer shall also have the right
after exercise of the initial extension, in its sole and absolute discretion,
to extend the Closing Date for an additional period of time to not later than October 7,
2005.  If Buyer so elects to extend the
Closing Date, Buyer shall deliver written notice of such election to Seller and
Escrow Holder and deliver $250,000 (the “Second Extension Deposit”) to
Escrow Holder at least five days before the date on which the Closing otherwise
would have occurred.  Escrow Holder shall
invest the Second Extension Deposit in an interest bearing account with interest
usable to pay a portion of the Purchase Price. 
Once delivered by Buyer as provided in this Agreement, the Extension
Deposit shall be (a) non-refundable to Buyer for any reason, and (b) credited
to payment of the Purchase Price at Closing. 
If the Closing does not occur by the Closing Date, other than due to a
default by Seller, then Buyer shall have no further rights relating in any
manner to the Property.

 

5.2           On or before the Closing Date, Buyer shall deposit with
Escrow Holder (a) the Purchase Price less the Deposit, and (b) Buyer’s
share of closing costs and prorations as provided in Section 6
below, in immediately available funds.

 

6.             Closing
Costs and Prorations.

 

6.1           Closing Costs. 
Seller shall pay all recording costs, the cost of the Title Policy, and
all City and County documentary transfer taxes payable in connection with the
purchase and sale of the Property.  Buyer
and Seller shall each pay one-half of all escrow fees in connection with the
purchase and sale of the Property.  All
other closing costs related to the transaction shall be paid by the Parties in
the manner consistent with customary practice for vacant land sales in the
County.  Escrow Holder shall notify Buyer
and Seller in writing of their respective shares of such costs at least three
business days before the Closing Date. 
If the Closing does not occur by the Closing Date, Buyer shall pay all
title expenses incurred to date, including those for the Preliminary Report.

 

6.2           Prorations. 
Real estate taxes and assessments shall be prorated on the basis of the
most recent tax statement for the Property as of 12:01 a.m. on the Closing
Date, on the basis of a 365-day year. 
At least five business days before the Closing Date, Escrow Holder shall
deliver to Seller and Buyer a tentative proration schedule setting forth a
preliminary determination of prorations. 
If any

 

 

information needed for the proration of any item is not available, the
Parties shall re-prorate such item after the Closing and payment shall be made
promptly to the Party entitled thereto. 
After the Closing, Seller shall remain solely responsible for and shall
promptly pay before delinquency any real estate taxes and assessments relating
to periods before the Closing Date.

 

7.             Closing
Deliveries by Seller. No later than one business day before the Closing
Date, Seller shall deposit with Escrow Holder:

 

(a)           The Grant Deed duly executed by
Seller, acknowledged and in recordable form.

 

(b)           An Assignment and Bill of Sale in the
form attached hereto as Exhibit D, duly executed by Seller (“Bill
of Sale”).

 

(c)           Seller’s Nonforeign Affidavit in the
form attached hereto as Exhibit E, duly executed by Seller (“Nonforeign
Affidavit”).

 

(d)           Such other bills of sale, assignments
and other instruments of transfer or conveyance as Buyer may reasonably request
and as may be otherwise necessary to evidence and effect the sale, assignment,
transfer, conveyance and delivery of the Property to Buyer.

 

8.             Closing
Deliveries by Buyer.  Before the
Closing, Buyer shall deposit with Escrow Holder the following:

 

(a)           The balance of the Purchase Price and
Buyer’s share of closing costs, in accordance with Section 2.

 

(b)           Such other instruments or documents
as may be necessary to effect the sale, assignment, transfer, conveyance and
delivery of the Property to Buyer.

 

9.             Conditions
to Closing.

 

9.1           Conditions to Buyer’s Obligations.  The Closing and Buyer’s obligation to
purchase the Property are subject to the satisfaction of the following
conditions or Buyer’s written waiver of such conditions on or before the
Closing Date.  Buyer may waive in writing
any or all of such conditions in its sole and absolute discretion.

 

(a)           Seller shall have performed all
obligations to be performed by Seller pursuant to this Agreement before
Closing.

 

(b)           Seller’s representations and
warranties in this Agreement shall be true and correct as of the Closing.

 

(c)           The Title Company shall be committed
to issue to Buyer the Title Policy, as of the Closing Date.

 

(d)           The Governmental Approvals shall have
been Approved.

 

9.2             Conditions to Seller’s Obligations.  Closing and Seller’s obligation to consummate
the transactions contemplated by this Agreement are subject to the satisfaction
of the conditions that as of the Closing Date:

 

(a)           Buyer shall have performed all
obligations to be performed by Buyer pursuant to this Agreement before Closing.

 

 

(b)           Buyer’s representations, warranties
and covenants set forth in this Agreement shall be true and correct as of the
Closing.

 

10.           Closing.

 

10.1         Escrow Holder’s Actions.  Upon the Closing Date, when Escrow Holder
holds the items required to be deposited by Seller and Buyer as described above
and Escrow Holder is prepared to issue and deliver to Buyer the Title Policy,
Escrow Holder is instructed and authorized to:

 

(a)           Record the Grant Deed in the Office
of County Recorder of the County.

 

(b)           Pay any transfer taxes.

 

(c)           Instruct the County Recorder to
return the Grant Deed to Buyer.

 

(d)           Disburse to Seller from the funds
deposited into Escrow by Buyer the Purchase Price less Seller’s escrow and cash
charges, less any withholding mandated by State or Federal law.

 

(e)           Disburse from funds deposited by
Buyer amounts toward payment of all other items chargeable to the account of
Buyer hereunder, and disburse the balance of such funds, if any, to Buyer.

 

(f)            Deliver to Buyer the Bill of Sale,
the Nonforeign Affidavit and the Title Policy.

 

10.2         Escrow Cancellation Charges.  If the Closing does not occur because of the
default of a Party, the defaulting Party shall bear all Escrow Cancellation
Charges.  If the Closing does not occur
for any reason other than the default of a Party, then Buyer and Seller shall
each pay one-half of any Escrow Cancellation Charges.  As used in this Agreement, “Escrow
Cancellation Charges” means all fees, charges and expenses incurred by Escrow
Holder or third parties engaged by Escrow Holder.

 

10.3         Conveyance and Possession.  Upon the Closing, Seller shall convey title
to the Property to Buyer, subject only to the Permitted Exceptions, and Seller
shall deliver to Buyer exclusive possession of the Property.  .

 

11.           Representations
and Warranties of Seller. Seller makes the following representations,
warranties and covenants to Buyer:

 

11.1         Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California.  Seller has full right, power, capacity and
authority to enter into this Agreement and to perform its obligations
hereunder.

 

11.2         This Agreement constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or limiting
the rights of contracting parties generally. 
Neither this Agreement nor the consummation of any of the transactions
contemplated hereby violates or shall violate any provision of any agreement or
document to which Seller is a party or to which Seller is bound.  No consent from any third party is required
before any of the Property may be conveyed to Buyer.

 

 

11.3         Seller has not alienated, encumbered, transferred, optioned,
leased, assigned, transferred or otherwise conveyed its interest or any portion
of its interest in the Property or any portion thereof except for the Lease and
as set forth in the Preliminary Report, nor has Seller entered into any
agreement (other than this Agreement) so to do.

 

11.4         Except as Seller has disclosed to Buyer in writing or as
otherwise disclosed in the Property Documents or as discovered by Buyer, to the
best knowledge of Seller: (i) the Property is not in violation, nor has
been or is currently under investigation for violation of any federal, state or
local law, ordinance or regulation relating to industrial hygiene, worker
health and safety, or to the environmental conditions in, at, on, under or
about the Property including, but not limited to, soil and groundwater
conditions; (ii) the Property has not been subject to a deposit of any
Hazardous Substance; (iii) neither Seller nor any third party has used,
generated, manufactured, stored or disposed in, at, on, under or about the
Property or transported to or from the Property any Hazardous Substance; (iv) there
has been no discharge, migration or release of any Hazardous Substance from,
into, on, under or about the Property; and (v) there is not now, nor has
there ever been on or in the Property underground storage tanks or surface
impoundments, any asbestos-containing materials or any polychlorinated
biphenyls used in hydraulic oils, electrical transformers or other
equipment.  Seller assigns to Buyer,
effective upon Closing, all claims, counterclaims, defenses or actions, whether
at common law, or pursuant to any other applicable federal or state or other
laws which Seller may have against any third parties relating to the existence
of any Hazardous Substance in, at, on, under or about the Property, other than
any such rights as may be necessary for Seller to defend against claims based
upon Seller being a prior owner or operator of the Property.

 

11.5         Seller is not in default under, nor has Seller has received
any notice that any event has occurred which with the giving of notice or the
passage of time, or both, would constitute a default under any contract, transaction,
agreement, covenant, condition, restriction, lease, easement, encumbrance or
instrument pertaining to the Property.

 

11.6         No legal suit or other proceedings or governmental
investigation, including but not limited to eminent domain or condemnation proceeding,
proceeding to establish a new assessment district or increase the assessments
imposed by an existing assessment district, or zoning change proceeding
affecting the Property are pending or threatened in writing.

 

11.7         There are no lawsuits, claims, suits, proceedings or
investigations pending or, to Seller’s knowledge, threatened against or
affecting Seller that affect the Property. 
There are no lawsuits, suits or proceedings pending in which Seller is
the plaintiff or claimant and which relate to the Property.  There is no action, suit or proceeding
pending or, to Seller’s knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement.

 

11.8         Seller has made no oral or written commitments or representations
to, or understandings or agreements with, any person, firm or entity, any
adjoining property owner or any Authority which would in any way be binding on
Buyer or would interfere with Buyer’s ability to develop and improve the
Property with a residential development, and Seller shall not make or enter
into any such commitment, representations, understandings or agreements without
Buyer’s written consent.

 

11.9         Seller has disclosed to Buyer all material information in
Seller’s possession or known to Seller concerning the Property.

 

 

11.10       Seller is not bankrupt or insolvent under any applicable
Federal or state standard, nor has filed for protection or relief under any
applicable bankruptcy or creditor protection statute nor has been threatened by
creditors with an involuntary application of any applicable bankruptcy or
creditor protection statute.  Seller is
not entering into the transactions described in this Agreement with an intent
to defraud any creditor or to prefer the rights of one creditor over any
other.  Seller and Buyer have negotiated
this Agreement at arms-length and the consideration to be paid represents fair
value for the assets to be transferred.

 

All
representations and warranties of Seller in this Agreement are made as of the
date of this Agreement and as of the Closing and shall survive the Closing and
the recordation of the Grant Deed for a period of twelve months.  It shall be a material default hereunder if
Seller is unable to make such representations and warranties truthfully as of
the Closing Date. In all other respects, the sale and conveyance of the
Property to Buyer is made on an “AS-IS”, “WHERE-IS” basis, with all faults.

 

12.           Representations
and Warranties of Buyer.  Buyer makes
the following representations, warranties and covenants to Seller:

 

12.1         Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly authorized to transact business in California.  Buyer has the right, power and authority to
enter into this Agreement and to perform its obligations hereunder, and the
person(s) executing this Agreement on behalf of Buyer have the right, power and
authority to do so.

 

12.2         This Agreement constitutes the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or limiting
the rights of contracting parties generally. 
This Agreement does not violate any provision of any agreement or
document to which Buyer is a party or to which Buyer is bound.

 

All
representations and warranties of Buyer in this Agreement are made as of the
date of this Agreement and as of the Closing, and shall survive the Closing and
the recordation of the Grant Deed for a period of twelve months.  It shall be a material default if Buyer is
unable to make such representations and warranties truthfully as of the Closing
Date.

 

13.           Additional
Covenants.

 

13.1         Notification by Seller of Certain Matters. During the
period before the Closing Date, to the extent known by Seller, Seller shall
promptly advise Buyer in writing of any material adverse change in the
condition of the Property, the occurrence of any event or the discovery of any
fact which would render any representation or warranty of Seller to Buyer in
this Agreement untrue or materially misleading, and any written notice or other
communication from any third person alleging that the consent of such third
person is or may be required in connection with the transactions contemplated
by this Agreement.

 

13.2         No
Encumbrance, Etc.  Seller shall not,
directly or indirectly, alienate, encumber, transfer, option, lease, assign,
sell, transfer or convey its interest or any portion of such interest in the
Property or any portion thereof so long as this Agreement is in force, other
than the Lease.  Seller shall timely
discharge, before the Closing, any and all obligations relating to work
performed on or conducted at or materials delivered to Property from time to
time by Seller, or at Seller’s direction or on its behalf, in order reasonably
to prevent the filing of any claim or mechanic’s lien with respect to such work
or materials.

 

 

13.3         Cooperation. 
Seller shall (and Seller shall cause its consultants, engineers,
contractors, affiliates and lenders and any other persons with an interest in
the Property to) reasonably cooperate with Buyer in connection with Buyer’s
feasibility investigations under this Agreement, subject to the limitations set
forth elsewhere in this Agreement, and Buyer’s efforts to seek the Governmental
Approvals as Buyer reasonably requests, including without limitation executing
any maps, applications, permits, filings or other documents, including grants
of easements and licenses, deemed by Buyer to be necessary or appropriate, all
at Buyer’s sole cost and expense.

 

13.4           Processing of Approvals.

 

(a)           Buyer shall have the right, at Buyer’s
sole cost and expense, to process all applications, plans, maps, agreements,
documents, and other instruments necessary or appropriate as determined in
Buyer’s sole discretion to obtain all necessary authorizations and entitlements
from the City and other Authorities to subdivide the Property and develop and
improve the Property as contemplated by Buyer, including, without limitation, a
general plan amendment, a zone change, a tentative tract map for the
development of for-sale residential units, and a conditional use permit (if
required) in form, shape and substance suitable to Buyer, in its sole and
absolute discretion (collectively, the “Governmental Approvals”).

 

(b)           Buyer shall, at its sole cost and
expense, use its commercially reasonable efforts to obtain the Governmental
Approvals, in form, shape and substance acceptable to Buyer, in its sole but
good faith discretion.   Upon receipt of
the Governmental Approvals Buyer shall promptly deliver written notice thereof
to Seller.  Seller shall cooperate, and
shall cause its affiliates and lenders and any other persons with an interest
in the Property to cooperate, reasonably with Buyer in connection with Buyer’s
processing of and seeking Governmental Approvals, including without limitation,
cooperating in the defense of any legal challenge to any Governmental Approvals
sought by Buyer, and executing any maps, applications, permits, filings or
other documents which Buyer deems necessary or appropriate within a reasonable
time (but not later than 10 days) after receipt of Buyer’s written request
therefor, all at Buyer’s sole cost and expense.

 

(c)           Lease.  The parties acknowledge the existence of that
certain Facilities Lease dated June 17, 1996 (the “Lease”) between
Seller and Morehouse-COWLES, Inc., a California corporation, for the lease
of the Property, and that certain Lease Termination Agreement dated January 11,
2005 between Seller and Nusil Technology, as successor tenant (the “Tenant”).  Buyer acknowledges it has received a copy of
the Lease and Lease Termination Agreement from Seller prior to the Effective
Date, and that Buyer understands the terms and conditions thereof, including,
without limitation, the fact that the term of such Lease expires in July 31, 2006
but Tenant has agreed to vacate the Property by June 30, 2005 in exchange
for receipt of the Initial Deposit.  If
Tenant fails to vacate, Seller has no obligation to remove the Tenant from the
Property or terminate or amend the Lease or incur any monetary obligations
regarding any early termination of the Lease, and if Buyer thereafter fails to
arrange matters involving the Lease and the Tenant to Buyer’s satisfaction
before the Closing Date, then Buyer’s sole recourse shall be to terminate this
Agreement, and all Deposits then in Escrow shall be forfeited by Buyer.

 

 

13.5         Seller’s Work. 
Buyer will not request Seller to remove items from the Property or to
otherwise modify the Property, and it is the intent of the parties that the
Property be sold and conveyed in “AS IS, WHERE IS” condition, and Seller shall
have no obligation to remove items from, or modify the Property, absent Seller’s
written agreement to the contrary in each instance.

 

14.           Damage
or Destruction.  If there is any
material damage to or destruction of the Property before the Closing, Seller
shall immediately give Buyer written notice of such damage or destruction, and
Buyer shall have the right to elect by written notice to Seller within ten days
thereafter either to (i) terminate the Escrow, in which case Escrow Holder
shall immediately return all documents, instruments and monies to the Party
that deposited same in respect of the Closing (excluding the Deposit), or (ii) accept
the Property in its condition at that time, and the parties shall negotiate a
Purchase Price adjustment in good faith.

 

15.           Condemnation.  If before the Closing all or any portion of
the Property is subject to an actual or threatened taking by a public
authority, by the power of eminent domain or otherwise, Buyer shall have the
right to elect by written notice to Seller within ten days after Buyer’s
receipt of written notice of such taking, either to (i) terminate Escrow,
in which case Escrow Holder shall immediately return all documents, instruments
and monies to the Party that deposited same in respect of the Closing
(excluding the Deposit), or (ii) to accept the applicable portion of the
Property in its then condition, and the parties shall negotiate a Purchase
Price adjustment in good faith.

 

16.           Remedies.

 

16.1         If the Closing does not occur by reason of Seller’s default
hereunder which is not cured within thirty days after Seller receives written
notice of such default, then Buyer shall be entitled to pursue any remedies to
which Buyer may be entitled under this Agreement, at law and/or in equity,
including without limitation the right to specifically enforce this Agreement,
to record a notice of pendency of action against any of the Property and/or to
pursue an action for damages. 
Notwithstanding the foregoing, the Deposit is not refundable to Buyer in
any circumstance.

 

16.2         BUYER AND SELLER AGREE THAT IF THE CLOSING FAILS TO OCCUR
BECAUSE OF BUYER’S DEFAULT, BREACH OR FAILURE TO PERFORM (NOT DUE TO
SELLER’S ACTS OR OMISSIONS OR SELLER’S BREACH) HEREUNDER, THE DAMAGES TO SELLER
WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THAT
THEREFORE, THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES TO SELLER, SUCH
DAMAGES INCLUDING COSTS OF NEGOTIATING AND DRAFTING OF THIS AGREEMENT, COSTS OF
COOPERATING IN SATISFYING CONDITIONS TO CLOSING, COSTS OF SEEKING ANOTHER BUYER
UPON BUYER’S DEFAULT, OPPORTUNITY COSTS IN KEEPING THE PROPERTY OUT OF THE
MARKETPLACE, AND OTHER COSTS INCURRED IN CONNECTION HEREWITH.  ACCORDINGLY, BUYER AGREES THAT UPON BUYER’S
RECEIPT OF NOTICE OF SUCH DEFAULT OR BREACH FROM SELLER, WHICH NOTICE SHALL
SPECIFY THE BREACH IN DETAIL, AND FAILURE BY BUYER TO CURE SAID BREACH, DEFAULT
OR FAILURE TO PERFORM WITHIN 30 DAYS AFTER RECEIPT OF SUCH NOTICE, AND
CLOSE OF ESCROW FAILS TO OCCUR BECAUSE OF SUCH BREACH, DEFAULT OR FAILURE TO
PERFORM, SELLER SHALL BE ENTITLED TO THE DEPOSIT AS LIQUIDATED DAMAGES, AS
SELLER’S SOLE REMEDY IN THE EVENT OF ANY SUCH MATERIAL BREACH OR DEFAULT BY
BUYER HEREUNDER. SELLER WAIVES ANY RIGHT TO SPECIFICALLY ENFORCE BUYER’S
OBLIGATION TO PURCHASE THE PROPERTY (INCLUDING THE PROVISIONS OF CIVIL CODE
SECTIONS 1680 AND 3389). THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH
LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE
MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO
CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE
SECTIONS 1671, 1676 AND 1677.

 

	
  Initials of Buyer: TO/JR

  	
   

  	
  Initials of Seller: TMT

  

 

 

17.           Real
Estate Brokerage Commission.  Seller
has been represented by CB Richard Ellis Inc. (“Broker”) and shall be
responsible for all compensation that may due Broker related to this
transaction.  Buyer has not been
represented by a broker in relation to this transaction.  Each Party shall indemnify and hold the other
free and harmless from and against all costs and liabilities including, without
limitation, attorneys’ fees and the costs and expenses of litigation, for
causes of action or proceedings which may be instituted by any broker, agent or
finder, licensed or otherwise, claiming through, under or by reason of the conduct
of the indemnifying Party in connection with this transaction.  The Parties further agree that no broker
shall be a party to or a third party beneficiary of this Agreement or the
Escrow, and that no consent of any broker shall be necessary for any agreement,
amendment or document with respect to the transaction contemplated by this
Agreement.

 

18.           Miscellaneous.

 

18.1         Assignment. 
Neither Party shall assign this Agreement or its rights and obligations
hereunder without obtaining the other Party’s consent, which consent shall not
unreasonably be withheld.  However, Buyer
may assign its rights and delegate its duties under this Agreement without
Seller’s consent, to an entity of which Buyer or its affiliate, The Olson
Company, a California corporation, is the manager or managing member, provided
that Buyer gives written notice of such assignment to Seller and Escrow Holder
at least five days before the Closing Date.

 

18.2         No Modifications. 
No addition to or modification of any term or provision of this Agreement
shall be effective unless set forth in writing and signed by both Seller and
Buyer.

 

18.3         Construction of Agreement.  Each Party and attorneys for each Party have
participated in the drafting and preparation of this Agreement.  Therefore, the provisions of this Agreement
shall not be construed in favor of or against either Party, but shall be
construed as if both Parties participate equally in drafting and preparation of
this Agreement.

 

18.4         Headings.  The
paragraph headings in this Agreement are used only for the purpose of
convenience only and shall not be deemed to limit the subject of the sections
or paragraphs of this Agreement or to be considered in their construction.  Unless otherwise specifically referring to
another instrument or document, references to “Sections” refer to the Sections
of this Agreement.

 

18.5         Governing Law. 
This Agreement shall be governed by and construed in accordance with the
laws of the State applicable to contracts to be performed wholly within the
State.

 

18.6         Time of the Essence. 
Time is of the essence of each provision of this Agreement.  Unless a provision expressly refers to
business days, all references to “days” in this Agreement shall refer to
calendar days.  If the Closing Date or
any other date or time period provided for in this Agreement is or ends on a
Saturday, Sunday or federal, state or legal holiday observed in the State, then
such date shall automatically be extended to the next day that is not a
Saturday, Sunday or federal, state or legal holiday observed in the State.

 

18.7         Successors and Assigns.  All of the provisions of this Agreement shall
inure to the benefit of and shall be binding upon the permitted successors and
assigns of the Parties.

 

18.8         Further Assurances. 
Each of the Parties shall execute and deliver any and all additional
papers, documents, and other assurances, and shall do any and all acts and
things reasonably necessary in connection with the performance of their
obligations hereunder and to carry out the intent of this Agreement.  Without limiting the generality of the
foregoing, Seller shall reasonably cooperate with Buyer by executing such
documents and providing to Buyer or the appropriate regulatory agency such
items as Buyer or the appropriate regulatory agency may reasonably request, all
at Buyer’s expense, if any.

 

 

18.9         No Waiver.  The
waiver by one Party of the performance of any covenant, condition or promise,
or of the time for performing any act, under this Agreement shall not
invalidate this Agreement nor shall it be considered a waiver by such Party of
any other covenant, condition or promise, or of the time for performing any
other act required, under this Agreement.

 

18.10       Severability.  If
any provision of this Agreement shall become illegal, null or void or against
public policy, for any reason, or shall be held by any court of competent
jurisdiction to be illegal, null or void or against public policy, the
remaining provisions of this Agreement shall not be affected thereby and shall
remain in force and effect to the full extent permissible by law.

 

18.11       Gender and Number. 
In this Agreement the masculine, feminine and neuter genders and the
singular and the plural include one another, unless the context requires
otherwise.

 

18.12       Entire Agreement. 
This Agreement constitutes the entire agreement between the Parties
pertaining to the subject matter hereof and shall supersede all prior and
contemporaneous agreements, representations, negotiations and understandings of
the Parties, oral or written, including the Original Agreement.  The foregoing sentence shall in no way affect
the validity of any instrument executed by the Parties in the form of the
exhibits attached to this Agreement.

 

18.13       Incorporation of Exhibits.  All exhibits to this Agreement are incorporated
in this Agreement by this reference.

 

18.14       Counterparts. 
This Agreement may be executed in counterparts, each of which shall
constitute an original, but all of which together shall constitute one
agreement.  The signature page of
any counterpart may be detached therefrom without impairing the legal effect of
the signature(s) thereon provided such signature page is attached to any
other counterpart identical thereto except having additional signature pages executed
by the other Party.  Counterparts may be
delivered by telefacsimile provided that original executed counterparts are
delivered to the recipient within five business days after delivery of the
telefacsimile, using any of the methods for giving notice under Section 18.16.

 

18.15       Attorneys’ Fees. 
If any action or proceeding is instituted to enforce or interpret any
provision of this Agreement, the prevailing Party shall be entitled to recover
its reasonable attorneys’ fees and costs from the losing Party.

 

18.16       Notices.  Any
notice to be given hereunder to either Party or to Escrow Holder shall be in
writing and shall be given either by personal delivery (including express or
courier service), or by registered or certified mail, with return receipt
requested, postage prepaid and addressed as follows:

 

	
  To Seller:

  
	
   

  
	
   

  	
  Fullerton Holdings, Inc.

  c/o Summa Industries

  One Park Plaza, Suite 600

  Irvine, California 92614

  Telephone: (949) 852-7315
Fax: (949) 852-7316

  
	
   

  
	
  and to:

  
	
   

  
	
   

  	
  Summa Industries

  21250 Hawthorne Blvd., Suite 500

  Torrance, CA 90503

  Telephone: (310) 792-7024

  Fax: (310) 792-7079

  Attention: James R. Swartwout

  

 

 

	
  To Buyer:

  
	
   

  
	
   

  	
  Olson Urban Housing, LLC

  3020 Old Ranch Parkway, Suite 400

  Seal Beach, California 90740

  Fax: (562) 596-4742

  Phone: (562) 596-4770

  Attention: Todd Olson

  
	
   

  
	
  and to:

  
	
   

  
	
   

  	
  Sidley Austin Brown & Wood LLP

  555 West Fifth Street, Suite 4000

  Los Angeles, California 90013

  Attention: George M. Means, Esq.

  Telephone: (213) 896-6673

  Fax: (213) 896-6600

  
	
   

  
	
  To Escrow Holder:

  
	
   

  
	
   

  	
  Fidelity National Title Insurance Company

  4901 Birch Street,
  Suite C
Newport Beach, California 92660
Fax: (949) 474-2980

  Telephone: (949) 474-2166

  Attention: Mickey Vandenberg

  

 

Any
Party may, by written notice to the others and to Escrow Holder, designate a
different address, which shall be substituted for the one specified above.  Any such notice shall be deemed to have been
delivered upon its receipt or upon the second attempt at delivery, as evidenced
by the regular records of the person or entity attempting delivery.

 

18.17       Relationship of Parties.  The Parties agree that their relationship is
that of Seller and Buyer, respectively, and that nothing contained in this
Agreement shall make either Party the fiduciary of the other for any purpose
whatsoever, nor shall this Agreement be deemed to create any form of business
organization between the Parties, including without limitation a joint venture
or partnership, nor is either Party granted any right or authority to assume or
create any obligation or responsibility on behalf of the other Party, nor shall
either Party be in any way liable for any debt of the other.

 

18.18       Survival.  The
agreements, representations, covenants and warranties of the Parties contained
in this Agreement shall survive the Closing and the delivery of the Grant Deed
for the terms set forth elsewhere herein.

 

 

IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

 

	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  FULLERTON HOLDINGS, INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
  Its:

  	
  President

  	
   

  
	
   

  	
  Date:

  	
  June 27, 2005

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYER: 

  
	
   

  	
   

  
	
   

  	
  OLSON URBAN HOUSING, LLC,

  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  THE OLSON COMPANY,

  a California corporation

  its managing member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Todd Olson

  	
   

  
	
   

  	
   

  	
  Its:

  	
   President Community Development

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ John Reekstin

  	
   

  
	
   

  	
   

  	
  Its:

  	
   Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  June 24, 2005

  
						

 

The Exhibits to this Agreement have been omitted
from this filing, and the issuer agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the Securities and Exchange Commission upon
request.

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