Ontario, Canada | Not Applicable | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
45 St. Clair Avenue West, Suite 400 Toronto, Ontario | M4V 1K9 | |||
(Address of principal executive offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered |
Common Stock, no par value | New York Stock Exchange |
Table Of Contents | ||
Caution Regarding Forward-Looking Statements | ||
PART I | ||
Item 1. Business | ||
Item 1A. Risk Factors | ||
Item IB. Unresolved Staff Comments | ||
Item 2. Properties | ||
Item 3. Legal Proceedings | ||
Item 4. Mine Safety Disclosures | ||
PART II | ||
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||
Item 6. Selected Financial Data | ||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | ||
Item 8. Financial Statements and Supplementary Data | ||
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||
Item 9A. Controls and Procedures | ||
Item 9B. Other Information | ||
PART III | ||
Item 10. Directors, Executive Officers, and Corporate Governance | ||
Item 11. Executive Compensation | ||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||
Item 13. Certain Relationships and Related Transactions, and Director Independence | ||
Item 14. Principal Accounting Fees and Services | ||
PART IV | ||
Item 15. Exhibits, Financial Statement Schedules | ||
SIGNATURES | ||
EXHIBIT INDEX |
2 |
• | its results of operations and financial condition (including, among other things, premium volume, premium rates, net and operating income, investment income and performance, return on equity, and expected current returns and combined ratios); |
• | changes in facts and circumstances affecting assumptions used in determining the provision for unpaid loss and loss adjustment expenses; |
• | the number and severity of insurance claims (including those associated with catastrophe losses) and their impact on the adequacy of the provision for unpaid loss and loss adjustment expenses; |
• | the impact of emerging claims issues as well as other insurance and non-insurance litigation; |
• | orders, interpretations or other actions by regulators that impact the reporting, adjustment and payment of claims; |
• | changes in industry trends and significant industry developments; |
• | uncertainties related to regulatory approval of insurance rates, policy forms, license applications and similar matters; and |
• | strategic initiatives. |
3 |
4 |
5 |
6 |
2011 | 2010 | |||||||
Private passenger auto liability | 87.5 | 63.2 | % | 140.8 | 66.5 | % | ||
Auto physical damage | 32.1 | 23.2 | % | 53.9 | 25.5 | % | ||
Total non-standard automobile | 119.6 | 86.4 | % | 194.7 | 92.0 | % | ||
Commercial auto liability | 10.7 | 7.7 | % | 8.7 | 4.1 | % | ||
Allied lines | 8.1 | 5.9 | % | 8.2 | 3.9 | % | ||
Total gross premiums written | 138.4 | 100.0 | % | 211.6 | 100.0 | % |
2011 | 2010 | |||||||
Florida | 64.4 | 46.5 | % | 95.1 | 44.9 | % | ||
Illinois | 16.1 | 11.6 | % | 18.5 | 8.7 | % | ||
Texas | 12.1 | 8.7 | % | 13.1 | 6.2 | % | ||
California | 9.9 | 7.2 | % | 25.3 | 12.0 | % | ||
Nevada | 8.8 | 6.4 | % | 11.7 | 5.5 | % | ||
Colorado | 7.6 | 5.5 | % | 13.2 | 6.2 | % | ||
Other | 19.5 | 14.1 | % | 34.7 | 16.5 | % | ||
Total gross premiums written | 138.4 | 100.0 | % | 211.6 | 100.0 | % |
7 |
• | identify markets that are most likely to produce an underwriting profit; |
• | operate with a disciplined underwriting approach; |
• | practice prudent claims management; |
• | establish an appropriate provision for unpaid loss and loss adjustment expenses; |
• | strive for cost containment and the economics of shared support functions where deemed appropriate; and |
• | provide our independent agents and brokers with competitive commissions, an ease of doing business and additional value-added products and services for them and their customers. |
8 |
9 |
10 |
• | trends in jury awards; |
• | changes in the underlying court system and its philosophy; |
• | changes in case law; |
• | litigation trends; |
• | frequency of claims with payment capped by policy limits; |
• | change in average severity of accidents, or proportion of severe accidents; |
• | subrogation opportunities; |
• | degree of patient responsiveness to treatment; |
• | changes in claim handling philosophies; |
• | effectiveness of no-fault laws; |
• | frequency of visits to health providers; |
• | number of medical procedures given during visits to health providers; |
• | types of health providers used; |
• | types of medical treatments received; |
• | changes in cost of medical treatments; |
• | changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.); |
• | changes in underwriting standards; and |
• | changes in the use of credit data for rating and underwriting. |
11 |
2011 | 2010 | |||
Case reserves | 75.5 | 119.8 | ||
IBNR reserves | 44.8 | 54.9 | ||
Total provision for unpaid loss and loss adjustment expenses | 120.3 | 174.7 |
12 |
2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||
Unpaid loss and loss adjustment expenses originally established - end of year, gross | 120.3 | 174.7 | 186.7 | 183.2 | 198.0 | 119.1 | 106.8 | 104.9 | 100.0 | 73.7 | 61.0 | |||||||||||
Less: reinsurance recoverable on unpaid loss and loss adjustment expenses | 0.3 | 8.0 | — | 0.5 | 0.3 | 0.3 | 0.5 | 0.3 | 0.4 | 0.1 | 1.0 | |||||||||||
Unpaid loss and loss adjustment expenses originally established - end of year, net | 120.0 | 166.7 | 186.7 | 182.7 | 197.7 | 118.8 | 106.3 | 104.6 | 99.6 | 73.6 | 60.0 | |||||||||||
Cumulative net paid as of: | ||||||||||||||||||||||
One year later | 105.2 | 111.7 | 107.1 | 108.6 | 48.8 | 50.0 | 52.6 | 61.4 | 55.4 | 41.5 | ||||||||||||
Two years later | 155.5 | 156.8 | 150.5 | 75.5 | 71.0 | 73.3 | 83.6 | 78.3 | 58.7 | |||||||||||||
Three years later | 180.4 | 174.3 | 90.9 | 83.9 | 84.2 | 95.2 | 88.8 | 68.9 | ||||||||||||||
Four years later | 183.6 | 98.8 | 91.3 | 90.0 | 101.3 | 93.8 | 73.2 | |||||||||||||||
Five years later | 101.4 | 94.9 | 94.4 | 104.0 | 95.8 | 75.1 | ||||||||||||||||
Six years later | 96.1 | 95.9 | 107.7 | 96.8 | 75.9 | |||||||||||||||||
Seven years later | 96.5 | 108.4 | 100.2 | 76.4 | ||||||||||||||||||
Eight years later | 108.7 | 100.6 | 79.6 | |||||||||||||||||||
Nine years later | 100.7 | 79.7 | ||||||||||||||||||||
Ten years later | 79.7 | |||||||||||||||||||||
Re-estimated liability as of: | ||||||||||||||||||||||
One year later | 174.6 | 201.1 | 184.5 | 190.2 | 109.0 | 105.1 | 102.0 | 102.5 | 90.7 | 68.0 | ||||||||||||
Two years later | 202.0 | 197.6 | 186.9 | 104.9 | 98.2 | 99.7 | 107.7 | 96.4 | 72.9 | |||||||||||||
Three years later | 198.0 | 193.3 | 106.0 | 96.6 | 97.1 | 108.1 | 99.6 | 75.5 | ||||||||||||||
Four years later | 191.9 | 106.8 | 97.6 | 96.2 | 106.6 | 99.7 | 77.8 | |||||||||||||||
Five years later | 106.0 | 98.0 | 97.4 | 106.6 | 97.8 | 78.1 | ||||||||||||||||
Six years later | 98.3 | 97.5 | 109.2 | 98.2 | 76.6 | |||||||||||||||||
Seven years later | 97.8 | 109.3 | 101.1 | 77.2 | ||||||||||||||||||
Eight years later | 109.4 | 101.0 | 80.1 | |||||||||||||||||||
Nine years later | 101.0 | 79.9 | ||||||||||||||||||||
Ten years later | 79.8 | |||||||||||||||||||||
As of December 31, 2011: Cumulative (redundancy) deficiency | 7.9 | 15.3 | 15.3 | (5.8 | ) | (12.8 | ) | (8.0 | ) | (6.8 | ) | 9.8 | 27.4 | 19.8 | ||||||||
Cumulative (redundancy) deficiency as a % of unpaid loss and loss adjustment expenses originally established - net | 4.7 | % | 8.2 | % | 8.4 | % | (2.9 | )% | (10.8 | )% | (7.5 | )% | (6.5 | )% | 9.8 | % | 37.2 | % | 33.0 | % | ||
Re-estimated liability - gross | 182.6 | 202.0 | 198.0 | 191.9 | 106.0 | 98.3 | 97.8 | 109.4 | 101.0 | 79.8 | ||||||||||||
Less: re-established reinsurance recoverable | 8.0 | — | — | — | — | — | — | — | — | — | ||||||||||||
Re-estimated provision - net | 174.6 | 202.0 | 198.0 | 191.9 | 106.0 | 98.3 | 97.8 | 109.4 | 101.0 | 79.8 | ||||||||||||
Cumulative deficiency (redundancy) - gross | 7.9 | 15.3 | 14.8 | (6.1 | ) | (13.1 | ) | (8.5 | ) | (7.1 | ) | 9.4 | 27.3 | 18.8 | ||||||||
% of unpaid loss and loss adjustment expenses originally established - gross | 4.5 | % | 8.2 | % | 8.1 | % | (3.1 | )% | (11.0 | )% | (8.0 | )% | (6.8 | )% | 9.4 | % | 37.0 | % | 30.8 | % |
13 |
2011 | 2010 | |||
Balance at January 1, net | 166.7 | 186.7 | ||
Incurred related to: | ||||
Current year | 135.2 | 199.6 | ||
Prior years | 7.9 | 14.4 | ||
Paid related to: | ||||
Current year | (84.6 | ) | (122.3 | ) |
Prior years | (105.2 | ) | (111.7 | ) |
Balance at December 31, net | 120.0 | 166.7 | ||
Reinsurers' share of unpaid loss and loss adjustment expenses | 0.3 | 8.0 | ||
Balance at December 31, gross | 120.3 | 174.7 |
14 |
A++ | 0.1 | % |
A- | 87.4 | % |
Not rated | 12.5 | % |
Total | 100.0 | % |
2011 | 2010 | |||||||
Principal | Fair Value | Principal | Fair Value | |||||
6% Senior unsecured debentures due 2012 | 1.7 | 1.6 | 12.5 | 12.2 | ||||
7.5% Senior notes due 2014 | 27.0 | 26.8 | 27.0 | 24.9 | ||||
LROC preferred units due 2015 | 19.3 | 8.8 | 19.8 | 13.1 | ||||
Subordinated debt | 90.5 | 16.4 | 90.5 | 40.5 | ||||
Total | 138.5 | 53.6 | 149.8 | 90.7 |
15 |
16 |
17 |
• | our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing could be limited; |
• | our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our debt may be impaired in the future; |
• | a large portion of our cash flow must be dedicated to the payment of principal and interest on our debt, thereby reducing the funds available to us for other purposes; |
• | we are exposed to the risk of increased interest rates because our outstanding subordinated debt, representing $90.5 million of principal value, bears interest directly related to the London interbank offered interest rate for three-month U.S. dollar deposits ("LIBOR"); |
• | it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such debt; |
• | we may be more vulnerable to general adverse economic and industry conditions; |
• | we may be at a competitive disadvantage compared to our competitors with proportionately less debt or with comparable debt on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; |
• | our ability to refinance debt may be limited or the associated costs may increase; |
• | our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and |
• | we may be prevented from carrying out capital spending that is, among other things, necessary or important to our growth strategy and efforts to improve the operating results of our businesses. |
18 |
19 |
• | rate setting; |
• | risk-based capital and solvency standards; |
• | restrictions on the amount, type, nature, quality and quantity of investments; |
• | the maintenance of adequate provisions for unearned premiums and unpaid loss and loss adjustment expenses; |
• | restrictions on the types of terms that can be included in insurance policies; |
• | standards for accounting; |
• | marketing practices; |
• | claims-settlement practices; |
• | the examination of insurance companies by regulatory authorities, including periodic financial and market conduct examinations; |
• | the licensing of insurers and their agents; |
• | limitations on dividends and transactions with affiliates; |
• | approval of certain reinsurance transactions; and |
• | insolvency proceedings. |
• | requesting additional capital contributions from Kingsway to its insurance subsidiaries; and |
• | requiring more frequent reporting, including with respect to capital and liquidity positions. |
• | disputes over coverage or claims adjudication; |
• | disputes regarding sales practices, disclosure, premium refunds, licensing, regulatory compliance and compensation arrangements; |
• | disputes with our agents, producers or network providers over compensation and termination of contracts and related claims; |
• | disputes with taxing authorities regarding our tax liabilities; and |
• | disputes relating to certain businesses acquired or disposed of by us. |
20 |
21 |
• | difficulties in the integration of the acquired business; |
• | assumption of unknown material liabilities, including deficient provisions for unpaid loss and loss adjustment expenses; |
• | diversion of management's attention from other business concerns; |
• | failure to achieve financial or operating objectives; and |
• | potential loss of policyholders or key employees of acquired companies. |
• | actuarial projections of the cost of settlement and administration of claims reflecting facts and circumstances then known; |
• | estimates of future trends in claims severity and frequency; |
• | legal theories of liability; |
• | variability in claims-handling procedures; |
• | economic factors such as inflation; |
• | judicial and legislative trends, actions such as class action lawsuits, and judicial interpretation of coverages or policy exclusions; and |
• | the level of insurance fraud. |
22 |
23 |
• | the availability of reliable data and our ability to properly analyze available data; |
• | the uncertainties that inherently characterize estimates and assumptions; |
• | our selection and application of appropriate pricing techniques; and |
• | changes in applicable legal liability standards and in the civil litigation system generally. |
24 |
25 |
TSX | NYSE | |||||||||||||||
High - C$ | Low - C$ | High - US$ | Low - US$ | |||||||||||||
2011 | ||||||||||||||||
Quarter 4 | C$ | 0.87 | C$ | 0.49 | $ | 1.00 | $ | 0.48 | ||||||||
Quarter 3 | 0.99 | 0.73 | 1.05 | 0.72 | ||||||||||||
Quarter 2 | 1.26 | 0.89 | 1.31 | 0.91 | ||||||||||||
Quarter 1 | 1.45 | 0.84 | 1.51 | 0.86 | ||||||||||||
2010 | ||||||||||||||||
Quarter 4 | 1.74 | 1.19 | 1.70 | 1.18 | ||||||||||||
Quarter 3 | 2.09 | 1.60 | 2.05 | 1.55 | ||||||||||||
Quarter 2 | 2.73 | 1.55 | 2.72 | 1.53 | ||||||||||||
Quarter 1 | 2.07 | 1.34 | 1.96 | 1.30 |
26 |
Equity Compensation Plan Information | |||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Plan category | (a) | (b) | (c) |
Equity compensation plans approved by security holders | 1,591,500 | $5.26 | 2,945,726 |
Equity compensation plans not approved by security holders | N/A | N/A | N/A |
Total | 1,591,500 | $5.26 | 2,945,726 |
27 |
28 |
• | identifying all unrealized loss positions that have existed for at least six months; |
• | identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions; |
• | obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques; |
• | reviewing the trading range of certain investments over the preceding calendar period; |
• | assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies; |
• | assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record; |
• | determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed; and |
• | assessing the company's ability and intent to hold these investments at least until the investment impairment is recovered. |
• | the opinions of professional investment managers could be incorrect; |
• | the past trading patterns of individual investments may not reflect future valuation trends; |
• | the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company's financial situation; and |
• | the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company's unknown underlying financial problems. |
29 |
30 |
2011 | 2010 | Change | ||||
Segment operating income (loss) | ||||||
Insurance Underwriting | (37.1 | ) | (60.3 | ) | 23.2 | |
Insurance Services | 1.7 | (15.9 | ) | 17.6 | ||
Total segment operating loss | (35.4 | ) | (76.1 | ) | 40.7 | |
Net investment income | 4.1 | 12.8 | (8.7 | ) | ||
Net realized gains | 1.1 | 9.3 | (8.2 | ) | ||
Gain (loss) on change in fair value of debt | 25.9 | (107.3 | ) | 133.2 | ||
Other income not allocated to segments | 0.3 | 3.5 | (3.2 | ) | ||
General and administrative expenses not allocated to segments | (12.9 | ) | (34.5 | ) | 21.6 | |
Interest expense | (7.5 | ) | (14.8 | ) | 7.3 | |
Amortization of other intangible assets | (0.1 | ) | (4.4 | ) | 4.3 | |
Goodwill impairment | (2.8 | ) | — | (2.8 | ) | |
Gain on buy-back of debt | 0.6 | 3.1 | (2.5 | ) | ||
Gain on consolidation of debt | — | 17.8 | (17.8 | ) | ||
Equity in net income of investees | 0.4 | — | 0.4 | |||
Loss from continuing operations before income tax benefit | (26.3 | ) | (190.6 | ) | 164.3 | |
Income tax benefit | (0.2 | ) | (6.1 | ) | (5.9 | ) |
Loss from continuing operations | (26.1 | ) | (184.5 | ) | 158.4 | |
Loss from discontinued operations, net of taxes | — | (7.5 | ) | 7.5 | ||
(Loss) gain on disposal of discontinued operations, net of taxes | (1.3 | ) | 30.4 | (31.7 | ) | |
Net loss | (27.4 | ) | (161.6 | ) | 134.2 |
31 |
32 |
33 |
Type of investment | 2011 | % of Total | 2010 | % of Total | ||||
Fixed maturities: | ||||||||
U.S. government, government agencies and authorities | 18.3 | 9.0 | % | 24.3 | 8.5 | % | ||
Canadian government | 3.8 | 1.9 | % | 2.9 | 1.0 | % | ||
States municipalities and political subdivisions | 8.5 | 4.2 | % | 22.2 | 7.7 | % | ||
Mortgage-backed | 38.4 | 18.9 | % | 42.1 | 14.7 | % | ||
Asset-backed | 2.7 | 1.3 | % | 1.6 | 0.6 | % | ||
Corporate | 22.0 | 10.9 | % | 34.8 | 12.1 | % | ||
Total fixed maturities | 93.7 | 46.2 | % | 127.9 | 44.6 | % | ||
Equity investments | 3.0 | 1.5 | % | 0.1 | — | % | ||
Other investments | 0.5 | 0.2 | % | 0.5 | 0.2 | % | ||
Short-term investments | 20.2 | 10.0 | % | 18.2 | 6.3 | % | ||
Total investments | 117.4 | 57.9 | % | 146.7 | 51.1 | % | ||
Cash and cash equivalents | 85.5 | 42.1 | % | 140.6 | 48.9 | % | ||
Total | 202.9 | 100.0 | % | 287.3 | 100.0 | % |
2011 | % of Total | 2010 | % of Total | |||||
Due in less than one year | 43.8 | 46.7 | % | 21.5 | 16.8 | % | ||
Due in one through five years | 35.7 | 38.1 | % | 72.7 | 56.8 | % | ||
Due after five through ten years | 4.4 | 4.7 | % | 28.6 | 22.4 | % | ||
Due after ten years | 9.8 | 10.5 | % | 5.1 | 4.0 | % | ||
Total | 93.7 | 100.0 | % | 127.9 | 100.0 | % |
34 |
Rating (S&P/Moody's) | 2011 | 2010 | ||
AAA/Aaa | 76.1 | % | 71.0 | % |
AA/Aa | 11.8 | 18.7 | ||
A/A | 11.1 | 9.0 | ||
Percentage rated A/A2 or better | 99.0 | % | 98.7 | % |
BBB/Baa | 0.7 | 0.4 | ||
CCC/Caa or lower, or not rated | 0.3 | 0.9 | ||
Total | 100.0 | % | 100.0 | % |
35 |
Line of Business | 2011 | 2010 | ||
Non-standard automobile | 93.5 | 140.1 | ||
Commercial automobile | 22.4 | 28.5 | ||
Other | 4.4 | 6.1 | ||
Total | 120.3 | 174.7 |
Line of Business | 2011 | 2010 | ||
Non-standard automobile | 93.3 | 132.7 | ||
Commercial automobile | 22.3 | 28.0 | ||
Other | 4.4 | 6.0 | ||
Total | 120.0 | 166.7 |
Accident Year | Non-standard Automobile | Commercial Automobile | Other | Total | ||||
2006 & prior | (1.1 | ) | 0.4 | (0.2 | ) | (0.9 | ) | |
2007 | (0.4 | ) | 0.4 | (0.6 | ) | (0.6 | ) | |
2008 | 0.7 | 1.6 | (0.5 | ) | 1.8 | |||
2009 | 0.5 | 0.1 | — | 0.6 | ||||
2010 | 6.3 | 0.6 | 0.1 | 7.0 | ||||
Total | 6.0 | 3.1 | (1.2 | ) | 7.9 |
36 |
Accident Year | Non-standard Automobile | Commercial Automobile | Other | Total | ||||
2005 & prior | 0.5 | (0.1 | ) | — | 0.4 | |||
2006 | 0.1 | 0.3 | — | 0.4 | ||||
2007 | 4.6 | 1.3 | (0.3 | ) | 5.6 | |||
2008 | 5.9 | 0.9 | — | 6.8 | ||||
2009 | 4.1 | (2.9 | ) | — | 1.2 | |||
Total | 15.2 | (0.5 | ) | (0.3 | ) | 14.4 |
37 |
38 |
39 |
2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||
Senior unsecured debentures | 1.7 | — | 27.0 | — | — | — | 28.7 | |||||||
Subordinated debt | — | — | — | — | — | 90.5 | 90.5 | |||||||
LROC preferred units | — | — | — | 19.3 | — | — | 19.3 | |||||||
Total debt | 1.7 | — | 27.0 | 19.3 | — | 90.5 | 138.5 | |||||||
Unpaid loss and loss adjustment expenses | 67.4 | 26.1 | 13.0 | 6.5 | 3.1 | 4.2 | 120.3 | |||||||
Future minimum lease payments | 3.9 | 3.5 | 3.1 | 2.1 | 1.4 | 0.9 | 14.9 | |||||||
Total | 69.1 | 26.1 | 40.0 | 25.8 | 3.1 | 94.7 | 273.7 |
40 |
Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheets at December 31, 2011 and 2010 | ||
Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010 | ||
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2011 and 2010 | ||
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2011 and 2010 | ||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010 | ||
Notes to the Consolidated Financial Statements | ||
Note 1-Business | ||
Note 2-Summary of Significant Accounting Policies | ||
Note 3-Recently Issued Accounting Standards | ||
Note 4-Acquisitions | ||
Note 5-Discontinued Operations and Dispositions | ||
Note 6-Investments | ||
Note 7-Investment in Investees | ||
Note 8-Reinsurance | ||
Note 9-Deferred Policy Acquisition Costs | ||
Note 10-Goodwill and Intangible Assets | ||
Note 11-Property and Equipment | ||
Note 12-Unpaid Loss and Loss Adjustment Expenses | ||
Note 13-Debt | ||
Note 14-Hedges | ||
Note 15-Income Taxes | ||
Note 16-Net Loss per Share | ||
Note 17-Stock-Based Compensation | ||
Note 18-Employee Benefit Plan | ||
Note 19-Restructuring Charges | ||
Note 20-Shareholders' Equity | ||
Note 21-Accumulated Other Comprehensive Income | ||
Note 22-Segmented Information | ||
Note 23-Fair Value of Financial Instruments | ||
Note 24-Related Party Transactions | ||
Note 25-Commitments and Contingent Liabilities | ||
Note 26-Regulatory Capital Requirements and Ratios | ||
Note 27-Statutory Information and Policies | ||
Note 28-Supplemental Condensed Consolidating Financial Information | ||
Note 29-Subsequent Events |
41 |
42 |
43 |
December 31, 2011 | December 31, 2010 | ||||||
ASSETS | |||||||
Investments: | |||||||
Fixed maturities, at fair value (amortized cost of $91,344 and $126,210, respectively) | $ | 93,651 | $ | 127,863 | |||
Equity investments, at fair value (cost of $2,689 and $92, respectively) | 2,960 | 82 | |||||
Other investments, at cost which approximates fair value | 488 | 490 | |||||
Short-term investments, at cost which approximates fair value | 20,334 | 18,249 | |||||
Total investments | 117,433 | 146,684 | |||||
Investment in investees | 48,689 | 49,079 | |||||
Cash and cash equivalents | 85,486 | 140,567 | |||||
Accrued investment income | 1,999 | 1,957 | |||||
Premiums receivable, net of allowance for doubtful accounts of $3,653 and $4,789, respectively | 28,732 | 48,890 | |||||
Service fee receivable | 12,947 | 6,493 | |||||
Other receivables | 6,322 | 4,583 | |||||
Reinsurance recoverable | 697 | 8,652 | |||||
Prepaid reinsurance premiums | 2,024 | — | |||||
Deferred policy acquisition costs, net | 8,116 | 13,952 | |||||
Income taxes recoverable | 8,134 | 17,991 | |||||
Deferred income taxes | — | 503 | |||||
Property and equipment, net of accumulated depreciation of $27,736 and $28,743 | 13,040 | 13,961 | |||||
Goodwill and intangible assets | 39,631 | 42,467 | |||||
Funds held in escrow | — | 22,259 | |||||
Other assets | 831 | 2,541 | |||||
TOTAL ASSETS | $ | 374,081 | $ | 520,579 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
LIABILITIES | |||||||
Unpaid loss and loss adjustment expenses | $ | 120,258 | $ | 174,708 | |||
Unearned premiums | 39,423 | 66,879 | |||||
Reinsurance payable | 1,913 | 1,001 | |||||
LROC preferred units | 8,845 | 13,076 | |||||
Senior unsecured debentures | 28,337 | 37,177 | |||||
Subordinated debt | 16,432 | 40,480 | |||||
Deferred income tax liability | 2,653 | — | |||||
Notes payable | 2,418 | — | |||||
Deferred revenue | 11,128 | 11,200 | |||||
Accrued expenses and other liabilities | 26,269 | 31,185 | |||||
TOTAL LIABILITIES | 257,676 | 375,706 | |||||
SHAREHOLDERS’ EQUITY | |||||||
Common stock, no par value; unlimited number authorized; 52,345,828 and 52,095,828 issued and outstanding at December 31, 2011 and December 31, 2010, respectively | $ | 296,489 | $ | 296,139 | |||
Additional paid-in capital | 15,403 | 15,440 | |||||
Accumulated deficit | (201,208 | ) | (181,070 | ) | |||
Accumulated other comprehensive income | 12,749 | 14,407 | |||||
Shareholders' equity attributable to common shareholders | 123,433 | 144,916 | |||||
Noncontrolling interests in consolidated subsidiaries | (7,028 | ) | (43 | ) | |||
TOTAL SHAREHOLDERS' EQUITY | 116,405 | 144,873 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 374,081 | $ | 520,579 |
44 |
Years ended December 31, | ||||||||
2011 | 2010 | |||||||
Revenue: | ||||||||
Net premiums earned | $ | 156,382 | $ | 220,011 | ||||
Service fee and commission income | 31,607 | 13,008 | ||||||
Net investment income | 4,086 | 12,819 | ||||||
Net realized gains | 1,095 | 9,257 | ||||||
Gain (loss) on change in fair value of debt | 25,876 | (107,269 | ) | |||||
Other income | 9,501 | 17,055 | ||||||
Total revenues: | 228,547 | 164,881 | ||||||
Expenses: | ||||||||
Loss and loss adjustment expenses | 143,145 | 214,045 | ||||||
Commissions and premiums taxes | 24,305 | 36,688 | ||||||
General and administrative expenses | 77,936 | 101,644 | ||||||
Restructuring costs | — | 4,803 | ||||||
Interest expense | 7,478 | 14,825 | ||||||
Amortization of other intangible assets | 73 | 4,369 | ||||||
Goodwill impairment | 2,830 | — | ||||||
Total expenses | 255,767 | 376,374 | ||||||
Loss before gains on debt, equity in net income of investees and income tax benefit | (27,220 | ) | (211,493 | ) | ||||
Gain on buy-back of debt | 556 | 3,110 | ||||||
Gain on consolidation of debt | — | 17,821 | ||||||
Equity in net income of investees | 417 | — | ||||||
Loss from continuing operations before income tax benefit | (26,247 | ) | (190,562 | ) | ||||
Income tax benefit | (169 | ) | (6,118 | ) | ||||
Loss from continuing operations | (26,078 | ) | (184,444 | ) | ||||
Loss from discontinued operations, net of taxes | — | (7,508 | ) | |||||
(Loss) gain on disposal of discontinued operations, net of taxes | (1,293 | ) | 30,390 | |||||
Net loss | $ | (27,371 | ) | $ | (161,562 | ) | ||
Attributable to: | ||||||||
Common shareholders | (20,138 | ) | (165,276 | ) | ||||
Noncontrolling interests in consolidated subsidiaries | (7,233 | ) | 3,714 | |||||
Total | $ | (27,371 | ) | $ | (161,562 | ) | ||
Loss per share - continuing operations: | ||||||||
Basic and diluted: | $ | (0.50 | ) | $ | (3.54 | ) | ||
(Loss) earnings per share - discontinued operations: | ||||||||
Basic and diluted: | $ | (0.02 | ) | $ | 0.44 | |||
Loss per share – net loss: | ||||||||
Basic and diluted: | $ | (0.52 | ) | $ | (3.10 | ) | ||
Weighted average shares outstanding (in ‘000s): | ||||||||
Basic and diluted: | 52,346 | 52,094 |
45 |
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Shareholders' Equity Attributable to Common Shareholders | Noncontrolling Interests in Consolidated Subsidiaries | Total Shareholders' Equity | |||||||||||||||||||||
Balance, January 1, 2010 | $ | 295,291 | $ | 20,549 | $ | (15,794 | ) | $ | 48,027 | $ | 348,073 | $ | — | $ | 348,073 | ||||||||||||
Net (loss) income | — | — | (165,276 | ) | — | (165,276 | ) | 3,714 | (161,562 | ) | |||||||||||||||||
Other comprehensive loss | — | — | — | (33,620 | ) | (33,620 | ) | (3,757 | ) | (37,377 | ) | ||||||||||||||||
Common shares issued | 848 | — | — | — | 848 | — | 848 | ||||||||||||||||||||
Forfeited options | — | (6,291 | ) | — | — | (6,291 | ) | — | (6,291 | ) | |||||||||||||||||
Stock option expense | — | 1,182 | — | — | 1,182 | — | 1,182 | ||||||||||||||||||||
Balance, December 31, 2010 | $ | 296,139 | $ | 15,440 | $ | (181,070 | ) | $ | 14,407 | $ | 144,916 | $ | (43 | ) | $ | 144,873 | |||||||||||
Net loss | — | — | (20,138 | ) | — | (20,138 | ) | (7,233 | ) | (27,371 | ) | ||||||||||||||||
Other comprehensive (loss) income | — | — | — | (1,658 | ) | (1,658 | ) | 248 | (1,410 | ) | |||||||||||||||||
Common shares issued | 350 | — | — | — | 350 | — | 350 | ||||||||||||||||||||
Forfeited options | — | (738 | ) | — | — | (738 | ) | — | (738 | ) | |||||||||||||||||
Stock option expense | — | 701 | — | — | 701 | — | 701 | ||||||||||||||||||||
Balance, December 31, 2011 | $ | 296,489 | $ | 15,403 | $ | (201,208 | ) | $ | 12,749 | $ | 123,433 | $ | (7,028 | ) | $ | 116,405 |
46 |
Years ended December 31, | |||||||
2011 | 2010 | ||||||
Comprehensive loss | |||||||
Net loss | $ | (27,371 | ) | $ | (161,562 | ) | |
Other comprehensive income (loss), net of taxes: | |||||||
Change in unrealized gains (losses) on fixed maturities and equity investments: | |||||||
Unrealized gains arising during the year, net of tax (1) | 320 | 972 | |||||
Recognition of realized losses (gains) to net loss, net of tax (2) | 614 | (1,583 | ) | ||||
Unrealized gains on translating financial statements of self-sustaining foreign operations | 460 | 923 | |||||
Equity in other comprehensive loss of investees | (1,537 | ) | — | ||||
Recognition of currency translation gain on disposal of subsidiary | — | (34,075 | ) | ||||
Loss on cash flow hedge | (1,267 | ) | (3,614 | ) | |||
Other comprehensive loss | (1,410 | ) | (37,377 | ) | |||
Comprehensive loss | $ | (28,781 | ) | $ | (198,939 | ) | |
Attributable to: | |||||||
Common shareholders | (21,796 | ) | (198,896 | ) | |||
Noncontrolling interests in consolidated subsidiaries | (6,985 | ) | (43 | ) | |||
Total | $ | (28,781 | ) | $ | (198,939 | ) | |
Net of income tax expense of $0 in 2011 and 2010 | |||||||
Net of income tax expense of $0 in 2011 and 2010 |
47 |
Years ended December 31, | ||||||||
2011 | 2010 | |||||||
Cash provided by (used in): | ||||||||
Operating activities: | ||||||||
Net loss | $ | (27,371 | ) | $ | (161,562 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Loss (income) from discontinued operations and disposal of discontinued operations | 1,293 | (22,882 | ) | |||||
Equity in net income of investees | (417 | ) | — | |||||
Depreciation and amortization | 2,271 | 8,549 | ||||||
Stock based compensation expense, net of forfeitures | (37 | ) | (5,109 | ) | ||||
Net realized gains | (1,095 | ) | (9,257 | ) | ||||
Gain (loss) on change in fair value of debt | (25,876 | ) | 107,269 | |||||
Deferred income taxes | 3,423 | 8,376 | ||||||
Goodwill impairment | 2,830 | — | ||||||
Amortization of fixed maturities premiums and discounts | 890 | 1,625 | ||||||
Realized gain on buy-back and consolidation of debt | (556 | ) | (20,931 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Premiums and service fee receivable | 13,704 | 13,034 | ||||||
Reinsurance recoverable | 7,955 | (8,296 | ) | |||||
Deferred policy acquisition costs | 5,836 | 5,598 | ||||||
Income taxes recoverable | 9,857 | (2,369 | ) | |||||
Funds held in escrow | 22,259 | (22,259 | ) | |||||
Unpaid loss and loss adjustment expenses | (54,450 | ) | (11,977 | ) | ||||
Unearned premiums | (27,456 | ) | (18,756 | ) | ||||
Reinsurance payable | 912 | 482 | ||||||
Deferred revenue | (72 | ) | 10,397 | |||||
Other, net | (10,014 | ) | (5,316 | ) | ||||
Net cash used in operating activities | (76,114 | ) | (133,384 | ) | ||||
Investing activities: | ||||||||
Proceeds from sale and maturities of fixed maturities | 161,042 | 140,410 | ||||||
Proceeds from sales of equity investments | 550 | — | ||||||
Purchase of fixed maturities | (127,780 | ) | (77,646 | ) | ||||
Purchase of equity investments | (1,420 | ) | — | |||||
Net (purchases) sales of short-term investments | (1,976 | ) | 41,714 | |||||
Acquisition of investees | (100 | ) | (49,079 | ) | ||||
Acquisition of subsidiaries, net of cash acquired | — | (13,752 | ) | |||||
Net proceeds from sale of discontinued operations | — | 307,575 | ||||||
Net purchases of property and equipment and other intangible assets | (1,344 | ) | (1,509 | ) | ||||
Net cash provided by investing activities | 28,972 | 347,713 | ||||||
Financing activities: | ||||||||
Common stock issued | 350 | 848 | ||||||
Proceeds from issuance of notes payable | 2,418 | — | ||||||
Redemption of senior unsecured debentures | (10,707 | ) | (124,187 | ) | ||||
Net cash used in financing activities | (7,939 | ) | (123,339 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (55,081 | ) | 90,990 | |||||
Cash and cash equivalents at beginning of period | 140,567 | 49,577 | ||||||
Cash and cash equivalents at end of period | $ | 85,486 | $ | 140,567 | ||||
Supplemental disclosures of cash flows information: | ||||||||
Cash paid (received) during the year for: | ||||||||
Interest | $ | 4,525 | $ | 24,875 | ||||
Income taxes | $ | (13,098 | ) | $ | (13,962 | ) |
(a) | Change of reporting status: |
(b) | Principles of consolidation: |
48 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(c) | Use of estimates: |
(e) | Business combinations: |
(f) | Investments: |
49 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(g) | Investment in investees: |
(h) | Cash and cash equivalents: |
(i) | Premiums and service fee receivables: |
(k) | Deferred policy acquisition costs, net: |
50 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(l) | Income taxes: |
(m) | Property and equipment: |
(n) | Goodwill and intangible assets: |
(o) | Unpaid loss and loss adjustment expenses: |
51 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
52 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(a) | Itasca Financial, LLC: |
53 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | ||||
June 30, 2010 | ||||
Cash and cash equivalents | $ | 4,998 | ||
Service fee and other receivables | 3,852 | |||
Other tangible assets | 458 | |||
Intangible assets | 11,975 | |||
Goodwill | 510 | |||
Total assets | $ | 21,793 | ||
Deferred revenue | 5,015 | |||
Accrued expenses and other liabilities | 528 | |||
Total liabilities | $ | 5,543 | ||
Purchase price | $ | 16,250 |
54 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(a) | Discontinued Operations |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Revenue | $ | — | $ | 141,027 | ||||
Loss from discontinued operations before taxes | — | (2,433 | ) | |||||
Income tax expense | — | 5,075 | ||||||
Loss from discontinued operations before (loss) gain on disposal, net of taxes | $ | — | $ | (7,508 | ) | |||
Disposals: | ||||||||
(Loss) gain on disposal before income taxes | $ | (1,670 | ) | $ | 29,416 | |||
Income tax benefit | (377 | ) | (974 | ) | ||||
(Loss) gain on disposal, net of taxes | $ | (1,293 | ) | $ | 30,390 | |||
(Loss) gain from discontinued operations, net of taxes | $ | (1,293 | ) | $ | 22,882 |
55 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(b) | Dispositions |
56 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2011 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government, government agencies and authorities | $ | 17,054 | $ | 1,243 | $ | — | $ | 18,297 | ||||||||
Canadian government | 3,788 | 57 | 55 | 3,790 | ||||||||||||
States municipalities and political subdivisions | 8,196 | 268 | — | 8,464 | ||||||||||||
Mortgage-backed | 38,093 | 355 | 4 | 38,444 | ||||||||||||
Asset-backed | 2,687 | 15 | 5 | 2,697 | ||||||||||||
Corporate | 21,526 | 545 | 112 | 21,959 | ||||||||||||
Total fixed maturities | $ | 91,344 | $ | 2,483 | $ | 176 | $ | 93,651 | ||||||||
Equity investments | 2,689 | 287 | 16 | 2,960 | ||||||||||||
Other investments | 488 | — | — | 488 | ||||||||||||
Short-term investments | 20,334 | — | — | 20,334 | ||||||||||||
Total investments | $ | 114,855 | $ | 2,770 | $ | 192 | $ | 117,433 |
(in thousands) | December 31, 2010 | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Fixed maturities: | ||||||||||||||||
U.S. government, government agencies and authorities | $ | 23,201 | $ | 1,138 | $ | 3 | $ | 24,336 | ||||||||
Canadian government | 2,882 | 17 | 21 | 2,878 | ||||||||||||
States municipalities and political subdivisions | 22,780 | 12 | 561 | 22,231 | ||||||||||||
Mortgage-backed | 41,550 | 594 | 83 | 42,061 | ||||||||||||
Asset-backed | 1,553 | 46 | — | 1,599 | ||||||||||||
Corporate | 34,244 | 695 | 181 | 34,758 | ||||||||||||
Total fixed maturities | $ | 126,210 | $ | 2,502 | $ | 849 | $ | 127,863 | ||||||||
Equity investments | 92 | — | 10 | 82 | ||||||||||||
Other investments | 490 | — | — | 490 | ||||||||||||
Short-term investments | 18,248 | 1 | — | 18,249 | ||||||||||||
Total investments | $ | 145,040 | $ | 2,503 | $ | 859 | $ | 146,684 |
57 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2011 | |||||||
Amortized Cost | Fair Value | |||||||
Due in one year or less | $ | 43,617 | $ | 43,824 | ||||
Due after one year through five years | 34,149 | 35,665 | ||||||
Due after five years through ten years | 4,074 | 4,436 | ||||||
Due after ten years | 9,504 | 9,726 | ||||||
Total | $ | 91,344 | $ | 93,651 |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Gross gains | $ | 1,107 | $ | 9,363 | ||||
Gross losses | (12 | ) | (106 | ) | ||||
Total | $ | 1,095 | $ | 9,257 |
(in thousands) | December 31, 2011 | |||||||||||||||||||||||
Less than 12 Months | Greater than 12 Months | Total | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
Canadian government | $ | 1,105 | $ | 55 | $ | — | $ | — | $ | 1,105 | $ | 55 | ||||||||||||
Mortgage-backed | 9,014 | 4 | — | — | 9,014 | 4 | ||||||||||||||||||
Asset-backed | 1,763 | 5 | — | — | 1,763 | 5 | ||||||||||||||||||
Corporate | 178 | — | 1,893 | 112 | 2,071 | 112 | ||||||||||||||||||
Total fixed maturities | $ | 12,060 | $ | 64 | $ | 1,893 | $ | 112 | $ | 13,953 | $ | 176 | ||||||||||||
Equity investments | 224 | 16 | — | — | 224 | 16 | ||||||||||||||||||
Short-term investments | 19,998 | — | — | — | 19,998 | — | ||||||||||||||||||
Total | $ | 32,282 | $ | 80 | $ | 1,893 | $ | 112 | $ | 34,175 | $ | 192 |
58 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2010 | |||||||||||||||||||||||
Less than 12 Months | Greater than 12 Months | Total | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||
U.S. government, government agencies and authorities | $ | 1,604 | $ | 3 | $ | — | $ | — | $ | 1,604 | $ | 3 | ||||||||||||
Canadian government | — | — | 866 | 21 | 866 | 21 | ||||||||||||||||||
States municipalities and political subdivisions | 21,883 | 561 | — | — | 21,883 | 561 | ||||||||||||||||||
Mortgage-backed | 11,911 | 83 | — | — | 11,911 | 83 | ||||||||||||||||||
Corporate | 3,491 | 181 | — | — | 3,491 | 181 | ||||||||||||||||||
Total fixed maturities | $ | 38,889 | $ | 828 | $ | 866 | $ | 21 | $ | 39,755 | $ | 849 | ||||||||||||
Equity investments | — | — | 82 | 10 | 82 | 10 | ||||||||||||||||||
Total | $ | 38,889 | $ | 828 | $ | 948 | $ | 31 | $ | 39,837 | $ | 859 |
• | identifying all unrealized loss positions that have existed for at least six months; |
• | identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions; |
• | obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques; |
• | reviewing the trading range of certain investments over the preceding calendar period; |
• | assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies; |
• | assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record; |
• | determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed; and |
• | assessing the company's ability and intent to hold these investments at least until the investment impairment is recovered. |
• | the opinions of professional investment managers could be incorrect; |
• | the past trading patterns of individual investments may not reflect future valuation trends; |
• | the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company's financial situation; and |
• | the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company's unknown underlying financial problems. |
59 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Investment income | ||||||||
Interest from fixed maturities | $ | 2,979 | $ | 9,496 | ||||
Interest from other | 457 | 3,322 | ||||||
Dividends | 959 | 563 | ||||||
Gross investment income | $ | 4,395 | $ | 13,381 | ||||
Investment expenses | (309 | ) | (562 | ) | ||||
Net investment income | $ | 4,086 | $ | 12,819 |
(in thousands, except for percentages) | December 31, | ||||||||||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||||||||
Voting percentage | Equity percentage | Fair Value | Carrying value | Voting percentage | Equity percentage | Fair Value | Carrying value | ||||||||||||||||||||
Atlas | 30.0 | % | 75.1 | % | $ | 44,340 | $ | 48,592 | 30.0 | % | 75.1 | % | $49,079 | $ | 49,079 | ||||||||||||
Oak Street | 25.0 | % | 25.0 | % | $ | 97 | $ | 97 | N/A | N/A | N/A | N/A | |||||||||||||||
LGIC Holdings | 49.0 | % | 49.0 | % | $ | — | $ | — | N/A | N/A | N/A | N/A | |||||||||||||||
Total | $ | 44,437 | $ | 48,689 | $49,079 | $49,079 |
60 |
(in thousands) | ||||||||
2011 | 2010 | |||||||
Total assets | $ | 193,646 | $ | 225,438 | ||||
Total liabilities | $ | 134,865 | $ | 165,269 | ||||
Total revenue | $ | 32,136 | $ | 59,973 | ||||
Net income (loss) | $ | 555 | $ | (21,812 | ) |
(in thousands) | ||||
2011 | ||||
Total assets | $ | 42 | ||
Total liabilities | $ | 3 | ||
Total revenue | $ | — | ||
Net loss | $ | (11 | ) |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Ceded premiums written | $ | 11,543 | $ | 10,325 | ||||
Ceded premiums earned | 9,519 | 10,323 | ||||||
Ceded loss and loss adjustment expenses | 405 | 8,821 | ||||||
Ceded unpaid loss and loss adjustment expenses | 298 | 7,974 | ||||||
Ceded unearned premiums | 2,024 | — | ||||||
Ceding commissions | 2,211 | 2,123 |
61 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
December 31, 2011 | ||||||||
Unearned Premium Reserve | Commission Equity | |||||||
Assumed | $ | 3,815 | $ | — | ||||
Ceded | 2,024 | 546 | ||||||
Net | $ | 1,791 | $ | (546 | ) |
(in thousands) | December 31, | |||||||
2011 | 2010 | |||||||
Balance at January 1, net | $ | 13,952 | $ | 19,537 | ||||
Additions | 20,364 | 21,500 | ||||||
Amortization | (25,654 | ) | (27,085 | ) | ||||
Unearned reinsurance commission | (546 | ) | — | |||||
Balance at December 31, net | $ | 8,116 | $ | 13,952 |
(in thousands) | December 31, | |||||||
2011 | 2010 | |||||||
Goodwill | $ | 510 | $ | 3,273 | ||||
Intangible assets subject to amortization | ||||||||
Agent relationships | — | 73 | ||||||
Renewal rights | — | 31,318 | ||||||
Intangible assets not subject to amortization | ||||||||
Insurance licenses | 7,803 | 7,803 | ||||||
Renewal rights | 31,318 | — | ||||||
Goodwill and intangible assets | $ | 39,631 | $ | 42,467 |
62 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
63 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2011 | |||||||||||
Cost | Accumulated Amortization | Carrying Value | ||||||||||
Land | $ | 1,984 | $ | — | $ | 1,984 | ||||||
Buildings | 1,904 | 338 | 1,566 | |||||||||
Leasehold improvements | 9,324 | 3,291 | 6,033 | |||||||||
Furniture and equipment | 6,562 | 4,883 | 1,679 | |||||||||
Computer hardware | 20,894 | 19,160 | 1,734 | |||||||||
Automobiles | 108 | 64 | 44 | |||||||||
Total | $ | 40,776 | $ | 27,736 | $ | 13,040 |
(in thousands) | December 31, 2010 | |||||||||||
Cost | Accumulated Amortization | Carrying Value | ||||||||||
Land | $ | 1,984 | $ | — | $ | 1,984 | ||||||
Buildings | 1,904 | 289 | 1,615 | |||||||||
Leasehold improvements | 9,439 | 2,921 | 6,518 | |||||||||
Furniture and equipment | 8,022 | 6,483 | 1,539 | |||||||||
Computer hardware | 21,289 | 18,999 | 2,290 | |||||||||
Automobiles | 66 | 51 | 15 | |||||||||
Total | $ | 42,704 | $ | 28,743 | $ | 13,961 |
64 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, | |||||||
2011 | 2010 | |||||||
Balance at January 1, net | $ | 166,734 | $ | 186,685 | ||||
Incurred related to: | ||||||||
Current year | 135,238 | 199,643 | ||||||
Prior years | 7,907 | 14,402 | ||||||
Paid related to: | ||||||||
Current year | (84,718 | ) | (122,320 | ) | ||||
Prior years | (105,201 | ) | (111,676 | ) | ||||
Balance at December 31, net | $ | 119,960 | $ | 166,734 | ||||
Plus reinsurance recoverable on unpaid loss and loss adjustment expenses | 298 | 7,974 | ||||||
Balance at December 31, gross | $ | 120,258 | $ | 174,708 |
(in thousands) | December 31, | |||||||||||
2011 | 2010 | |||||||||||
Principal | Fair Value | Principal | Fair Value | |||||||||
6% Senior unsecured debentures due 2012 | $ | 1,657 | 1,641 | $ | 12,547 | 12,233 | ||||||
7.5% Senior notes due 2014 | 26,966 | 26,696 | 26,966 | 24,944 | ||||||||
LROC preferred units due 2015 | 19,329 | 8,845 | 19,764 | 13,076 | ||||||||
Subordinated debt | 90,500 | 16,432 | 90,500 | 40,480 | ||||||||
Total | $ | 138,452 | 53,614 | $ | 149,777 | 90,733 |
Issuer | Principal | Issue date | Interest | Redemption date | |
Kingsway CT Statutory Trust I | 15,000 | 12/4/2002 | annual interest rate equal to LIBOR, plus 4.00% payable quarterly | 12/4/2032 | |
Kingsway CT Statutory Trust II | 17,500 | 5/15/2003 | annual interest rate equal to LIBOR, plus 4.10% payable quarterly | 5/15/2033 | |
Kingsway CT Statutory Trust III | 20,000 | 10/29/2003 | annual interest rate equal to LIBOR, plus 3.95% payable quarterly | 10/29/2033 | |
Kingsway DE Statutory Trust III | 15,000 | 5/23/2003 | annual interest rate equal to LIBOR, plus 4.20% payable quarterly | 5/23/2033 | |
Kingsway DE Statutory Trust IV | 10,000 | 9/30/2003 | annual interest rate equal to LIBOR, plus 3.85% payable quarterly | 9/30/2033 | |
Kingsway DE Statutory Trust VI | 13,000 | 1/8/2004 | annual interest rate equal to LIBOR, plus 4.00% payable quarterly | 1/8/2034 |
65 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Current income tax benefit | $ | (3,592 | ) | $ | (14,494 | ) | ||
Deferred income tax expense | 3,423 | 8,376 | ||||||
Income tax benefit | $ | (169 | ) | $ | (6,118 | ) |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Provision for taxes at Canadian statutory income tax rate | $ | (7,415 | ) | $ | (59,055 | ) | ||
Valuation allowance | 29,112 | 74,459 | ||||||
Loss carryforwards | (18,030 | ) | — | |||||
Indefinite life intangible | 2,653 | — | ||||||
Foreign operations subject to different tax rates | (1,669 | ) | (6,653 | ) | ||||
Change in tax rates and other | (4,820 | ) | (14,869 | ) | ||||
Income tax benefit for continuing operations | $ | (169 | ) | $ | (6,118 | ) |
66 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, | |||||||
2011 | 2010 | |||||||
Deferred income tax assets: | ||||||||
Losses carried forward | $ | 279,985 | $ | 240,165 | ||||
Unpaid loss and loss adjustment expenses and unearned premiums | 4,729 | 8,093 | ||||||
Other | 11,097 | 16,163 | ||||||
Valuation allowance | (260,084 | ) | (234,388 | ) | ||||
Deferred income tax assets | $ | 35,727 | $ | 30,033 | ||||
Deferred income tax liabilities: | ||||||||
Intangible assets | $ | (2,653 | ) | $ | — | |||
Deferred policy acquisition costs | (2,759 | ) | (4,744 | ) | ||||
Investments | (7,145 | ) | (7,762 | ) | ||||
Fair value of debt | (25,823 | ) | (17,024 | ) | ||||
Deferred income tax liabilities | (38,380 | ) | (29,530 | ) | ||||
Net deferred income tax (liabilities) assets | $ | (2,653 | ) | $ | 503 |
Year of net operating loss | Expiration date | Net operating loss | |||||
2000 | 2020 | $ | 507 | ||||
2001 | 2021 | 186 | |||||
2006 | 2026 | 24,077 | |||||
2007 | 2027 | 62,308 | |||||
2008 | 2028 | 55,918 | |||||
2009 | 2029 | 515,336 | |||||
2010 | 2030 | 92,095 | |||||
2011 | 2031 | 61,199 |
67 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Numerator: | ||||||||
Loss from continuing operations | $ | (26,078 | ) | $ | (184,444 | ) | ||
Denominator: | ||||||||
Weighted average basic shares | ||||||||
Weighted average common shares outstanding | 52,346 | 52,094 | ||||||
Weighted average diluted shares | ||||||||
Weighted average common shares outstanding | 52,346 | 52,094 | ||||||
Effect of dilutive stock options | — | — | ||||||
Total weighted average diluted shares | 52,346 | 52,094 | ||||||
Basic loss per common share from continuing operations | $ | (0.50 | ) | $ | (3.54 | ) | ||
Diluted loss per common share from continuing operations | $ | (0.50 | ) | $ | (3.54 | ) |
(a) | Stock option incentive plan: |
68 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
December 31, 2011 | |||||||||||||||
Exercise Price | Date of Grant | Expiry Date | Remaining Contractual Life (Years) | Number Outstanding | Number Exercisable | ||||||||||
$ | 4.50 | 29-Sep-10 | 29-Sep-15 | 3.7 | 400,000 | 100,000 | |||||||||
$ | 4.50 | 6-Jan-10 | 6-Jan-15 | 3.0 | 1,000,000 | 250,000 | |||||||||
C$ | 1.90 | 5-Mar-09 | 5-Mar-14 | 2.2 | 65,000 | 43,333 | |||||||||
C$ | 10.03 | 5-Mar-09 | 5-Mar-14 | 2.2 | 32,500 | 21,667 | |||||||||
C$ | 13.47 | 20-Feb-08 | 20-Feb-13 | 1.1 | 55,000 | 55,000 | |||||||||
C$ | 23.00 | 12-Feb-07 | 12-Feb-12 | 0.1 | 32,000 | 32,000 | |||||||||
C$ | 19.66 | 21-Feb-02 | 21-Feb-12 | 0.1 | 7,000 | 7,000 | |||||||||
Total: | 3.0 | 1,591,500 | 509,000 |
December 31, 2010 | |||||||||||||||
Exercise Price | Date of Grant | Expiry Date | Remaining Contractual Life (Years) | Number Outstanding | Number Exercisable | ||||||||||
$ | 4.50 | 29-Sep-10 | 29-Sep-15 | 4.7 | 400,000 | — | |||||||||
$ | 4.50 | 06-Jan-10 | 06-Jan-15 | 4.0 | 1,000,000 | — | |||||||||
C$ | 1.90 | 05-Mar-09 | 05-Mar-14 | 3.2 | 65,000 | 21,667 | |||||||||
C$ | 10.03 | 05-Mar-09 | 05-Mar-14 | 3.2 | 82,000 | 27,333 | |||||||||
C$ | 13.47 | 20-Feb-08 | 20-Feb-13 | 2.1 | 100,750 | 67,167 | |||||||||
C$ | 23.00 | 12-Feb-07 | 12-Feb-12 | 1.1 | 47,500 | 47,500 | |||||||||
C$ | 24.55 | 13-Feb-06 | 13-Feb-11 | 0.1 | 52,750 | 52,750 | |||||||||
C$ | 13.53 | 10-Feb-03 | 10-Feb-13 | 2.1 | 2,500 | 2,500 | |||||||||
C$ | 19.66 | 21-Feb-02 | 21-Feb-12 | 1.1 | 17,500 | 17,500 | |||||||||
Total: | 3.8 | 1,768,000 | 236,417 |
September 2010 | January 2010 | |||||
Risk-free interest rate | 3.72 | % | 3.72 | % | ||
Dividend yield | — | % | — | % | ||
Volatility of the expected market price of the Company's common shares | 203.9 | % | 193.8 | % | ||
Expected option life (in years) | 4.0 | 4.0 |
69 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(b) | Employee share purchase plan: |
(c) | Deferred share unit program: |
(in thousands) | Restructuring charges | |||||||||||
Severance and benefits | Consulting expense | Total | ||||||||||
Provision balance at January 1, 2010 | $ | 1,891 | $ | — | $ | 1,891 | ||||||
Restructuring expense | 4,777 | 26 | 4,803 | |||||||||
Payments | 6,552 | 26 | 6,578 | |||||||||
Provision balance at December 31, 2010 | $ | 116 | $ | — | $ | 116 |
70 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands, except for share data) | ||||||||||||||
Shares Issued | Stock Options | Weighted-Average Exercise Price | Amount | |||||||||||
Balance as of December 31, 2009 | 51,595,828 | 2,024,084 | C$ | 16.77 | $ | 295,291 | ||||||||
Issued January 4, 2010 | 500,000 | 848 | ||||||||||||
Stock options: | ||||||||||||||
Granted in year | 1,400,000 | $ | 4.50 | |||||||||||
Expired in year | (271,034 | ) | C$ | 3.86 | ||||||||||
Forfeited in year | (1,385,050 | ) | C$ | 16.99 | ||||||||||
Balance as of December 31, 2010 | 52,095,828 | 1,768,000 | C$ | 6.43 | $ | 296,139 | ||||||||
Issued January 4, 2011 | 250,000 | 350 | ||||||||||||
Stock options: | ||||||||||||||
Expired in year | (50,750 | ) | C$ | 9.91 | ||||||||||
Forfeited in year | (125,750 | ) | C$ | 13.98 | ||||||||||
Balance as of December 31, 2011 | 52,345,828 | 1,591,500 | C$ | 5.26 | $ | 296,489 |
(a) | There were no dividends declared for the 2011 or 2010 year. |
(b) | There were no options exercised during the years ended December 31, 2011 and 2010. |
(in thousands) | 2011 | 2010 | ||||||
Balance at January 1 | $ | 14,407 | $ | 48,027 | ||||
Changes in net unrealized gain on investments | 68 | 981 | ||||||
Reclassification adjustment for realized losses (gains) | 614 | (1,583 | ) | |||||
Changes in unrealized gains on translating financial statements of self-sustaining, foreign operation | 464 | 4,671 | ||||||
Equity in other comprehensive loss of investees | (1,537 | ) | — | |||||
Recognition of currency translation gain on disposal of subsidiary | — | (34,075 | ) | |||||
Loss on cash flow hedge | (1,267 | ) | (3,614 | ) | ||||
Balance at December 31 | $ | 12,749 | $ | 14,407 |
71 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Revenues: | ||||||||
Insurance Underwriting: | ||||||||
Net premiums earned | $ | 156,382 | $ | 220,011 | ||||
Other income | 9,183 | 13,538 | ||||||
Total Insurance Underwriting | 165,565 | 233,549 | ||||||
Insurance Services: | ||||||||
Service fee and commission income | 31,607 | 13,008 | ||||||
Total Insurance Services | 31,607 | 13,008 | ||||||
Total segment revenues | 197,172 | 246,557 | ||||||
Net investment income | 4,086 | 12,819 | ||||||
Net realized gains | 1,095 | 9,257 | ||||||
Gain (loss) on change in fair value of debt | 25,876 | (107,269 | ) | |||||
Other income not allocated to segments | 318 | 3,517 | ||||||
Total revenues | $ | 228,547 | $ | 164,881 |
72 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Segment operating income (loss) | ||||||||
Insurance Underwriting | $ | (37,135 | ) | $ | (60,254 | ) | ||
Insurance Services | 1,731 | (15,858 | ) | |||||
Total segment operating loss | (35,404 | ) | (76,112 | ) | ||||
Net investment income | 4,086 | 12,819 | ||||||
Net realized gains | 1,095 | 9,257 | ||||||
Gain (loss) on change in fair value of debt | 25,876 | (107,269 | ) | |||||
Other income not allocated to segments | 318 | 3,517 | ||||||
General and administrative expenses not allocated to segments | (12,810 | ) | (34,511 | ) | ||||
Interest expense | (7,478 | ) | (14,825 | ) | ||||
Amortization of other intangible assets | (73 | ) | (4,369 | ) | ||||
Goodwill impairment | (2,830 | ) | — | |||||
Gain on buy-back of debt | 556 | 3,110 | ||||||
Gain on consolidation of debt | — | 17,821 | ||||||
Equity in net income of investees | 417 | — | ||||||
Loss from continuing operations before income tax benefit | $ | (26,247 | ) | $ | (190,562 | ) | ||
Income tax benefit | (169 | ) | (6,118 | ) | ||||
Loss from continuing operations | $ | (26,078 | ) | $ | (184,444 | ) |
(in thousands) | Years ended December 31, | |||||||
2011 | 2010 | |||||||
Insurance Underwriting: | ||||||||
Private passenger auto liability | $ | 107,551 | $ | 147,545 | ||||
Auto physical damage | 39,200 | 59,880 | ||||||
Total non-standard automobile | $ | 146,751 | $ | 207,425 | ||||
Commercial auto liability | 9,625 | 12,186 | ||||||
Other | 6 | 400 | ||||||
Total net premiums earned | $ | 156,382 | $ | 220,011 |
73 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2011 | |||||||||||||||
Assets and Liabilities at Fair Value | ||||||||||||||||
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Assets: | ||||||||||||||||
Fixed maturities | $ | — | $ | 93,651 | $ | — | $ | 93,651 | ||||||||
Equity investments | 2,960 | — | — | 2,960 | ||||||||||||
Other investments | — | 488 | 488 | |||||||||||||
Short-term investments | — | 20,334 | 20,334 | |||||||||||||
Total assets | $ | 2,960 | $ | 114,473 | $ | — | $ | 117,433 | ||||||||
Liabilities: | ||||||||||||||||
LROC preferred units | $ | 8,845 | $ | — | $ | — | $ | 8,845 | ||||||||
Senior unsecured debentures | — | 28,337 | — | 28,337 | ||||||||||||
Subordinated debt | — | 16,432 | — | 16,432 | ||||||||||||
Total liabilities | $ | 8,845 | $ | 44,769 | $ | — | $ | 53,614 |
74 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | December 31, 2010 | |||||||||||||||
Assets and Liabilities at Fair Value | ||||||||||||||||
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Assets: | ||||||||||||||||
Fixed maturities | $ | — | $ | 127,863 | $ | — | $ | 127,863 | ||||||||
Equity investments | 82 | — | — | 82 | ||||||||||||
Other investments | — | 490 | — | 490 | ||||||||||||
Short-term investments | — | 18,249 | — | 18,249 | ||||||||||||
Total assets | $ | 82 | $ | 146,602 | $ | — | $ | 146,684 | ||||||||
Liabilities: | ||||||||||||||||
LROC preferred units | $ | 13,076 | $ | — | $ | — | $ | 13,076 | ||||||||
Senior unsecured debentures | — | 37,177 | — | 37,177 | ||||||||||||
Subordinated debt | — | 40,480 | — | 40,480 | ||||||||||||
Total liabilities | $ | 13,076 | $ | 77,657 | $ | — | $ | 90,733 |
75 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
(in thousands) | ||||
2012 | $ | 3,933 | ||
2013 | 3,468 | |||
2014 | 3,131 | |||
2015 | 2,099 | |||
2016 | 1,389 | |||
Thereafter | 918 |
76 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
• | Under SAP, deferred policy acquisition costs are expensed as they are incurred rather than capitalized and amortized over the expected life of the policy as required by U.S. GAAP. |
• | Under SAP, certain assets are designated as "non-admitted" and are charged directly to unassigned surplus, whereas under U.S. GAAP, the non-admissibility concept does not apply and such assets are included in the consolidated balance sheets. |
• | Under SAP, available-for-sale investments in fixed maturities are generally carried at amortized cost while U.S. GAAP requires available-for-sale fixed maturities to be carried at fair value, with unrealized gains or losses reported as a separate component of shareholders' equity, net of applicable deferred taxes. |
• | Under SAP, the realizability of deferred tax assets is determined utilizing an admissibility test whereas under U.S. GAAP, the realizability of deferred tax assets is evaluated utilizing a "more likely than not" standard. A valuation allowance is established for deferred tax assets deemed not realizable using this standard. Under SAP, any gross deferred tax assets determined to be not realizable are non-admitted. Additionally, changes in the balances of deferred tax assets and liabilities result in increases or decreases in net income under U.S. GAAP, whereas under SAP, these changes are charged or credited directly to surplus. |
(in thousands) | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
Combined net loss, statutory basis | $ | (22,032 | ) | $ | (41,086 | ) | ||
Combined capital and surplus, statutory basis | $ | 53,134 | $ | 64,288 | ||||
Combined maximum dividend, statutory basis | $ | 935 | $ | 925 |
77 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
Condensed Consolidating Statement of Operations | ||||||||||||||||||
For the year ended December 31, 2011 | KFSI | KAI | K2007 GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Revenue: | ||||||||||||||||||
Net premiums earned | $ | — | $ | — | $ | — | $ | 156,382 | $ | — | $ | 156,382 | ||||||
Service fee and commission income | — | — | — | 31,607 | — | 31,607 | ||||||||||||
Net investment income, net realized gains, and other income | (2,352 | ) | 2,503 | 496 | 14,035 | — | 14,682 | |||||||||||
Gain (loss) on change in fair value of debt | — | 21,157 | (649 | ) | 5,368 | — | 25,876 | |||||||||||
Management fees | — | (15 | ) | — | — | 15 | — | |||||||||||
Total revenue | (2,352 | ) | 23,645 | (153 | ) | 207,392 | 15 | 228,547 | ||||||||||
Expenses: | ||||||||||||||||||
Loss and loss adjustment expenses | — | — | — | 143,145 | — | 143,145 | ||||||||||||
Commissions and premiums taxes | — | — | — | 24,305 | — | 24,305 | ||||||||||||
Other expenses | 3,623 | 7,986 | 289 | 66,096 | 15 | 78,009 | ||||||||||||
Interest expense | — | 14,184 | 275 | (6,981 | ) | — | 7,478 | |||||||||||
Goodwill impairment | 2,830 | — | 2,830 | |||||||||||||||
Total expenses | 3,623 | 25,000 | 564 | 226,565 | 15 | 255,767 | ||||||||||||
Loss before gains on debt, equity in net income of investees and income tax benefit | (5,975 | ) | (1,355 | ) | (717 | ) | (19,173 | ) | — | (27,220 | ) | |||||||
Gain on buy-back of debt | — | — | 556 | — | — | 556 | ||||||||||||
Equity in net income of investees | 417 | 417 | ||||||||||||||||
Loss from continuing operations before income tax benefit | (5,975 | ) | (938 | ) | (161 | ) | (19,173 | ) | — | (26,247 | ) | |||||||
Income tax (benefit) expense | (3,220 | ) | 2,653 | — | 398 | — | (169 | ) | ||||||||||
Equity in undistributed net (loss) income of subsidiaries | (26,989 | ) | (23,361 | ) | — | — | 50,350 | — | ||||||||||
(Loss) income from continuing operations | (29,744 | ) | (26,952 | ) | (161 | ) | (19,571 | ) | 50,350 | (26,078 | ) | |||||||
Loss on disposal of discontinued operations, net of taxes | (1,927 | ) | 634 | — | — | — | (1,293 | ) | ||||||||||
Net (loss) income | $ | (31,671 | ) | $ | (26,318 | ) | $ | (161 | ) | $ | (19,571 | ) | $ | 50,350 | $ | (27,371 | ) |
78 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
Condensed Consolidating Statement of Operations | ||||||||||||||||||
For the year ended December 31, 2010 | KFSI | KAI | K2007 GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Revenue: | ||||||||||||||||||
Net premiums earned | $ | — | $ | — | $ | — | $ | 220,011 | $ | — | $ | 220,011 | ||||||
Service fee and commission income | — | — | — | 13,008 | — | 13,008 | ||||||||||||
Net investment income, net realized gains, and other income | 1,378 | 7,784 | 109 | 29,860 | — | 39,131 | ||||||||||||
Gain (loss) on change in fair value of debt | — | (46,057 | ) | (30,874 | ) | (30,338 | ) | — | (107,269 | ) | ||||||||
Management fees | 3 | 2,912 | — | — | (2,915 | ) | — | |||||||||||
Total revenue | 1,381 | (35,361 | ) | (30,765 | ) | 232,541 | (2,915 | ) | 164,881 | |||||||||
Expenses: | ||||||||||||||||||
Loss and loss adjustment expenses | — | — | — | 214,045 | — | 214,045 | ||||||||||||
Commissions and premiums taxes | — | — | — | 36,688 | — | 36,688 | ||||||||||||
Other expenses | 13,845 | 22,018 | 265 | 77,603 | (2,915 | ) | 110,816 | |||||||||||
Interest expense | — | 18,303 | 2,094 | (5,572 | ) | — | 14,825 | |||||||||||
Total expenses | 13,845 | 40,321 | 2,359 | 322,764 | (2,915 | ) | 376,374 | |||||||||||
Loss before gains on debt, equity in net income of investees and income tax benefit | (12,464 | ) | (75,682 | ) | (33,124 | ) | (90,223 | ) | — | (211,493 | ) | |||||||
Gain on buy-back of debt | — | 259 | 2,851 | — | — | 3,110 | ||||||||||||
Gain on consolidation of debt | — | — | — | 17,821 | — | 17,821 | ||||||||||||
Income (loss) from continuing operations before income taxes | (12,464 | ) | (75,423 | ) | (30,273 | ) | (72,402 | ) | — | (190,562 | ) | |||||||
Income tax (benefit) expense | (5,330 | ) | — | — | (788 | ) | — | (6,118 | ) | |||||||||
Equity in undistributed net (loss) income of subsidiaries | (53,989 | ) | (64,696 | ) | — | — | 118,685 | — | ||||||||||
(Loss) income from continuing operations | (61,123 | ) | (140,119 | ) | (30,273 | ) | (71,614 | ) | 118,685 | (184,444 | ) | |||||||
(Loss) income from discontinued operations, net of taxes | — | — | — | (7,508 | ) | — | (7,508 | ) | ||||||||||
Gain on disposal of discontinued operations, net of taxes | 30,390 | — | — | — | — | 30,390 | ||||||||||||
Net (loss) income | $ | (30,733 | ) | $ | (140,119 | ) | $ | (30,273 | ) | $ | (79,122 | ) | $ | 118,685 | $ | (161,562 | ) |
79 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
Condensed Consolidating Balance Sheets | ||||||||||||||||||
As of December 31, 2011 | KFSI | KAI | K2007GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Assets: | ||||||||||||||||||
Investments in subsidiaries | $ | 82,564 | $ | 171,412 | $ | — | $ | — | $ | (253,976 | ) | $ | — | |||||
Total investments | — | — | — | 162,695 | (45,262 | ) | 117,433 | |||||||||||
Investment in investees | — | 45,458 | — | 97 | 3,134 | 48,689 | ||||||||||||
Cash and cash equivalents | 22,389 | 873 | 171 | 62,053 | — | 85,486 | ||||||||||||
Goodwill and intangible assets | — | 7,803 | — | 31,828 | — | 39,631 | ||||||||||||
Other assets | 12,240 | 245,037 | 22,591 | 1,116,970 | (1,313,996 | ) | 82,842 | |||||||||||
Total assets | 117,193 | 470,583 | 22,762 | 1,373,643 | (1,610,100 | ) | 374,081 | |||||||||||
Liabilities and Shareholders' Equity: | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Unpaid loss and loss adjustment expenses | $ | — | $ | — | $ | — | $ | 120,258 | $ | — | $ | 120,258 | ||||||
Unearned premiums | — | — | — | 39,423 | — | 39,423 | ||||||||||||
LROC preferred units | — | — | — | 8,845 | — | 8,845 | ||||||||||||
Senior unsecured debentures | — | 44,021 | 1,641 | — | (17,325 | ) | 28,337 | |||||||||||
Subordinated debt | — | 16,432 | — | — | — | 16,432 | ||||||||||||
Notes payable | — | 90,160 | — | (87,742 | ) | — | 2,418 | |||||||||||
Other liabilities | 788 | 10,325 | 49 | 48,770 | (17,969 | ) | 41,963 | |||||||||||
Total liabilities | 788 | 160,938 | 1,690 | 129,554 | (35,294 | ) | 257,676 | |||||||||||
Shareholders' Equity: | ||||||||||||||||||
Common stock | $ | 296,489 | $ | 774,658 | $ | 17,093 | $ | 433,261 | $ | (1,225,012 | ) | $ | 296,489 | |||||
Additional paid-in capital | 15,403 | — | — | — | — | 15,403 | ||||||||||||
Accumulated deficit | (201,208 | ) | (463,476 | ) | 6,468 | 821,562 | (364,554 | ) | (201,208 | ) | ||||||||
Accumulated other comprehensive income (loss) | 12,749 | (1,537 | ) | (2,489 | ) | (10,734 | ) | 14,760 | 12,749 | |||||||||
Shareholders' equity attributable to common shareholders | 123,433 | 309,645 | 21,072 | 1,244,089 | (1,574,806 | ) | 123,433 | |||||||||||
Noncontrolling interests in consolidated subsidiaries | (7,028 | ) | — | — | — | — | (7,028 | ) | ||||||||||
Total shareholders' equity | 116,405 | 309,645 | 21,072 | 1,244,089 | (1,574,806 | ) | 116,405 | |||||||||||
Total liabilities and shareholders' equity | $ | 117,193 | $ | 470,583 | $ | 22,762 | $ | 1,373,643 | $ | (1,610,100 | ) | $ | 374,081 |
80 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
Condensed Consolidating Balance Sheets | ||||||||||||||||||
As of December 31, 2010 | KFSI | KAI | K2007GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Assets: | ||||||||||||||||||
Investments in subsidiaries | $ | 76,066 | $ | 215,501 | $ | — | $ | (1,211,647 | ) | $ | 920,080 | $ | — | |||||
Total investments | — | — | 201,907 | (55,223 | ) | 146,684 | ||||||||||||
Investment in investees | — | 49,079 | — | — | — | 49,079 | ||||||||||||
Cash and cash equivalents | 30,169 | 9,388 | 798 | 100,212 | — | 140,567 | ||||||||||||
Goodwill and intangible assets | — | 7,876 | — | 34,591 | — | 42,467 | ||||||||||||
Other assets | 42,152 | 231,123 | 32,418 | (588,591 | ) | 424,680 | 141,782 | |||||||||||
Total assets | 148,387 | 512,967 | 33,216 | (1,463,528 | ) | 1,289,537 | 520,579 | |||||||||||
Liabilities and Shareholders' Equity: | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Unpaid loss and loss adjustment expenses | — | — | — | 174,708 | — | 174,708 | ||||||||||||
Unearned premiums | — | — | — | 66,879 | — | 66,879 | ||||||||||||
LROC preferred units | — | — | — | 13,076 | — | 13,076 | ||||||||||||
Senior unsecured debentures | — | 41,131 | 12,233 | 1 | (16,188 | ) | 37,177 | |||||||||||
Subordinated debt | — | 40,480 | — | — | — | 40,480 | ||||||||||||
Notes payable | — | 100,661 | — | (100,661 | ) | — | — | |||||||||||
Other liabilities | 3,514 | 8,733 | 551 | 46,674 | (16,086 | ) | 43,386 | |||||||||||
Total liabilities | 3,514 | 191,005 | 12,784 | 200,677 | (32,274 | ) | 375,706 | |||||||||||
Shareholders' Equity: | ||||||||||||||||||
Common stock | 296,139 | 743,243 | 14,867 | 1,438,070 | (2,196,180 | ) | 296,139 | |||||||||||
Additional paid-in capital | 15,440 | — | — | — | — | 15,440 | ||||||||||||
Accumulated deficit | (181,070 | ) | (421,281 | ) | 9,021 | (3,122,797 | ) | 3,535,057 | (181,070 | ) | ||||||||
Accumulated other comprehensive income (loss) | 14,407 | — | (3,456 | ) | 20,522 | (17,066 | ) | 14,407 | ||||||||||
Shareholders' equity attributable to common shareholders | 144,916 | 321,962 | 20,432 | (1,664,205 | ) | 1,321,811 | 144,916 | |||||||||||
Noncontrolling interests in consolidated subsidiaries | (43 | ) | — | — | — | — | (43 | ) | ||||||||||
Total shareholders' equity | 144,873 | 321,962 | 20,432 | (1,664,205 | ) | 1,321,811 | 144,873 | |||||||||||
Total liabilities and shareholders' equity | $ | 148,387 | $ | 512,967 | $ | 33,216 | $ | (1,463,528 | ) | $ | 1,289,537 | $ | 520,579 |
81 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||
For the year ended December 31, 2011 | KFSI | KAI | K2007GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Cash provided by (used in): | ||||||||||||||||||
Operating activities: | ||||||||||||||||||
Net (loss) income | $ | (31,671 | ) | $ | (26,318 | ) | $ | (161 | ) | $ | (19,571 | ) | $ | 50,350 | $ | (27,371 | ) | |
Income from discontinued operations and disposal of discontinued operations | 1,927 | (634 | ) | — | — | — | 1,293 | |||||||||||
Equity in undistributed earnings in subsidiaries | 26,989 | 23,361 | — | — | (50,350 | ) | — | |||||||||||
Gain (loss) on change in fair value of debt | — | (21,157 | ) | 649 | (5,368 | ) | — | (25,876 | ) | |||||||||
Other | (5,375 | ) | 7,639 | 9,592 | (56,930 | ) | 20,914 | (24,160 | ) | |||||||||
Net cash used in operating activities | (8,130 | ) | (17,109 | ) | 10,080 | (81,869 | ) | 20,914 | (76,114 | ) | ||||||||
Investing activities: | ||||||||||||||||||
Proceeds from sale of investments | — | — | — | 161,592 | — | 161,592 | ||||||||||||
Purchase of investments | — | — | — | (131,176 | ) | — | (131,176 | ) | ||||||||||
Acquisition of investees | — | — | — | (100 | ) | — | (100 | ) | ||||||||||
Other | — | (12,320 | ) | — | 10,976 | — | (1,344 | ) | ||||||||||
Net cash provided by investing activities | — | (12,320 | ) | — | 41,292 | — | 28,972 | |||||||||||
Financing activities: | ||||||||||||||||||
Common stock issued | 350 | 31,415 | — | — | (31,415 | ) | 350 | |||||||||||
Proceeds from issuance of notes payable | — | — | — | 2,418 | — | 2,418 | ||||||||||||
Redemption of senior unsecured debentures | — | (10,501 | ) | (10,707 | ) | — | 10,501 | (10,707 | ) | |||||||||
Net cash used in financing activities | 350 | 20,914 | (10,707 | ) | 2,418 | (20,914 | ) | (7,939 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents | (7,780 | ) | (8,515 | ) | (627 | ) | (38,159 | ) | — | (55,081 | ) | |||||||
Cash and cash equivalents at beginning of period | 30,169 | 9,388 | 798 | 100,212 | — | 140,567 | ||||||||||||
Cash and cash equivalents at end of period | $ | 22,389 | $ | 873 | $ | 171 | $ | 62,053 | $ | — | $ | 85,486 |
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||
For the year ended December 31, 2010 | KFSI | KAI | K2007GP | Other subsidiaries | Consolidation adjustments | Total | ||||||||||||
(a "Guarantor") | (an "Issuer" and a "Guarantor") | (an "Issuer") | (the "Non-Guarantor subsidiaries") | |||||||||||||||
Cash provided by (used in): | ||||||||||||||||||
Operating activities: | ||||||||||||||||||
Net (loss) income | $ | (30,733 | ) | $ | (140,119 | ) | $ | (30,273 | ) | $ | (79,122 | ) | $ | 118,685 | $ | (161,562 | ) | |
(Loss) income from discontinued operations and disposal of discontinued operations | (30,390 | ) | — | — | 7,508 | — | (22,882 | ) | ||||||||||
Equity in undistributed earnings in subsidiaries | 53,989 | 64,696 | — | — | (118,685 | ) | — | |||||||||||
Gain (loss) on change in fair value of debt | — | 46,057 | 30,874 | 30,338 | — | 107,269 | ||||||||||||
Other | (327,939 | ) | 16,780 | 60,895 | 14,693 | 179,362 | (56,209 | ) | ||||||||||
Net cash used in operating activities | (335,073 | ) | (12,586 | ) | 61,496 | (26,583 | ) | 179,362 | (133,384 | ) | ||||||||
Investing activities: | ||||||||||||||||||
Proceeds from sale of investments | — | — | — | 182,124 | — | 182,124 | ||||||||||||
Purchase of investments | — | — | — | (77,646 | ) | — | (77,646 | ) | ||||||||||
Acquisition of investees | — | (49,079 | ) | — | — | — | (49,079 | ) | ||||||||||
Acquisition of subsidiaries, net of cash acquired | 98,350 | (18,473 | ) | — | 4,721 | (98,350 | ) | (13,752 | ) | |||||||||
Net proceeds from sale of discontinued operations | 253,553 | 54,022 | — | — | — | 307,575 | ||||||||||||
Other | 24 | 4,060 | — | (5,593 | ) | — | (1,509 | ) | ||||||||||
Net cash provided by investing activities | 351,927 | (9,470 | ) | — | 103,606 | (98,350 | ) | 347,713 | ||||||||||
Financing activities: | ||||||||||||||||||
Common stock issued | 848 | 201,276 | — | — | (201,276 | ) | 848 | |||||||||||
Proceeds from issuance of notes payable | — | (120,264 | ) | — | — | 120,264 | — | |||||||||||
Redemption of senior unsecured debentures | — | (62,113 | ) | (62,074 | ) | — | — | (124,187 | ) | |||||||||
Net cash used in financing activities | 848 | 18,899 | (62,074 | ) | — | (81,012 | ) | (123,339 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents | 17,702 | (3,157 | ) | (578 | ) | 77,023 | — | 90,990 | ||||||||||
Cash and cash equivalents at beginning of period | 12,467 | 12,545 | 1,376 | 23,189 | — | 49,577 | ||||||||||||
Cash and cash equivalents at end of period | $ | 30,169 | $ | 9,388 | $ | 798 | $ | 100,212 | $ | — | $ | 140,567 |
82 |
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements |
83 |
84 |
85 |
86 |
(in thousands) | December 31, 2011 | |||||||||||
Cost or Amortized Cost | Fair Value | Amount Shown on Consolidated Balance Sheet | ||||||||||
Fixed maturities: | ||||||||||||
U.S. government, government agencies and authorities | $ | 17,054 | $ | 18,297 | $ | 18,297 | ||||||
Canadian government | 3,788 | 3,790 | 3,790 | |||||||||
State municipalities and political subdivisions | 8,196 | 8,464 | 8,464 | |||||||||
Mortgage-backed | 38,093 | 38,444 | 38,444 | |||||||||
Asset-backed | 2,687 | 2,697 | 2,697 | |||||||||
Corporate | 21,526 | 21,959 | 21,959 | |||||||||
Total fixed maturities | 91,344 | 93,651 | 93,651 | |||||||||
Equity investments | 2,689 | 2,960 | 2,960 | |||||||||
Other investments | 488 | 488 | 488 | |||||||||
Short-term investments | 20,334 | 20,334 | 20,334 | |||||||||
$ | 114,855 | $ | 117,433 | $ | 117,433 |
87 |
(in thousands) | December 31, | Years ended December 31, | ||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs | Unpaid Loss and Loss Adjustment Expenses | Unearned Premiums | Net Premiums Earned | Loss and Loss Adjustment Expenses | Amortization of Deferred Policy Acquisition Costs | Other Operating Expenses | Net Premiums Written | |||||||||||||||||||||||||
2011 | ||||||||||||||||||||||||||||||||
Insurance Underwriting | 8,116 | 120,258 | 39,423 | 156,382 | 143,145 | 25,654 | 33,902 | 126,903 | ||||||||||||||||||||||||
Total | $ | 8,116 | $ | 120,258 | $ | 39,423 | $ | 156,382 | $ | 143,145 | $ | 25,654 | $ | 33,902 | $ | 126,903 | ||||||||||||||||
2010 | ||||||||||||||||||||||||||||||||
Insurance Underwriting | 13,952 | 174,708 | 66,879 | 220,011 | 214,045 | 27,085 | 52,673 | 201,254 | ||||||||||||||||||||||||
Total | $ | 13,952 | $ | 174,708 | $ | 66,879 | $ | 220,011 | $ | 214,045 | $ | 27,085 | $ | 52,673 | $ | 201,254 |
88 |
(in thousands) | Years ended December 31, | ||||||||||||||||||
Direct Premiums Written | Premiums Ceded to Other Companies | Premiums Assumed from Other Companies | Net Premiums Written | Percentage of Premiums Assumed to Net | |||||||||||||||
2011 | $ | 126,311 | $ | 11,543 | $ | 12,135 | $ | 126,903 | 9.6 | % | |||||||||
2010 | 198,869 | 10,325 | 12,710 | 201,254 | 6.3 | % |
89 |
(in thousands) | Loss and Loss Adjustment Expenses Related to | |||||||||||||||||||
Affiliation with Registrant (1) | Deferred Policy Acquisition Costs | Unpaid Loss and Loss Adjustment Expenses | Unearned Premiums | Net Earned Premiums | Net Investment Income | Current Year | Prior Years | Amortization of Deferred Policy Acquisition Costs | Paid Loss and Loss Adjustment Expenses | Net Premiums Written | ||||||||||
Year ended December 31, 2011 | ||||||||||||||||||||
8,116 | 120,258 | 39.423 | 156,382 | 4,086 | 135,238 | 7,907 | 25,654 | 189,920 | 126,903 | |||||||||||
Year ended December 31, 2010 | ||||||||||||||||||||
13,952 | 174,708 | 66,879 | 220,011 | 12,819 | 206,208 | 7,837 | 27,085 | 233,996 | 201,254 |
90 |
KINGSWAY FINANCIAL SERVICES INC. | |||
Date: | March 30, 2012 | By: | /s/ Larry G. Swets, Jr. |
Name: | Larry G. Swets, Jr. | ||
Title: | President and Chief Executive Officer | ||
(Principal Executive Officer) |
/s/ Larry G. Swets, Jr. Larry G. Swets, Jr. | President and Chief Executive Officer (principal executive officer) | March 30, 2012 |
/s/ William A. Hickey, Jr. William A. Hickey, Jr. | Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer) | March 30, 2012 |
/s/ Spencer L. Schneider Spencer L. Schneider | Chairman of the Board and Director | March 30, 2012 |
/s/ Gregory Hannon Gregory Hannon | Director | March 30, 2012 |
/s/ Terence Kavanagh Terence Kavanagh | Director | March 30, 2012 |
/s/ Joseph Stilwell Joseph Stilwell | Director | March 30, 2012 |
91 |
Exhibit | Description |
3.1 | Articles of Incorporation of Kingsway Financial Services Inc. |
3.2 | By-law No. 5 of Kingsway Financial Services Inc. |
4.1 | Indenture dated January 28, 2004 among Kingsway America Inc., Kingsway Financial Services Inc. and BNY Midwest Trust Company (included as exhibit 4.1 to the Form F-4, filed May 27, 2004, and incorporated herein by reference). |
4.2 | Trust Indenture dated July 10, 2007 among Kingsway 2007 General Partnership, Kingsway Financial Services Inc., Kingsway America Inc., and Computershare Trust Company of Canada |
4.3 | Indenture dated December 4, 2002 between Kingsway America Inc. and State Street Bank and Trust Company of Connecticut, National Association |
4.4 | Indenture dated May 15, 2003 between Kingsway America Inc. and U.S. Bank National Association |
4.5 | Indenture dated October 29, 2003 between Kingsway America Inc. and U.S. Bank National Association |
4.6 | Indenture dated May 22, 2003 between Kingsway America Inc., Kingsway Financial Services Inc., and Wilmington Trust Company |
4.7 | Junior Subordinated Indenture dated September 30, 2003 between Kingsway America Inc. and J.P Morgan Chase Bank |
4.8 | Indenture dated December 16, 2003 between Kingsway America Inc., Kingsway Financial Services Inc., and Wilmington Trust Company |
10.1 | Amended and Restated Stock Option Plan of Kingsway Financial Services Inc., dated as of May 2001 and amended most recently as of May 2007 |
10.2 | Purchase Agreement, dated January 25, 2010, between The Westaim Corporation and Kingsway Financial Services Inc. |
10.3 | Second Amendment to and Assignment and Assumption of Purchase Agreement, dated June 21, 2010, by and among FH Enterprises Inc., JBA Associates Inc., the four individual holders of all of JBA's voting securities, and Kingsway America Inc. |
10..4 | Tax Benefit Preservation Plan Agreement, dated as of September 28, 2010, between Kingsway Financial Services Inc. and Computershare Investor Services Inc. |
10.5 | Agreement and Plan of Merger, dated December 14, 2010, among JJR VI Acquisition Corp., Atlas Acquisition Corp., Kingsway Financial Services Inc., and American Insurance Acquisition Inc. |
10.6 | Operating Agreement of Acadia GP, LLC dated March 16, 2011 (included as exhibit 10.8 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.7 | Stock Purchase Agreement dated March 30, 2011 between HRM Acquisition Corp. and Kingsway America Inc. (included as exhibit 10.1 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.8 | Senior Promissory Note dated March 30, 2011 issued by HRM Acquisition Corp. to Kingsway America Inc. (included as exhibit 10.2 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
92 |
10.9 | Junior Promissory Note dated March 30, 2011 issued by HRM Acquisition Corp to Kingsway America Inc. (included as exhibit 10.3 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.10 | Note Purchase Agreement dated March 30, 2011 between HRM Acquisition Corp. and United Property and Casualty Insurance Company (included as exhibit 10.4 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.11 | Promissory Note dated March 30, 2011 issued by HRM Acquisition Corp. to United Property and Casualty Insurance Company (included as exhibit 10.5 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.12 | Agreement of Limited Partnership dated March 30, 2011 between Acadia GP, LLC (in its capacity as a general partner of Acadia Acquisition Partners, L.P.) and limited partners (including United Property and Casualty Insurance Company) (included as exhibit 10.6 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.13 | Intercreditor Agreement dated March 30, 2011 between HRM Acquisition Corp. and Kingsway America Inc. (included as exhibit 10.7 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.14 | Subscription and Investment Representation Agreement dated March 30, 2011 (included as exhibit 10.9 to the March 31, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
10.15 | Management Services Agreement between United Insurance Management, L.C. and 1347 Advisors LLC, effective August 29, 2011 (included as exhibit 10.1 to the September 30, 2011 Form 10-Q, filed March 27, 2012, and incorporated herein by reference). |
14 | Kingsway Financial Services Inc. Code of Business Conduct & Ethics |
21 | Subsidiaries of Kingsway Financial Services Inc. |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
93 |
(Name of Municipality or Post Office} (Nom de la munscidaliti ou du bureau d* polls) | (Postal Code) (Code postai) |
7. Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors authority with respect to any class of shares which may be issued in series: | Droits. privileges, restrictions et conditions,y a lieu, rattaches A chequecategoriedections et pouvoirs des administrateursrelatifs a chequecategorie d'actions qui peat etreernise en saris: |
(a) | For the purposes of these provisions, the term "Stated Value", in reference to a share of any class or series of shares of the Corporation means the amount obtained by dividing the amount of the stated capital account maintained by the Corporation in respect of that class or series of shares by the number of shares of that class or series outstanding at the time such calculation is made. |
(b) | The holders of the Class A special shares shall in each year and at the discretion of the directors and whether or not dividends have been declared, set aside or paid on any other shares of any class of the Corporation for such year, be entitled, out of any or all profits or surplus available for dividends, to non-cumulative dividends at such rate as the directors may from time to time in their discretion determine, provided always that such non-cumulative dividends shall be declared on all of the Class A special shares then outstanding at the same rate without preference or priority; the holders of the Class A special shares shall not be entitled to any dividend other than or in excess of the non-cumulative dividends at such rate as the directors may have determined as hereinbefore provided for; |
(c) | The holders of the Class B special shares shall in each year and at the discretion of the directors and whether or not dividends have been declared, set aside or paid on any other shares of any class of the Corporation for such year, be entitled, out of any or all profits or surplus available for dividends, to non-cumulative dividends at such rate as the directors may from time to time in their discretion determine, provided always that such non-cumulative dividends shall be declared on all the Class B special shares then outstanding at the same rate without preference or priority; the holders of the Class B special shares shall not be entitled to any dividend other than or in excess of the non-cumulative |
(d) | The Class A special shares and the Class B special shares or any part thereof shall be redeemable at any time at the option of the Corporation without the consent of the holders thereof at the Stated Value thereof and any dividends declared thereon and unpaid. |
(e) | The Corporation may at any time and from time to time purchase for cancellation the whole or any part of the Class A special shares and the Class B special shares at the lowest price at which in the opinion of the directors such shares are obtainable but not exceeding the Stated Value thereof together with all dividends declared thereon and unpaid. |
(f) | In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary; the holders of the Class A special shares and the Class B special shares shall be entitled to receive, share and share alike, without preference or priority of one class over the other, before any distribution of any part of the assets of the Corporation among the holders of any other shares, the stated Value thereof and any dividends declared thereon and unpaid and no more. |
(g) | The holders of the Class A special shares and the Class B special shares shall not, as such, have any voting rights for the election of directors or for any purpose nor shall they be entitled to receive notice of and to attend shareholders' meetings; holders of the Class A special shares and the Class B special shares shall, however, be entitled to notice of meetings of shareholders called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof. |
(h) | Any amendment to the Articles of the Corporation to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to the Class A special shares or the Class B special shares or to create special shares ranking in priority to or on a parity with the Class A special shares or the Class 3 special shares, in addition to the authorization by special resolution, may be authorized by at least two-thirds (2/3) of the votes cast at a meeting of the holders of that class of special shares so affected, duly called for that purpose. |
(i) | The rights of the holders of common shares include the rights to vote at allmeetings of shareholders and to receive the remaining property of the Corporation upon dissolution. |
8. The issue, transfer or ownership of shares is/is notrestricted and me restrictions (if any) are as follows: | L’emission, le transfert ou laproprieted'actionsest/n’est pas restreinte. Les restrictions, s’il y a lieu, sont lessuivantes: |
(a) | the prior consent of the directors of the Corporation expressed by a resolution of the board or by instrument or by an instrument or instruments in writing signed by all the directors, or |
(a) | the prior consent of the holders of the shares for the time being outstanding and having voting rights under all circumstances, expressed by a resolution passed by the shareholders, or by an instrument or instruments in writing signed by all such shareholders. |
(a) | Any invitation to the public to subscribe for securities of the Corporation is prohibited. |
(b) | The number-of shareholders of the Corporation, exclusive of persons who are in its employment and exclusive of persons who, having been formerly in the employment of the Corporation were, while in that employment, and have continued after the termination of that employment to be shareholders of the Corporation, is limited to not more than fifty (50), two or more persons who are the joint registered owners of one or more shares being counted as one shareholder. |
First name, initials and surname or corporate name Prenom, initiate el nom de tamale ou denomination sociale | Full residence address or address of registered office or of principal place of business giving street & No. or R.R. No., municipality and postal code Adresse personnelle au complet, adresse du siege social ou adresse de retablissement principal, y comprisla rue et to numero, le numero de fa RR., le nom de la municipalite et to code postal |
William Gabriel Star | 28 Belgate Place Etobicoke, Ontario MSC 314 |
applicable): n /a | (s’il y a lieu): |
4. The amendment has been duly authorized as required by Sections 168 & 170 (as applicable) ofthe Business Corporations Act. | La modification a ete’ dumentautoriséeconforrnément a l’ article 168 et, s'il y a lieu, al’article 170 de la Loisur les compagnies. |
5. The resolution authorizing the amendment was approved by the shareholder/directors (as applicable) of the corporation on | Lea actionnaires ou les administrateurs (le casecheant) de la compagnieontapprouve la modification |
4. | The articles of the corporation are amended Les statute de la compagnie sont modifies de la as follows: suivante: |
5. | The amendment has been duly authorized as La modification a etedumentautoriseeconformementrequired by Sections 168 & 170 (as applicable) l'article 188 et, s’il y a lieu, a;artiicle170 de is laLoisurof the Business Corporations Act, lescompanies. |
6. | The resolution authorizing the amendment was Les actionnaires ou les administrateurs (le casecheant) approved by the shareholders/directors de la compagnieontapprouve la resolution autorisant(as (as applicable) of the corporation on modification |
2. | The name of the corporation is changed to if Nouvelle denomination socials de la sociatd (oil ya lieu): applicable): |
2. | Date of incorporation/arnalgamation: Date de ,a constitution vii de la fusion: |
3. | The articles of the corporation are amended Les statuts de la societe sont modifies de la facon |
6. | The resolution authorizing the amendment Les actionnaires ou les administrateurs (salon Is cas) de |
1. | The name of the corporation is: Denomination socials de la socIete: |
2. | The name of the corporation is changed to Nouvelle denomination sociale de la societe (s’il y a |
3. | Date of incorporation/amalgamation: Date de la constitution ou de la fusion: |
4. | The articles of the corporation are amended as Les statuts de la societe sont modifies de la facon follows: sulvante. |
5. | The amendment has been duly authorized as required by Sections 168 & 170 (as applicable) of the Business Corporations Act. |
5. | The resolution authorizing the amendment was Les actionnaires ou les administrateurs (salon le cas) approved by the shareholders/directors de la societeontapprouve la resolution autorisent la |
2. The name of the corporation is changed to (if applicable): | Nouvelle denomination sociale de la soctete (s'il y a lieu): |
5. | The amendment has been duly authorized as required by Sections 168 & 170 (as applicable) of the Business Corporations Act. |
(1) | inchoate or statutory liens or trust claims for taxes, assessments and other governmental charges or levies which are not delinquent or the validity of which are currently being contested in good faith by appropriate proceedings provided that there shall have been set aside a reserve to the extent required by Applicable GAS' in an amount which is reasonably adequate with respect thereto; |
(2) | Liens securing Purchase Money Obligations or Capitalized Lease Obligations provided the Lien charges only the asset subject to the Purchase Money Obligations or Capitalized Lease Obligations and no other asset; |
(3) | Liens securing Indebtedness of the Guarantor's Subsidiaries which are Premium Finance Companies; |
(4) | Liens securing the Indebtedness under letters of credit issued upon the application of any Subsidiary in connection with reinsurance contracts; and |
(5) | Liens existing on the Issue Date. |
Other Terms | Section |
"Additional Amounts" | 1002 |
"Agent Members" | 2.01(e) |
"Authenticating Agent" | 2.02 |
"Bankruptcy Law" | 6.01 |
"Covenant Defeasance Option" | 8.01(b) |
"Custodian" | 6.01 |
"Defaulted Interest Payment Date" | 2.13(a) |
"Defaulted Interest" | 2.13 |
"Event of Default" | 6.01 |
"Exchange Global Note" | 2.01(b) |
"Global Notes" | 2.01(b) |
"Institutional Accredited Investor Global Note" | 2.01(b) |
"Issuer Order" | 2.02 |
"Judgment Conversion Date" | 11.2 |
"Judgment Currency" | 11.2 |
"Legal defeasance option" | 8.01(b) |
"Note Registrar" | 7.03 |
"Obligations" | 10.01 |
"Paying Agent" | 2.03 |
"Purchase Agreement" | 2.01(b) |
"Registrar" | 2.03 |
"Regulation S Global Note" | 2.01(b) |
"Required Currency" | 11.2 |
"Restricted Note Legend" | 2.01(d) |
"Restricted Payment" | 3.04 |
"Rule 144A Global Note" | 2.01(b) |
"Special Interest Notice" | 3,15 |
"Special Record Date" | 2.13(a) |
"Taxes" | 10.01 |
(ii) | immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Issuer or any Restricted Subsidiary as a result of such transaction as having been Incurred by such entity at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; |
(iii) | the ratings on the Notes will not be lowered by either of S&P or DBRS as a result of such transaction, after giving effect to such transaction; |
(iv) | such transaction shall, to the satisfaction of the Trustee, acting reasonably, be upon such terms as substantially to preserve and not to impair in any material respect the rights and power of the Trustee and the Holders under this Indenture, |
(v) | the Issuer shall have delivered, and caused to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture; and |
(vi) | the Surviving Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for U.S. federal or Canadian tax purposes as a result of such assumption and will be subject to U.S. federal and Canadian taxes (including withholding taxes) on the same amounts, in the same manner and at the same time as if such assumption had not occurred, |
(x) | the CUSIP number, provided, however, that no representation is made as to the accuracy or correctness of the CUSIP number, if any, listed in such notice or printed on the Notes, and any redemption shall not be affected by any defect in such CUSIP numbers, and |
(xi) | the paragraph of the Notes pursuant to which the Notes are to be redeemed. |
the Trustee fails to comply with Section 7.10; the Trustee is adjudged bankrupt or insolvent; a receiver or other public officer takes charge of the Trustee or its property; or the Trustee otherwise becomes incapable of acting. |
Dated: | |||
(insert name of transferee) |
(i) | to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Debentures and, in case of any judicial proceedings, |
(ii) | to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all other amounts due to the Trustee under Section 6.6), and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debentures, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Debentures in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings, |
(a) | the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) and not theretofore canceled, or |
(b) | all the Debentures not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within 1 year or are to be called for redemption within 1 year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption all of the Debentures (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Debentures (1) theretofore repaid to the Company in accordance with the provisions of Section 12.4, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, |
ARTICLE VI. | CONCERNING THE TRUSTEE | „ 30 |
(a) | the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) and not theretofore canceled, or |
(b) | all the Debentures not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within 1 year or are to be called for redemption within 1 year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption all of the Debentures (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Debentures (1) theretofore repaid to the Company in accordance with the provisions of Section 12.4, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, |
Section 15.1. Section 15.2. Section 15.3. Section 15.4. Section 15.5. | Agreement to Subordinate 52 Default on or Acceleration of Senior Indebtedness 52 Liquidation, Dissolution, Bankruptcy 53 Subrogation 54 Trustee to Effectuate Subordination 55 |
(a) | the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) and not theretofore canceled, or |
(b) | all the Debentures not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within 1 year or are to be called for redemption within 1 year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption all of the Debentures (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.6) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Debentures (1) theretofore repaid to the Company in accordance with the provisions of Section 12.4, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, |
Section 12.12. | Article Applicable to Paying Agents | „.„ | 66 |
(A) | have become due and payable, or |
(A) | will become due and payable at their Stated Maturity within one year of the date of deposit, or |
(B) | are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, |
(A) | all overdue installments of interest on all Securities, |
(B) | any accrued Additional Interest on all Securities, |
(C) | the principal of and any premium on any Securities that have become due otherwise than by such declaration of acceleration and interest (including any Additional Interest) thereon at the rate borne by the Securities, and |
(D) | all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, the Property Trustee and their agents and counsel; and |
1.1 | The purpose of the Plan is to attract, retain and motivate persons as directors, officers, key employees and consultants of the Corporation and its Subsidiaries and to advance the interests of the Corporation by providing such persons with the opportunity, through share options, to acquire an increased proprietary interest in the Corporation. |
2.1 | "Board" means the board of directors of the Corporation or, if established and duly authorized to act, the Executive Committee or another Committee appointed for such purpose by the board of directors of the Corporation; |
2.2 | "Business Day" means any day, other than a Saturday or a Sunday, on which the Exchange is open for trading; |
2.3 | "Consultant" means an individual (including an individual whose services are contracted through a corporation) with whom the Corporation or any Subsidiary has a contract for substantial services; |
2.5 | "Eligible Person" means any director, officer, employee (part-time or full-time) or Consultant of the Corporation or any Subsidiary, a registered retirement savings plan established for the benefit of any such Person, or a corporation controlled by such Person; |
(a) | an insider as defined under Section 1(1) of the Securities Act (Ontario), other than a person who falls within that definition solely by virtue of being a director or senior officer of a Subsidiary; and |
(b) | an associate as defined under Section 1(1) of the Securities Act (Ontario) of any person who is an insider by virtue of (a) above; |
2.8 | "Long-Term Disability" means the inability of an employee to continue employment with the Corporation or a Subsidiary due to a long-term disability for which benefits are claimed or received under an insurance plan established by the Corporation or, if applicable, the Subsidiary, by which the employee is employed for such purpose; |
2.9 | "Market Price" at any date in respect of the Shares shall be the closing price of such Shares on the Exchange on the last Business Day preceding the date on which the Option is approved by the Board (or, if such Shares are not then listed and posted for trading on the Exchange, on such stock exchange in Canada on which the Shares are listed and posted for trading as may be selected for such purpose by the Board). In the event that such Shares did not trade on such Business Day, the Market Price shall be the average of the bid and ask prices in respect of such Shares at the close of trading on such date. In the event that such Shares are not listed and posted for trading on any stock exchange, the Market Price shall be the fair market value of such Shares as determined by the Board in its sole discretion; |
2.11 | "Option Price" means the price per Share at which Shares may be purchased under the Option, as the same may be adjusted from time to time in accordance with Article 8; |
2.13 | "Person" means an individual, a corporation, a partnership, an unincorporated association or organization, a trust, a government or department or agency thereof and the heirs, executors, administrators or other legal representatives of an individual and an associate or affiliate of any thereof as such terms are defined in the Business Corporations Act (Ontario); |
2.14 | "Plan" means this Kingsway Financial Services Inc. Stock Option Plan, as the same may be amended or varied from time to time; |
2.15 | "Share Compensation Arrangement" means any stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise; |
2.16 | "Shares" means the common shares of the Corporation or, in the event of an adjustment contemplated by Article 8, such other shares or securities to which an Optionee may be entitled upon the exercise of an Option as a result of such adjustment; and |
2.17 | "Subsidiary" means any corporation which is a subsidiary, as such term is defined in the Business Corporations Act (Ontario) (as such provision is from time to time amended, varied or re-enacted), of the Corporation; |
2.18 | "Termination For Cause" means the cessation of employment of an employee of the Corporation or a Subsidiary which, in the absolute discretion of the Chief Executive Officer, is by reason of, but not limited to, such employee having been guilty of serious misconduct, habitual neglect of duty, incompetence, or conduct incompatible with his or her duties, or prejudicial to the Corporation's or Subsidiary's business, or he or she has been guilty of wilful disobedience to the Corporation's or Subsidiary's policies or instructions in a matter of substance; |
2.19 | "Termination Without Cause" means the cessation of the employment of an employee of the Corporation or a Subsidiary for reasons other than (i) those defined in Termination For Cause; (ii) resignation; (iii) retirement at age 65 or older; (iv) death; or (v) Long Term Disability. |
3.1 | The Plan shall be administered in accordance with the rules and policies of the Exchange in respect of employee stock option plans by the Board. The Board shall receive recommendations of management and shall determine and designate from time to time those directors, officers, employees and Consultants of the Corporation or its Subsidiaries to whom an Option should be granted, the number of Shares which will be optioned from time to time to any Eligible Person, and the terms and conditions of the grant. |
3.2 | The Board shall have the power, where consistent with the general purpose and intent of the Plan and subject to the specific provisions of the Plan: |
(a) | to establish policies and to adopt, prescribe, amend or vary rules and regulations for carrying out the purposes, provisions and administration of the Plan and make all other determinations necessary or advisable for its administration; |
(b) | to interpret and construe the Plan and to determine all questions arising out of the Plan and any Option granted pursuant to the Plan and any such interpretation, construction or determination made by the Board shall be final, binding and conclusive for all purposes; |
(g) | to determine if the Shares which are subject to an Option will be subject to any restrictions upon the exercise of such Option; and |
4.1 | Options may be granted in respect of authorized and unissued Shares provided that, subject to increase by the Board, the receipt of the approval of the Exchange and the approval of shareholders of the Corporation, the maximum aggregate number of Shares reserved by the Corporation for issuance and which may be purchased upon the exercise of outstanding Options issued pursuant to the Plan shall not exceed 4,800,000. Shares in respect of which Options are not exercised shall be available for subsequent Options under the Plan. Shares issued upon the exercise of an Option prior to 5:00 p.m. (Toronto time) on March 17, 2006 shall again be available for grants under the Plan. No fractional Shares may be purchased or issued under the Plan. |
5.2 | Options may be granted by the Corporation pursuant to the recommendations of the Board from time to time provided and to the extent that such decisions are approved by the Board. |
5.3 | Subject to the provisions of this Plan, the number of Shares subject to each option, the Option Price, the expiration date of each Option, the extent to which each Option is exercisable from time to time during the term of the Option and other terms and conditions relating to each such Option shall be determined by the Board. At no time shall the period during which an Option shall be exercisable exceed ten (10) years, provided that such period shall not exceed five (5) years for Options granted after February 11, 2003. |
5.4 | In the event that no specific determination is made by the Board with respect to any of the following matters, each Option shall, subject to any other specific provisions of the Plan, contain the following terms and conditions: |
(a) | the period during which an Option shall be exercisable shall be ten (10) years from the date the Option is granted to the Optionee, provided that such period shall end on the 5th anniversary of the date of grant for Options granted after February 11, 2003; |
(b) | subject to Section 5.4(c) hereof, the Optionee may not take up any Shares which are the subject of an Option during the 12 month period from the date the Option is granted, and thereafter, the Optionee may take up not more than 33-1/3% of the Shares covered by the Option during each subsequent 12 month period; provided, however, that if the number of Shares taken up under the Option during any such 12 month period is less than 33-1/3% of the Shares covered by the Option, the Optionee shall have the right, at any time or from time to time during the remainder of the term of the Option, to purchase such number of Shares subject to the Option which were purchasable, but not purchased by him, during such 12 month period; and |
(c) | provided the Optionee is not a full time employee of the Corporation or any Subsidiary, the Optionee shall not be bound by any restrictions on exercising Options after the 12 month period ending after the date the Option is granted. |
5.5 | If at any time the expiration date of an Option should be determined to occur during a period (the "Black- out Period") in which the Optionee is restricted from trading in securities of the Corporation under the insider trading policy or other policy of the Corporation or within 10 business days following the Black-out Period, the expiration date of such Option shall be deemed to be the date that is the tenth business day following the end of the Black-out Period. |
5.7 | The maximum number of Shares which may be reserved for issuance to any one Optionee under this Plan or under any other Share Compensation Arrangement shall not exceed 5% of the Shares outstanding at the date of the grant (on a non-diluted basis). |
5.8 | The maximum number of Shares which may be reserved for issuance to Insiders under the Plan or under any other Share Compensation Arrangement shall be 10% of the Shares outstanding at the date of the grant (on a non-diluted basis). |
5.9 | The maximum number of Shares which may be issued to any one Insider and such Insider's associates under the Plan and any other Share Compensation Arrangement in any 12 month period shall be 5% of the Shares outstanding at the date of the issuance (on a non-diluted basis). The maximum number of Shares which may be issued to Insiders under the Plan and any other Share Compensation Arrangement in any 12 month period shall be 10% of the Shares outstanding at the date of the issuance (on a non-diluted basis). |
5.10 | Any entitlement to acquire Shares granted pursuant to the Plan or any other Share Compensation Arrangement prior to the Optionee becoming an Insider shall be excluded for the purposes of the limits set out in sections 5.8 and 5.9 above. |
5.11 | An Option is personal to the Optionee and is non-assignable; provided, however, that nothing herein shall prevent an Optionee from assigning any or all of the Options held by such Optionee to a registered retirement savings plan established for the benefit of such Optionee. |
5.12 | In addition to the limitations set out in sections 5.7, 5.8 and 5.9 hereof, the number of Options to be granted to each Eligible Person who is a director of the Corporation or a Subsidiary but not an employee or officer of the Corporation or a Subsidiary shall not exceed 5,000 Options per fiscal year. |
6.1 | Subject to the provisions of the Plan, an Option may be exercised from time to time by delivery to the Corporation at its registered office of a written notice of exercise addressed to the Secretary of the Corporation specifying the number of Shares with respect to which the Option is being exercised and accompanied by payment in full of the Option Price of the Shares to be purchased. Certificates for such Shares shall be issued and delivered to the Optionee within a reasonable period of time following the receipt of such notice and payment. |
6.2 | Notwithstanding any of the provisions contained in the Plan or in any Option, the Corporation's obligation to issue Shares to an Optionee pursuant to the exercise of an Option shall be subject to: |
(a) | completion of such registration or other qualification of such Shares or obtaining approval of such governmental or regulatory authority as counsel to the Corporation shall reasonably determine to be necessary or advisable in connection with the authorization, issuance or sale thereof; |
(c) | the receipt from the Optionee of such representations, agreements and undertakings, including as to future dealings in such Shares, as the Corporation or its counsel reasonably determines to be necessary or advisable in order to safeguard against the violation of the securities laws of any jurisdiction. |
7.1 | The entitlement of a Consultant to Options including the termination thereof shall be in accordance with the terms of the consulting agreement entered into between the Corporation or the Subsidiary and the Consultant. |
7.2 | In the event of the death, retirement at age 65 or older or Long-Term Disability of an Optionee while in the employment of the Corporation or a Subsidiary prior to 5:00 p.m. (Toronto time) on the expiration date of an Option, all the Shares subject to the Option shall immediately vest on the date of such death, retirement or Long-Term Disability and may be exercised by the Optionee or by the legal representatives of such Optionee, as the case may be, at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the date which is the third anniversary of the date of death, retirement or Long-Term Disability of such Optionee or the expiration date of the Option, whichever is the earlier, after which the Option shall in all respects cease and terminate and be of no further force or effect whatsoever as to such of the Shares in respect of which such Option had not been previously exercised. |
7.3 | In the event of the Termination For Cause of an Optionee prior to 5:00 p.m. (Toronto time) on the expiration date of an Option, all Options granted to such Optionee under the Plan shall in all respects forthwith cease and terminate and be of no further force or effect whatsoever as to such of the Shares in respect of which such Option had not previously been exercised. |
7.4 | In the event of the Termination Without Cause of an Optionee prior to 5:00 p.m. (Toronto time) on the expiration date of an Option,such Optionee may exercise each Option then held by such Optionee under the Plan to the extent that such Option was vested at the time of the Termination Without Cause (provided however that the Chief Executive Officer may, in his or her sole discretion cause any or all additional Options held by such Optionee to vest immediately), at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the 30th day following the time of Termination Without Cause (or such later day as the Chief Executive Officer of the Corporation in his or her sole discretion may determine, which shall not exceed three years from the time of Termination Without Cause) or the expiration date of the Option, whichever is the earlier, after which the Option shall in all respects cease and terminate and be of no further force or effect whatsoever as to such of the Shares in respect of which such Option had not been previously exercised. |
7.5 | In the event of: (i) the resignation of an Optionee as an employee of the Corporation or a Subsidiary such that the Optionee is no longer an Eligible Person; or (ii) the resignation of an Optionee as a member of the Board such that the Optionee is no longer an Eligible Person, in each such case prior to 5:00 p.m. (Toronto |
7.6 | In the event of the death of an Optionee while a member of the Board or a Consultant prior to 5:00 p.m. (Toronto time) on the expiration date of an Option, all the Shares subject to the Option shall immediately vest on the date of such death and may be exercised by the legal representatives of such Optionee at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the date which is the first anniversary of the date of death of such Optionee or the expiration date of the Option, whichever is the earlier, after which the Option shall in all respects cease and terminate and be of no further force or effect whatsoever as to such of the Shares in respect of which such Option had not been previously exercised. |
7.7 | In the event that an Optionee who is a member of the Board ceases to be a member of the Board or a Consultant ceases to be a Consultant other than as provided for in subsections 7.5 and 7.6 above, such that the Optionee is no longer an Eligible Person prior to 5:00 p.m. (Toronto time) on the expiration date of an Option, all the Shares subject to the Option shall immediately vest on the date of such cessation and may be exercised by the Optionee at any time up to and including, but not after, 5:00 p.m. (Toronto time) on the date which is the first anniversary of the date of cessation as a member of the Board of such Optionee or the expiration date of the Option, whichever is the earlier, after which the Option shall in all respects cease and terminate and be of no further force or effect whatsoever as to such of the Shares in respect of which such Option had not been previously exercised. |
7.8 | Options shall not be affected by any change of employment of the Optionee or by the Optionee ceasing to be a director where the Optionee continues to be employed by the Corporation or continues to be a director of any Subsidiary or an officer of the Corporation or any Subsidiary. |
(a) | the acquisition by any Person who was not, immediately prior to the effective time of the acquisition, a registered or a beneficial shareholder in the Corporation of Shares or rights or options to acquire Shares of the Corporation or securities which are convertible into Shares of the Corporation or any combination thereof such that, after the completion of such acquisition, such Person would be entitled to, exercise 20% or more of the votes entitled to be cast at a meeting of the shareholders; or |
8.2 | Appropriate adjustments with respect to Options granted or to be granted, in the number of Shares optioned and at the Option Price, shall be made by the Board to give effect to adjustments in the number of Shares of the Corporation resulting from subdivisions, consolidations or reclassifications of the Shares of the Corporation, the payment of stock dividends or cash dividends by the Corporation (other than dividends in the ordinary course), the distribution of securities, property or assets by way of dividend or otherwise (other than dividends in the ordinary course), or the relevant changes in the capital stock of the Corporation or the amalgamation or merger of the Corporation with or into any other entity, subsequent to the approval of the |
9.1 | The Board may amend or discontinue the Plan at any time upon receipt of requisite regulatory approval including, without limitation, the approval of the Exchange; provided, however, that without the approval of the shareholders of the Corporation, no such amendment may: |
(a) | increase the maximum number of Shares issuable under the Plan or a change from a fixed maximum number of Shares to a fixed maximum percentage of issued and outstanding Shares; |
(b) | a reduction in the exercise price of outstanding Options or a cancellation for the purpose of exchange for reissuance at a lower Option Price to the same person; |
(d) | an expansion of the transferability or assignability of Options, other than to permitted assigns, pursuant to Section 5.11 of the Plan, or for estate planning or estate settlement purposes. |
10.1 | The holder of an Option shall not have any rights as a shareholder of the Corporation with respect to any of the Shares covered by such Option until such holder shall have exercised such Option in accordance with the terms of the Plan (including tendering payment in full of the Option Price of the Shares in respect of which the Option is being exercised) and the issuance of Shares by the Corporation. |
10.2 | Nothing in the Plan or any Option shall confer upon an Optionee any right to continue in the employ of the Corporation or any Subsidiary or affect in any way the right of the Corporation or any Subsidiary to terminate his employment at any time; nor shall anything in the Plan or any Option be deemed or construed to constitute an agreement, or an expression of intent, on the part of the Corporation or any Subsidiary to extend the employment of any Optionee beyond the time which he would normally be retired pursuant to the provisions of any present or future retirement plan of the Corporation or any Subsidiary or beyond the time at which he would otherwise be retired pursuant to the provisions of any contract of employment with the Corporation or any Subsidiary. |
10.3 | To the extent required by law or regulatory policy or necessary to allow Shares issued on exercise of an Option to be free of resale restrictions, the Corporation shall report the grant, exercise or termination of the Option to the Exchange and the appropriate securities regulatory authorities. |
11.1 | The Plan shall be subject to the approval of the Shareholders of the Corporation to be given by a resolution at a meeting of the Shareholders of the Corporation in accordance with the Business Corporations Act (Ontario) and to acceptance by the Exchange. Any Options granted prior to such approval and acceptances shall be conditional upon such approval and acceptance being given and no such Options may be exercised unless such approval and acceptance is given. |
3.20 | Leases and Leased Property. | 24 | |
3.21 | No Breach of Material Contracts. | 25 | |
3.22 | Subsidiaries and Investments. | 25 | |
3.23 | The Partnership. | 25 | |
3.24 | Intellectual Property | 26 | |
3.25 | Books and Records. | 27 | |
3.26 | Financial Statements. | 27 | |
3.27 | No Undisclosed Liabilities | 28 | |
3.28 | Insurance. | 28 | |
3.29 | Litigation. | 28 | |
3.3 | Taxes. | 28 | |
3.31 | Environmental Matters | 29 | |
3.32 | Employee Matters. | 30 | |
3.33 | Employee Benefit Plans. | 32 | |
3.34 | No Brokers' Fees, etc | 33 | |
3.35 | Restrictions on Business. | 33 | |
3.36 | Payments to Agencies. | 33 | |
3.37 | Required Filings, Reports of Examination and Regulatory Files. | 34 | |
3.38 | No Loans to Directors, Etc | 34 | |
3.39 | Contracts or Commitments. | 34 | |
3.4 | Guarantees | 35 | |
3.41 | Reinsurance | 35 | |
3.42 | Assets in Good Condition. | 36 | |
3.43 | Investments. | 36 | |
3.44 | Receivables. | 37 |
3.45 | Brokers. | 37 | |
3.46 | KGIC Assumption Reinsurance Transaction | 37 | |
3.47 | Pennsylvania Proceedings | 37 | |
3.48 | Seller Resident of Canada. | 37 | |
3.49 | Privacy Laws | 37 |
4.1 | Incorporation and Corporate Power | 38 | |
4.2 | Corporate Authorization. | 38 | |
4.3 | Reporting Issuer Status. | 38 | |
4.4 | No Breach of Authorizations, Laws, etc. | 38 | |
4.5 | No Breach of Contracts | 38 | |
4.6 | Required Authorizations. | 38 | |
4.7 | Required Consents. | 38 | |
4.8 | Execution and Binding Obligation | 38 | |
4.9 | Litigation | 39 | |
4.1 | Investment Canada Act. | 39 | |
4.1 L | Availability of Funds. | 39 | |
4.12 | No Brokers' Fees. | 39 | |
4.13 | Shareholder Commitments | 40 |
(g) | "Applicable Interest Rate" means, at any time, the rate of interest per annum equal to the rate which the principal office of the Canadian Imperial Bank of Commerce in Toronto, Ontario quotes, publishes and refers to as its "prime rate" and which is its reference rate of interest for loans in Canadian dollars made in Canada to Canadian borrowers plus 1% per annum, adjusted automatically with each quoted or published change in such rate, all without the necessity of any notice to a Party or any other Person. |
(h) | "Appointed Actuary" means the appointed actuary of the Company, currently Pierre Laurin, Towers Perrin. |
(g) | "Assets" means all property and assets of the Company of every nature and kind and wherever located including (i) the Owned Properties and the buildings, improvements and fixtures located thereon, (ii) all machinery, equipment, furniture, accessories and supplies of all kinds, (iii) all trucks, cars and other vehicles, (iv) all accounts receivable of the Company of every nature and kind, |
(n) | "Business" means the property and casualty insurance business (including, without limitation, the surety business) carried on by the Company as of the date hereof. |
(o) | "Business Day" means any day, other than a Saturday, Sunday or statutory or civic holiday in Toronto, Ontario. |
(p) | "Business Transfer Agreement" means the business transfer agreement made as of the 1st day of October, 2009 between KGIC and the Company pursuant to which KGIC ceded, transferred and assigned to the Company certain assets and liabilities of KGIC. |
(q) | "Carrying Value" has the meaning specified in 2.7(a). |
(r) | "Closing" means the completion of the transaction of purchase and sale contemplated in this Agreement. |
(s) | "Closing Date" means the later of: (i) March 26, 2010; or (ii) two (2) Business |
(t) | "Closing Period" means the period between the close of business on the date of this Agreement and the Closing. |
( v) | "Commissioner" means the Commissioner of Competition appointed under the Competition Act. |
( w) | "Common Shares" means common shares in the capital of the Company. |
(x) | "Commutation Agreement" means, collectively (i) the commutation and release agreement between KGIC and the Company made effective as of October 1, 2009; (ii) the commutation and release agreement between the Company and Kingsway Reinsurance (Bermuda) Ltd. made effective as of October 1, 2009; and (iii) the commutation and release agreement between KGIC and Kingsway Reinsurance (Bermuda) Ltd. made effective as of October 1, 2009. |
(y) | "Company" has the meaning specified in the Recitals. |
(i) | disclosed to the Purchaser or its representatives prior to the Closing Date by the Seller, the Company or their representatives or otherwise; or |
(ii) | collected by the Purchaser or its representatives prior to the Closing Date from the Seller, the Company or their representatives or otherwise, |
(c) | Matters reflected in the Disclosure Schedule are not necessarily limited to those matters required by this Agreement to be reflected in such Disclosure Schedule. Such additional matters are set forth for informational purposes only and do not necessarily include other matters of a similar nature. |
(d) | The Disclosure Schedule and the information contained in it do not constitute or imply, and will not be construed as: |
(i) | any representation, warranty, covenant or agreement which is not expressly set out in this Agreement; |
(ii) | an admission of any liability or obligation of the Seller; |
(iii) | an admission that the information is material; or |
(iv) | a standard of materiality or a standard for what is or is not in the Ordinary Course or what does or does not constitute Commercially Reasonable Efforts. |
(a) | 94.5% of the difference between Book Value and the Estimated Dividend; plus |
(b) | 100% of the amount by which the Estimated Dividend exceeds the Actual Dividend, |
(i) | as to $20,000,000 by wire transfer payable to or to the order of an independent escrow agent to be agreed upon by the Parties prior to Closing, in trust (the "Escrow Agent") to be held by the Escrow Agent in escrow in accordance with the terms and conditions of an escrow agreement to be entered into between the Parties and the Escrow Agent prior to Closing substantially in the form attached as Exhibit 2.4(a)(i) (the "Escrow Agreement") pending final adjustment of the Purchase Price in accordance with the provisions of Section 2.5; |
(ii) | as to $5,000,000 by wire transfer payable to or to the order of the Escrow Agent in trust, to be held by the Escrow Agent in escrow in accordance with the terms and conditions of the Escrow Agreement pending final determination of the Final 2009 Audited Financial Statements in accordance with the provisions of Section 2.5; |
(iii) | as to $7,500,000 by wire transfer payable to or to the order of the Escrow Agent in trust, to be held by the Escrow Agent in escrow in accordance with the terms and conditions of the Escrow Agreement pending adjustments to the Purchase Price in accordance with the provisions of Section 2.7; and |
(iv) | as to the balance of the Purchase Price by wire transfer of immediately available funds as directed by the Seller, in writing. |
(b) | The Seller will provide the Purchaser and its auditors access, upon every reasonable request, to all working papers of the Company, the Company's auditors and their actuarial experts and the Appointed Actuary, all accounting books and records of the Company and the appropriate personnel. As soon as possible following receipt of the Draft 2009 Audited Financial Statements, the Purchaser will notify the Seller in writing if it has any objections. If the Purchaser does not notify the Seller that it has an objection within five (5) days of receipt, the Purchaser will be deemed to have accepted the Draft 2009 Audited Financial Statements and the Draft 2009 Audited Financial Statements will be deemed to be the Final 2009 Audited Financial Statements. |
(c) | If the Purchaser disputes the Draft Audited Financial Statements and the Parties are unable to resolve the Purchaser's objections and agree upon the Draft 2009 Audited Financial Statements on or before February 25, 2010, the Seller shall cause the Draft 2009 Audited Financial Statements prepared by the Company to be finalized by the Company and filed by the Company with OSFI within the time period prescribed. Notwithstanding such filing, the Parties will thereafter work expeditiously and in good faith in an attempt to resolve such dispute within a further period of twenty (20) days after the date of notification by the Purchaser to the Seller of such dispute, failing which the dispute will be submitted for determination to an independent national firm of chartered accountants mutually agreed to by the Seller and the Purchaser (and, failing such agreement within a further period of two (2) Business Days, such independent national firm of chartered accountants will be a Canadian office of PricewaterhouseCoopers LLP, or if such firm is unable to act, a Canadian office of Ernst & Young LLP. The determination of the accountants will be final and binding upon the Parties and will not be subject to appeal, absent manifest error. For these purposes, the appointed accountants are acting as experts and not as arbitrators. |
(d) | The Seller and the Purchaser will each bear the fees and expenses of their respective auditors in preparing or reviewing, as the case may be, the Draft 2009 Audited Financial Statements. If a national firm of chartered accountants is retained to resolve a dispute, the costs and expenses of such firm will be borne equally by the Seller and the Purchaser. However, the Seller and the Purchaser will each bear their own costs in presenting their respective cases to such firm. |
(e) | The Draft 2009 Audited Financial Statements, together with the auditor's report, filed with OSFI by the Company pursuant to Section 2.5(c) shall, in the absence of an objection by the Purchaser, be the final 2009 Audited Financial Statements (the "Final 2009 Audited Financial Statements"). If the Purchaser has objected to the Draft 2009 Audited Financial Statements in accordance with the provisions of Section 2.5(c), then the Final 2009 Audited Financial Statements shall be, as applicable, the Draft 2009 Audited Financial Statements agreed to by the Parties pursuant to Section 2.5(c) or the Draft 2009 Audited Financial Statements as determined by the independent accounting firm pursuant to Section 2.5(c). Such Final 2009 Audited Financial Statements are final and binding upon the Parties and are not subject to appeal, absent manifest error. |
(f) | Following Closing, the Purchase Price will be increased or decreased, as the case may be, dollar-for-dollar, to the extent that the Book Value as determined from the Final 2009 Audited Financial Statements is more or less than the Book Value in the Draft 2009 Audited Financial Statements. Notwithstanding any other provisions herein, the I3ook Value figure determined from the Final 2009 Audited Financial Statements shall include a provision of $4 million to reflect vacation accrual and uncertainty relating to loss transfer / subrogation rights of the Company. To the extent that the $4 million provision is not reflected in the Final 2009 Audited Financial Statements, an adjustment shall be made accordingly to the Purchase Price on a dollar-for-dollar basis. |
(b) | The Purchaser will provide the Seller, its auditors and actuaries access, upon every reasonable request, to all work papers of the Company and the Company's auditors and actuaries, accounting books and records of the Company and the appropriate personnel to verify the accuracy, presentation and other matters relating to the preparation of the 2012 Audited Financial Statements, the KGIC Actuarial Opinion and the KGIC Actuarial Reports. Within thirty (30) days following receipt of the 2012 Audited Financial Statements, the KGIC Actuarial Opinion and the KGIC Actuarial Reports, the Seller will notify the Purchaser in writing if it has any objections to the calculation of the KGIC Claims Reserve Development. The notice of objection must contain a statement describing the basis of each of the Seller's objections and each amount in dispute. The Seller is deemed to have accepted the KGIC Actuarial Opinion if it does not notify the Purchaser of its objection within the specified period of thirty (30) days. |
(c) | If the Seller disputes the KGIC Claims Reserve Development, the Parties will work expeditiously and in good faith in an attempt to resolve such dispute within a further period of twenty (20) days after the date of notification by the Seller to the Purchaser of such dispute, failing which the dispute will be submitted for determination to an independent actuary mutually agreed to by the Seller and the Purchaser and, failing such agreement, within a further period of two (2) Business Days, a Canadian office of Ernst & Young LLP if PricewaterhouseCoopers LLP is appointed as accountant in accordance with Section 2.5(c), or alternatively a Canadian office of PricewaterhouseCoopers LLP if Ernst & Young LLP is unable to be appointed as accountant in accordance with Section 2.5(c). The determination of the independent actuary will be final and binding upon the Parties and will not be subject to appeal, absent manifest error. For these purposes, the appointed independent actuary is acting as an expert and not as an arbitrator. |
(d) | The Seller ~ and the Purchaser will each bear the fees and expenses of their respective auditors and actuary in preparing or reviewing, as the case may be, the 2012 Audited Financial Statements, the KGIC Actuarial Opinion and the KGIC Actuarial Reports. If an independent actuary is retained to resolve a dispute, the costs and expenses of such person will be borne equally by the Seller and the Purchaser. However, the Seller and the Purchaser will each bear their own costs in presenting their respective cases to such person. |
(e) | Immediately following the thirty (30) day period referred to in Section 2.6(b) or the resolution of any dispute in accordance with Section 2.6(c), the Purchaser will deliver to the Seller a statement of the final KGIC Claims Reserve Development (the "Final KGIC Claims Reserve Development"). Such Final |
(i) | $1.00 for every $1.00 of adverse KGIC Claims Reserve Development up to $5 million; and |
(ii) | $0.75 for every $1.00 of adverse KGIC Claims Reserve Development from $5 million to $25 million. |
(a) | On Closing, the Purchaser will acquire 100% of the Book Value of the Company and accordingly will pay 94.5% of the carrying value of the Hurontario Property as reflected in the 2009 Annual Financial Statements (the "Carrying Value"). |
(b) | On the date hereof, the Purchaser estimates the market value of the Hurontario Property to be not more than $29.5 million (the "Estimated Value"). |
(A) | the Purchase Price shall be reduced by $0.945 for every $1.00 by which the Carrying Value exceeds the sale price (the "Sale Price") (however, in no event shall the Purchase Price be reduced by an amount that is greater than the difference between Carrying Value and the Estimated Value; and |
(B) | the Purchase Price shall be increased by $0.945 for every $1.00 by which the Sale Price exceeds the Carrying Value; and |
(a) | result in a breach or a violation of, or cause the termination or revocation of, any Material Authorization held by the Seller or the Company or necessary to the ownership of the Purchased Shares, the use of the Assets or the operation of the Business; |
(b) | result in a breach or a violation of any judgment, judicial order or decree of any Governmental Authority; or |
(c) | assuming the filings, notices and Authorizations referred to in Section 3.5 are duly and timely made or obtained, result in a breach or a violation of any Law applicable to the Seller or the Company. |
(a) | the purchase or acquisition from the Seller of any of the Purchased Shares; or |
(b) | the purchase, subscription, allotment or issuance of any unissued shares or other securities of the Company. |
(m) | made any payments or commitments to make payments to or on behalf of any brokers (except as contemplated in this Agreement); |
(n) | made any material changes in its relationships with brokers or Reinsurers (other than the Seller and its Affiliates and, except as contemplated in this Agreement); |
(o) | suffered any extraordinary loss, damage or destruction, whether or not covered by insurance; |
(p) | removed or appointed any auditor, actuary or director of the Company or terminated the employment of any officer or other senior Employee (except as contemplated in this Agreement); |
(a) | the Company owns all rights, title and interest in and to all of the issued and outstanding limited partnership units in the Partnership and is the sole limited partner in the Partnership; |
(b) | the Seller owns all of the issued and outstanding shares in the capital of the General Partner, the general partner of the Partnership; |
(i) | all of the IP Rights owned by the Company which are material to the Business; and |
(ii) | all licenses or similar agreements to which the Company is a party, either as licensee or licensor, with respect to IP Rights which are material to the Business. |
(d) | The Company has the right and authority to use, and to continue to use after the Closing Date, the Material IP Rights in connection with the conduct of the Business in the manner presently conducted, and to the Seller's knowledge, such use or continuing use does not infringe upon or violate any rights of any other Person. To the Seller's knowledge, all licenses to which the Company is a party relating to the Material IP Rights, true and complete copies of which have been made available to the Purchaser, are in good standing, binding and enforceable in accordance with their respective terms and no material default exists on the part of the Company thereunder. |
(e) | The Company has maintained or caused to be maintained, in full force and effect, its rights to its registered Material IP Rights. To the knowledge of the Seller, applications for registration of the Company's Material IP Rights are in good standing, have been filed in a timely manner within the appropriate offices |
(g) | All of the Material IP Rights and the Material Software of the Company developed or created by employees (including former employees) of the Company or pursuant to Contracts with outside consultants or contractors have been assigned to the Company in writing or in another enforceable manner. |
(h) | Except as set out in Section 3.24(h) of the Disclosure Schedule, no royalty or other fee is required to be paid by the Company to any other Person for the use of any Material IP Rights and there are no restrictions on the ability of the Company to use and exploit all rights in such Material IP Rights. |
( a) | The Company has prepared and filed all Tax Returns within the prescribed periods with the appropriate Taxing Authority in accordance with applicable Laws. The Company has reported all material income and all other material amounts and information required by applicable Law to be reported on each such Tax Return. |
( b) | The Company has paid, within the prescribed period, all material Taxes which are required to be paid to any Taxing Authority pursuant to applicable Law. |
(d) | The Company has duly and timely withheld and collected all Taxes required by applicable Law to be withheld or collected by it and has duly and timely remitted to the appropriate Taxing Authority all such Taxes as and when required by applicable Law. |
(e) | There are no proceedings, investigations or audits pending or, to the knowledge of the Seller, threatened against the Company in respect of any Taxes. All income Tax Returns of the Corporation for taxation years ended on or before December 31, 2008 have been assessed by the relevant Taxing Authority. |
(i) | to file any Tax Return; |
(ii) | to file any elections, designations or similar filings relating to Taxes; |
(iii) | it is required to pay or remit any Taxes; or |
(iv) | any Taxing Authority may assess or collect any Taxes. |
(a) | To the knowledge of the Seller, the Company is conducting the Business in compliance with all applicable Environmental Laws except where noncompliance would not reasonably be expected to have a Material Adverse Effect. |
(b) | To the knowledge of the Seller, except as disclosed in Section 3.31 of the Disclosure Schedule, none of the Owned Properties: |
(i) | has been used by the Company as a waste disposal site or as a licensed landfill; or |
(ii) | has asbestos, asbestos containing materials, PCBs, radioactive substances or aboveground or underground storage systems, active or abandoned, located on, at or under them contrary to Environmental Laws. |
(c)• | Except as set forth in Section 3.31 of the Disclosure Schedule, to the knowledge of the Seller, there are no contaminants located in the ground or in groundwater under any of the Owned Properties contrary to Environmental Laws which would reasonably be expected to have a Material Adverse Effect. |
(d) | Except as set out in Section 3.31 of the Disclosure Schedule, since January 1, 2007, the Company has not been required by any Governmental Authority to: |
(i) | alter any of the Owned Properties in a material way in order to be in compliance with Environmental Laws in all material respects; or |
(ii) | perform any environmental closure, decommissioning, rehabilitation, restoration or post-remedial investigations, on, about, or in connection with any of the Owned Properties. |
(f) | Section 3.31 of the Disclosure Schedule sets out all material environmental reports, surveys, assessments and other documents in the possession of the Seller or the Company relating to environmental matters affecting the Business or any of the Owned Properties in a material manner (collectively, the "Material Environmental Reports"). True, correct and complete copies of the Material Environmental Reports have been made available to the Purchaser. The Purchaser acknowledges that all matters disclosed in the Material Environmental Reports are considered to be accepted exceptions to this Section 3.31 and will not give rise to any claim for breach of any representation and warranty contained in this Section 3.31. |
(g) | This Section 3.31, to the exclusion of the other representations and warranties contained in Article III, sets out in full the representations and warranties made or to be made by the Seller in or pursuant to this Agreement that deal with, refer to or cover any matter relating to Environmental Laws or compliance therewith. |
(c) | Except as set out in Section 3.32 of the Disclosure Schedule, there is no labour strike, picketing, slow down, work stoppage or lock out, existing or pending, against the Company or any of its operations which would reasonably be expected to have a Material Adverse Effect. The Company has not, in the last two (2) years, experienced any labour strike, picketing, slowdown, work stoppage or lock out, or to the knowledge of the Seller, any organizing campaign, by or with respect to its Employees. |
(d) | The employees of the Seller that ceased to be employees of the Seller and became Employees of the Company effective as of January 1, 2010, were transitioned to employment with the Company in compliance with all applicable laws and have been employed by the Company on the same or substantially the same terms and conditions as their employment with the Seller. No claims have been asserted by any such Employees against the Seller or the Company with respect to the transfer of their employment and, to the knowledge of the Seller, no such claims have been threatened. |
(a) | Section 3.33 of the Disclosure Schedule sets out a true, correct and complete list of all material retirement, pension, supplemental pension, savings, retirement savings, retiring allowance, bonus, profit sharing, stock purchase, stock option, phantom stock, share appreciation rights, deferred compensation, change of control, life insurance, medical, hospital, dental care, vision care, drug, sick leave, short term or long term disability, salary continuation, unemployment benefits, vacation, incentive, compensation or other employee benefit plan that is maintained or otherwise contributed to, or required to be contributed to, by or on behalf of the Company for the benefit of current or former Employees of the Company other than government sponsored pension, employment insurance, workers compensation and health insurance plans (collectively, the "Employee Plans"). |
(b) | Each Employee Plan has been maintained in compliance in all material respects with its terms and with the requirements of all applicable Laws except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. Each Employee Plan that is required to be registered under applicable Laws is registered with the appropriate Governmental Authorities. |
(d) | There are no actions, suits, investigations, arbitration or other proceedings pending with respect to the Employee Plans which would reasonably be expected to have a Material Adverse Effect. |
(e) | There is no pending termination or winding-up procedure in respect of any of the Employee Plans. |
(i) | the text of all Employee Plans (where no text exists, a summary has been |
(ii) | all materials relating to the Employee Plans distributed to new or existing members of such plan in the last year; |
(i) | the most recent actuarial valuation of each Employee Plan for which such valuation is required by applicable Law; |
(iv) | the most recent accounting and certified financial statement of each Employee Plan for which such statement is made; and |
(iv) | the most recent annual information returns filed with Governmental Authorities in respect of each Employee Plan for which such filing is required by applicable Law. |
(g) | No promises or commitments have been made by the Company to amend in any material respect any Employee Plan or to establish any material new benefit plan, except as required by applicable Laws or as set out in Section 3.33 of the Disclosure Schedule. |
(h) | Except for the Employee Plans set out in Section 3.33 of the Disclosure Schedule, no Employee Plan has a deficit or solvency deficiency. |
(a) | Contract with an unexpired term of three (3) months or more, except in the Ordinary Course; |
(b) | continuing Contract or commitment for the purchase of materials, supplies, equipment or services, except in the Ordinary Course; |
(i) | Contract, agreement or other instrument which has had a Material Adverse Effect. |
( c) | none of the Reinsurance Treaties is with a reinsurer that has become insolvent or bankrupt or that has entered into any composition agreement with its creditors, or any statutory or judicial proceeding of compromise with its |
( d) | except as disclosed in Section 3.41 of the Disclosure Schedule, all other reinsurance arrangements for the Company's insurance risks (other than pursuant to reinsurance treaties the respective policy periods of which have |
(a) | for purposes other than those for which such Transaction Personal Information was collected prior to the Closing; or |
(b) | which does not relate directly to the carrying on of the Business or to the carrying out of the purposes for which the transactions contemplated by this Agreement were implemented. |
(a) | During the Closing Period, the Seller shall cause the Company to conduct the Business in the Ordinary Course. |
(b) | Except as otherwise contemplated in this Agreement, without limiting the generality of Section 5.5(a), during the Closing Period the Company shall not, without the prior written approval of the Purchaser (which approval shall not be withheld except for such conduct which could reasonably be expected to result in a Material Adverse Effect): |
(iii) | discharge any secured or unsecured obligation or liability (whether accrued, absolute, contingent or otherwise) which individually or in the aggregate exceeds $250,000 except in the Ordinary Course; |
(iii) | increase its indebtedness for borrowed money or make any loan or advance or assume, guarantee or otherwise become liable with respect to |
(v) | except for payments previously approved by the Seller and accrued for in the Final 2009 Audited Financial Statements, make any bonus or profit sharing distribution or similar payment of any kind except as may be required by the terms of a Material Contract; |
(v) | remove the auditor, actuary or, except as contemplated herein, any director or terminate any officer or other senior Employee of the Company, except upon prior notice to the Purchaser; |
(vi) | grant any increase in the rate of wages, salaries, bonuses or other remuneration of any Employees, except in the Ordinary Course pursuant to a periodic review or as may be required by the terms of a Material Contract; |
(vii) | increase the benefits to which Employees are entitled under any benefit plan or create any new Employee Plan; |
(viii) | cancel or waive any material claims or rights, except in the Ordinary Course; |
(ix) | except for Material Contracts entered into in the Ordinary Course (including, without limitation, broker contracts and facultative reinsurance contracts), enter into any Material Contract that cannot be terminated without penalty on thirty (30) days' notice or less; |
(x) | amend or change its constating documents or by-laws or issue any Common Shares, options, warrants or other securities; |
(xi) | declare or pay any dividends (other than the Actual Dividend) or make any other distribution to shareholders or purchase or redeem any securities of the Company or pay any management or like fee to the Seller or to an Affiliate of the Seller; |
(xii) | do any other thing which may have a Material Adverse Effect on the transactions contemplated in this Agreement or any of the Acquisition Agreements; or |
(xiii) | authorize, agree, or otherwise commit, whether or not in writing, to do any of the foregoing. |
(ii) | notify and, where applicable, obtain Purchaser's prior approval on any event or circumstance which results or could reasonably be expected to result in a Material Adverse Effect in the Business or in the operation of its properties and of any materially adverse Governmental Authority complaints, investigations or hearings (or communications indicating that the same may be contemplated), adjudicatory proceedings, or submissions involving any material assets or properties of the Company, and keep the Purchaser fully informed of such events and permit its representatives prompt access to all materials prepared in connection therewith. The Purchaser shall have the right to review and comment on any such matters that arise; |
(ii) | co-operate fully with the Purchaser in connection with any meetings and discussions to be held prior to Closing with regulators, brokers, Reinsurers and ratings agencies and in connection therewith to provide such readily available information and analyses respecting the Company as may be reasonably requested; |
(iii) | use Commercially Reasonable Efforts to preserve intact the current business organization of the Company, keep available the services of the present employees and agents of the Company, and maintain good relations with, and the goodwill of, the brokers, other representatives, Reinsurers, suppliers, customers, landlords, creditors and other Persons having business relationships with the Company; and |
(iv) | use Commercially Reasonable Efforts to (i) ensure that all reinsurance arrangements of the Company in force at the date hereof in respect of the Business remain in fierce on the same terms for the full term of such arrangement; and (ii) in consultation with the Purchaser, pursue negotiation to renew expiring reinsurance arrangements in the Ordinary Course. |
(i) | make, or cause to be made, all such filings and submissions under all Laws applicable to it (including the Insurance Companies Act (Canada), the Competition Act and any other applicable antitrust Laws), as may be required for it to complete the purchase and sale of the Purchased Shares in accordance with the terms of this Agreement and the other transactions contemplated by this Agreement and each of the Acquisition Agreements; and |
(ii) | use Commercially Reasonable Efforts to obtain, or cause to be obtained, all Authorizations necessary or advisable in order to complete the transfer of the Purchased Shares and the other transactions contemplated by this Agreement and each of the Acquisition Agreements. |
(ii) | co-operate with one another in connection with any filing or other submission aimed at resolving any investigation or other inquiry concerning the transaction contemplated in this Agreement initiated by the responsible Minister under the Investment Canada Act, the Commissioner of Competition, or any other antitrust Governmental Authority, including providing each other with copies of any notifications, filings, applications and/or other submissions in draft form for the other Party to confirm that information contained within is consistent and accurate; |
(ii) | use Commercially Reasonable Efforts to cause any applicable waiting periods under the Competition Act, or any other applicable antitrust Law to terminate or expire at the earliest possible date and to obtain any necessary approvals of the transaction contemplated in this Agreement from the Commissioner of Competition, or any other antitrust Governmental Authority; and |
(iii) | co-operate with each other in obtaining the TSX Approval and in connection with all matters relating thereto, including using Commercially Reasonable Efforts to provide the Purchaser with all information that is reasonably necessary in connection with obtaining shareholder approval. |
(i) | agrees that the Draft Return was prepared in accordance with the principles set out above; or |
(ii) | does not agree that it was so prepared, in which case the Seller will set out, in reasonable detail, the basis for such disagreement. |
(a) | For a period of three (3) years following the Closing Date, the Seller shall not, directly or indirectly, and shall ensure that its Affiliates do not, either alone or in concert with any Person, underwrite any standard personal lines property and casualty automobile and home insurance through any insurance broker, anywhere in Canada. |
(b) | For a period of three (3) years following the Closing Date, the Seller shall not, directly or indirectly, and shall ensure that its Affiliates do not, directly or indirectly, solicit, induce or entice for employment, engagement or retainer, any executive, officer or employee of the Company or otherwise persuade or influence, or in any manner attempt to persuade or influence, any such executive, officer or employee to terminate or discontinue his, her or its employment, engagement or retainer with the Company, to alter his or her relationships with the Company, or to become employed, engaged or retained by any Person other than the Company. |
(a) | Prior to Closing, the Seller shall cause the Company to use Commercially Reasonable Efforts to negotiate reinsurance surety agreements between the Company and Lincoln General Insurance Company. |
(b) | Following Closing, the Purchaser shall cause the Company to use Commercially Reasonable Efforts to negotiate reinsurance surety agreements between the Company and Lincoln General Insurance Company. |
(c) | Consents. All Required Consents and Authorizations (including those specifically identified in Sections 7.1(f) and 7.1(g) below) shall have been obtained on terms acceptable to the Purchaser, acting reasonably. |
(d) | Material Adverse Effect. Since the date of this Agreement, there shall not have occurred a Material Adverse Effect. |
(e) | No Legal Action. No action or proceeding shall be pending or threatened by any Person (other than the Seller, the Purchaser, the Company or any of their respective Affiliates) in any jurisdiction, to enjoin, restrict or prohibit: |
(i) | any of the transactions contemplated by this Agreement or any of the Acquisition Agreements; |
(ii) | the right of the Purchaser to own the Purchased Shares; or |
(i) | the right of the Company to operate the Business after Closing on substantially the same basis as currently operated. |
(h) | Actual Dividend. The Actual Dividend (if any) shall have been paid. |
(i) | MCT' of 220%. If the MCT of the Company as at December 31, 2009 as determined based upon the Final 2009 Audited Financial Statements is less than 220%, then the Seller shall have injected capital into the Company such that the MCT on December 31, 2009 would have been equal to at least 220% following such injection. |
(A) | the charter documents and by-laws of each of the Seller and the Company; |
(A) | the resolutions of the board of directors of each of the Seller and the Company approving the entering into and completion of the transaction contemplated by this Agreement and the Acquisition Agreements; and |
(B) | a list of the officers and directors authorized to sign agreements together with their specimen signatures, |
(vii) | the Escrow Agreement; |
(viii) | the Transition Services Agreement; |
(ix) | the New Lease Agreement; |
(vii) | the Corporate Records; and |
(viii) | an opinion of counsel to the Seller and the Company substantially in the form set out in Exhibit 7.1(j)(xi). |
(a) | Truth of Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement and in any Acquisition Agreement to which it is a party shall be true and correct in all material respects as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of such date and the Purchaser shall have executed and delivered a certificate of a senior officer to that effect. |
(b) | Performance of Covenants. The Purchaser shall have fulfilled, performed or complied with in all material respects all material covenants contained in this Agreement and in any Acquisition Agreement to which it is a party to be fulfilled, performed or complied with by it at or prior to Closing and the Purchaser shall have executed and delivered a certificate of a senior officer to that effect. |
(c) | Consents. All Required Consents and Authorizations (including those specifically identified in Sections 7.2(e) and 7.2(f)) shall have been obtained on terms acceptable to the Seller, acting reasonably. |
(d) | No Legal Action. No action or proceeding shall be pending or threatened by any Person (other than the Purchaser, the Seller, the Company or any of their respective Affiliates) in any jurisdiction, to enjoin, restrict or prohibit any of the transactions contemplated by this Agreement or any of the Acquisition Agreements. |
(A) | the charter documents and extracts from the by-laws of the Purchaser relating to the execution of documents; |
(A) | the resolutions of the shareholders and the board of directors of the Purchaser approving the entering into and completion of the transactions contemplated by this Agreement and the Acquisition Agreements; and |
(B) | a list of its officers and directors authorized to sign agreements together with their specimen signatures, |
(d) | by either the Purchaser or the Seller, if the Closing has not occurred by April 30, 2010 (other than due to the failure of the Party purporting to exercise this termination right to comply with Section 5.6 of this Agreement), which date may be extended with the written consent of both Parties; or |
(e) | by the Seller, if (i) the Purchaser has not delivered to the Seller, on or before February 9, 2010, sufficient evidence that the Purchaser has received into escrow sufficient funds to complete the transactions contemplated herein or (ii) all conditions specified in the TSX Approval have not been satisfied on or before March 26, 2010, provided that in relation to circumstances contemplated in this subsection 8.1(e), the Seller's only termination right arises under this section 8.1(e) and the Seller and its Indemnified Parties right to indemnity, if applicable, is limited as set out in section 9.7(g). |
(a) | any incorrectness or breach of any representation or warranty made by the Seller in this Agreement, unless the Purchaser had actual knowledge of the incorrectness or breach prior to Closing; |
(b) | any breach or non-fulfillment by the Seller of any covenant, condition or obligation of the Seller contained in this Agreement; |
(c) | any claim made by a third party against the Company that arises from action taken by the Seller or any Affiliate of the Seller, other than the Company; or |
(d) | any claim by any Person for brokerage or finder's fees, commissions or similar payments based upon any agreement or understanding made or alleged to have been made by any such Person with the Seller or the Company (or any Person acting on their behalf) in connection with any of the transactions contemplated by this Agreement. |
(a) | any incorrectness or breach of any representation or warranty made by the Purchaser in this Agreement, unless the Seller had actual knowledge of the incorrectness or breach prior to Closing; |
(b) | any breach or non-fulfillment by the Purchaser of any covenant, condition or obligation of the Purchaser contained in this Agreement; or |
(c) | any claim by any Person for brokerage or finder's fees, commissions or similar payments based upon any agreement or understanding made or alleged to have been made by such Person with the Purchaser (or any Person acting on its behalf) in connection with any of the transactions contemplated in this Agreement. |
(b) | After the Closing Date, as between the Parties, the Seller shall exercise at its expense, control over the handling, disposition and settlement of any audit, investigation or similar proceeding in respect of any Taxes due or payable by the Company for which the Seller may be liable or against which the Seller may be required to indemnify the Purchaser (a "Tax Proceeding"). The Purchaser shall notify the Seller in writing promptly upon receiving written notice of any such Tax Proceeding. If the Seller fails, within a reasonable time, to exercise control over the Tax Proceeding, the Purchaser may, in its sole discretion, assume control of the Tax Proceeding at its expense. |
(c) | The Indemnifying Party has the right (but not the obligation), by notice to the Indemnified Person given not later than thirty (30) days after receipt of the notice described in Section 9.3(a), to assume control of the defence, compromise or settlement of the Third Party Claim. |
(ii) | the Indemnifying Party will keep the Indemnified Person advised with respect to the defence, compromise or settlement of the Third Party Claim; and |
(iii) | the Indemnified Person may retain separate co-counsel at its sole cost and expense, and may participate in the defence of the Third Party Claim (provided the Indemnifying Party will continue to control such defence). |
(g) | If the Indemnifying Party fails to give the Indemnified Person the notice provided in Section 9.3(c), the Indemnified Person may, in its sole discretion, assume control of the defence, compromise or settlement of the Third Party Claim and retain such counsel as it may deem appropriate, the whole at the Indemnifying Party's sole cost and expense. |
(h) | If the Indemnified Person assumes control pursuant to Section 9.3(g), any settlement, compromise or other final determination of the Third Party Claim will be binding upon the Indemnifying Party subject to the right of the Indemnifying Party to dispute that indemnification is required pursuant to this Agreement. |
(a) | the Seller shall have no liability for indemnification under Article IX of this Agreement or in any Transaction Documents and no Damages may be recovered from the Seller unless the claims of the Purchaser, the Company or any Purchaser Indemnified Person exceed in the aggregate, $250,000 in which case the liability of the Seller will be limited to the amount by which such claims exceed $250,000; |
(b) | the Purchaser shall have no liability for indemnification under Article IX of this Agreement or in any Transaction Documents and no Damages may be recovered from the Purchaser unless the claims of the Seller or any Seller Indemnified Person exceed, in the aggregate, $250,000 in which case the liability of the Purchaser will be limited to the amount by which such claims exceed $250,000. Notwithstanding the foregoing, in the event the Seller terminates this Agreement in accordance with Section 8.1(e), the Seller shall be entitled to claim for all amounts and shall not be limited to the amount by which such claims exceed $250,000; |
(c) | except as provided in Section 9.7(d), the liability of the Seller in respect of claims of the Purchaser, the Company or any Purchaser Indemnified Person for Damages under this Agreement and the Transaction Documents shall not exceed, in the aggregate (and when combined with Section 9.7(d)), thirty-five percent (35%) of the Purchase Price; |
(a) | any breach of any representation, warranty, obligation, condition or covenant of the Seller in this Agreement or any Transaction Document, which breach relates to facts or matters arising during the Closing Period and which breach was committed by the Seller or the Company as a result of written instructions received from the Purchaser (or any of its representatives); or |
(b) | any matter that was the subject of an adjustment as set out in Section 9.9 of the Disclosure Schedule and that would have otherwise given a Party a right to indemnification hereunder. |
(b) | The Seller makes no representation or warranty with respect to the Forward-Looking Information or any other information provided in any "data room" or pursuant to any management presentation or otherwise, except as expressly provided in this Agreement and the Transaction Documents and the Purchaser acknowledges that it is not relying on such information in any manner whatsoever. |
(c) | The Purchaser has conducted, to its satisfaction, an independent investigation of the Business and the operations, assets, liabilities and financial condition of the Company and, in making its determination to proceed with the transactions contemplated by this Agreement, has relied solely on the results of its own independent investigation and the representations and warranties of the Seller set out in Article III. |
As to Majority Stockholders: | c/o LEONIA RODRIGUES JBA Associates, Inc. Park 80 West 250 Pehle Avenue Suite 800 Saddle Brook, NJ 07663 |
Copy to: | |
As to JBA: | JBA Associates, Inc. Attn: President Park 80 West 250 Pehle Avenue Suite 800 Saddle Brook, NJ 07663 |
Copy to: | Kingsway America Inc. Attn: Scott D. Wollney 150 Northwest Point Boulevard Elk Grove Village, IL 60007 |
As to Buyer: | Kingsway America Inc. Attn: Scott D. Wollney 150 Northwest Point Boulevard Elk Grove Village, IL 60007 |
Copy to: | David Mendelsohn DLA Piper LLP 203 North LaSalle Chicago, IL 60601 |
As to ACG: | Paul A. Garcia, President Acer Capital Group, Inc. 18101 Von Karman Ave. Suite 330 Irvine, CA 92614 |
Copy to: | Bob Epstein, Esq. 3116 West North A Street San Diego, CA 92102 |
As to FHE: | Kenneth H. Winters, President FH Enterprises, Inc. 802 Windmere South Lake, TX 76092 |
(a) | The Corporation (or one or more of its Subsidiaries) has generated net operating loss carryovers for United States income tax purposes. |
(b) | The ability to preserve and use these net operating losses (the "NOLs") may be limited or impaired by future ownership changes within the meeting of Section 382 of the United States Internal Revenue Code. |
(c) | The Board of Directors of the Corporation, in the exercise of its fiduciary duties, has determined that it is advisable and in the best interest of the Corporation to adopt and maintain a tax benefit preservation plan (the "Plan") to deter ownership changes that may adversely affect the Corporation's or its Subsidiaries' ability to utilize tax benefits and thereby seek to preserve their ability to use the NOLs. |
(d) | In order to implement the adoption of the Plan, the Board of Directors has authorized: |
i. | and declared the issuance of one purchase right (a "Right") effective as of the Record Time in respect of each Common Share outstanding at the Record Time; and |
ii. | the issuance of one Right in respect of each Common Share issued after the Record Time and before the earliest of the Distribution Date, the Redemption Date, the Early Expiration Date and the Final Expiration Date. |
(e) | Each Right entitles the holder thereof, after the Distribution Date, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth in this Agreement. |
(f) | The Corporation has appointed the Rights Agent to act on behalf of the Corporation and the holders of Rights, and the Rights Agent has agreed to act on behalf of the Corporation in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the |
(g) | Capitalized terms used above without definition have the meanings given to them in Section 1 of this Agreement. |
KINGSWAY FINANCIAL SERVICES INC. | |
By: /s/ Larry G. Swets, Jr. | |
Name: Larry G. Swets, Jr. Title: President and Chief Executive Officer | |
By /s/ Daniel J. Brazier | |
Name: Daniel J. Brazier Title: Chief Financial Officer | |
COMPUTERSHARE INVESTOR SERVICES INC. | |
By /s/ Paul Allen | |
Name: Paul Allen Title: Profession, Client Services | |
By /s/ Florence Smith | |
Name: Florence Smith Title:Profession, Client Services |
1.1 | Definitions. In this Agreement (including the preamble, recitals and each Schedule hereto), the following terms have the meanings ascribed thereto as follows: |
(a) | the Name Change; |
(b) | the appointment of KPMG LLP as the new auditors of JJR VI upon completion of the Merger; |
(c) | the Continuance; |
(d) | the election of directors; and |
(e) | the adoption of the Stock Option Plan. |
(a) | the Consolidation; |
(b) | the Share Amendment; |
(c) | the election of the board of directors of the Resulting Issuer; and |
(d) | the adoption of the amended Stock Option Plan. |
(a) | an assignment or attempted assignment of which would constitute a breach thereof without the consent of a third party if such consent has not been obtained; or |
(b) | an assignment of which would contravene any applicable law. |
(a) | the approval of the Department of Insurance in the State of Illinois; |
(b) | the approval of the TSXV of the Acquisition and conditional approval for the listing of the Resulting Issuer Ordinary Shares; |
(c) | the approval of the shareholders of JJR VI to the December Meeting Matters; |
(d) | the approval of the Ontario Companies and Personal Property Security Branch of the Ministry of Government Services (Ontario) for the Consolidation; |
(e) | the approval of the Ministry of Finance (Ontario), the Ontario Securities Commission and the Ontario Companies and Personal Property Security Branch of the Ministry of Government Services (Ontario) for the Continuance; and |
(f) | the approval of The Cayman Islands Registrar of Companies for the Continuance. |
2.1 | Transaction. |
(a) | The Merger. At the Effective Time, subject to the terms and conditions of this Agreement and the Certificate of Merger, Subco shall be merged with and into the Company pursuant to this Agreement and the DGCL, the separate corporate existence of Subco shall cease, and the Company shall continue as the surviving corporation under its present name pursuant to the DGCL. The Company, in its capacity as the corporation surviving the Merger, is hereinafter sometimes referred to as the “Surviving Corporation”. |
(b) | Effect of Merger. The effect of the Merger shall be as set forth in section 259 of the DGCL and, as such, the Surviving Corporation shall succeed to and possess all the properties, rights, privileges, immunities, powers, franchises and purposes, and shall be subject to all the duties, liabilities, debts, obligations, restrictions and disabilities, of the Constituent Corporations, all without further act or deed. |
(c) | Effective Time. The consummation of the Merger shall be effected at the Effective Time. Subject to the provisions of this Agreement, Subco and the Company will cause a copy of the Certificate of Merger, substantially in the form attached hereto as Schedule 2.1(c) (the “Certificate of Merger”), and such other documents as are required to be filed to give effect to the Merger to be executed, delivered and filed with the Secretary of State of the State of Delaware in accordance with section 251 of the DGCL to reflect the Effective Time. |
(d) | Certificate of Incorporation; Bylaws. From and after the Effective Time and until further amended in accordance with applicable law, the Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of the Company, as amended to be in substantially the form provided in the Certificate of Merger. From and after the Effective Time and until further amended in accordance with law, the By‑laws of the Company as in effect immediately prior to the Effective Time shall be the By‑laws of the Surviving Corporation. |
(e) | Taking of Necessary Action; Further Action. JJR VI, Subco, KFS and the Company shall each use its commercially reasonable efforts to take all such action as may be necessary or appropriate to effect the Merger including obtaining all orders and approvals required from applicable third parties. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all properties, rights, privileges, immunities, powers and franchises of either of the Constituent Corporations, the officers of the Surviving Corporation are fully authorized in the name of each Constituent Corporation or otherwise to take, and shall take, all such lawful and necessary action. |
(a) | each Company Common Share issued and outstanding immediately prior to the Merger becoming effective (other than those Company Common Shares held by KAI) shall be converted into the right to receive one (1) fully paid and non‑assessable Resulting Issuer Ordinary Share; |
(b) | each Company Common Share issued and outstanding immediately prior to the Merger becoming effective and held by KAI shall be converted into the right to receive one (1) fully paid and non‑assessable Resulting Issuer Restricted Voting Share; |
(c) | each Company Preferred Share issued and outstanding immediately prior to the Merger becoming effective shall be converted into the right to receive one (1) fully paid and non‑assessable Resulting Issuer Preferred Share; |
(d) | each Subco Share issued and outstanding immediately prior to the Merger becoming effective shall be exchanged for one (1) share of common stock of the Surviving Corporation; and |
(e) | the Surviving Corporation shall be a wholly‑owned subsidiary of JJR VI. |
(a) | each Company Warrant issued and outstanding immediately prior to the Merger becoming effective shall be exchanged pursuant to its terms for one Resulting Issuer Warrant; |
(b) | each JJR VI Option issued and outstanding immediately prior to the Merger becoming effective shall be exchanged pursuant to its terms for one Resulting Issuer Option; and |
(c) | the certificates representing the Company Warrants shall cease to represent any claim upon or interest in the Company other than the right of the holder to receive, pursuant to the terms hereof, warrants of the Resulting Issuer in accordance with subsection 2.4(a) hereof. |
(a) | the certificates representing each Company Common Share and Company Preferred Share shall be cancelled, and Resulting Issuer Ordinary Shares, Resulting Issuer Restricted Voting Shares and Resulting Issuer Preferred Shares shall be issued to the registered holders, respectively, pursuant to the rights provided in Section 2.3 and a certificate representing each such share shall be issued to the holders; |
(b) | the original share certificate of Subco registered in the name of JJR VI shall be cancelled and the Surviving Corporation shall issue to JJR VI a share certificate for the number of Surviving Corporation shares to be issued to JJR VI as provided in Section 2.3 hereof; |
(c) | the certificates representing the Company Shares shall cease to represent any claim upon or interest in the Company other than the right of the holder to receive, pursuant to the terms hereof, shares of the Resulting Issuer in accordance with subsection 2.5(a) hereof; and |
(d) | subject to the delivery and surrender by the holder thereof to JJR VI of certificates representing Company Warrants, JJR VI shall issue to each such holder certificates representing the number of Resulting Issuer Warrants to which such holder is entitled. |
(a) | Number of Directors. The board of directors of the Surviving Corporation shall consist of a minimum number of one (1) director and a maximum of twelve (12) directors. The directors of the Surviving Corporation from time‑to‑time shall be empowered to determine the number of directors of the Surviving Corporation within the minimum and maximum number set out in the Certificate of Incorporation of the Surviving Corporation, as amended from time‑to‑time. |
(b) | Officers and Directors. As of the Effective Time, the initial directors of the Surviving Corporation shall be: |
Scott Wollney | ‑ | Chief Executive Officer |
Paul Romano | ‑ | Chief Financial Officer |
(c) | Fiscal Year. The fiscal year end of the Surviving Corporation shall be December 31 in each year, until changed by resolution of the Board of Directors. |
(d) | Name. The name of the Surviving Corporation shall be American Insurance Acquisition Inc. or such other name as agreed to by JJR VI and the Company. |
(e) | Registered Office. The registered office of the Surviving Corporation shall be the registered office of the Company. |
(a) | any limitation under applicable laws relating to bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors’ rights generally; and |
(b) | the fact that equitable remedies, including the remedies of specific performance and injunction, may only be granted in the discretion of a court. |
(a) | liabilities or indebtedness disclosed or reflected in or provided for in JJR VI’s Financial Statements; or |
(b) | liabilities or indebtedness incurred since the date of JJR VI’s Financial Statements which were incurred in the ordinary course of the routine daily affairs of JJR VI’s business (including professional fees incurred in connection with the Merger). |
(a) | any limitation under applicable laws relating to bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors’ rights generally; and |
(b) | the fact that equitable remedies, including the remedies of specific performance and injunction, may only be granted in the discretion of a court. |
(a) | Each of the Company, ACIC and ASI possesses all Licences necessary to own their respective properties and Assets and to carry on their respective businesses as currently conducted by them, save and except for such Licenses which would not reasonably be expected to have a Material Adverse Effect on any of the Company, ACIC or ASI and such Licences are listed in Section 4.8 of the Disclosure Letter. Each of the Company, ACIC and ASI has at all times possessed all Licences which are necessary to own their respective properties and Assets and to carry on their respective businesses as conducted by them at all such times, save and except for such Licenses which would not reasonably be expected to have a Material Adverse Effect on any of the Company, ACIC or ASI. The Licences listed in Section 4.8 of the Disclosure Letter are the only Licences necessary for the operation of the business of each of the Company, ACIC and ASI and the ownership of the Assets of each of the Company, ACIC and ASI and such Licences are in full force and effect unamended. Neither the nature of the business of each of the Company, ACIC and ASI nor the location or character of any of the Assets of any of the Company, ACIC or ASI requires any of Company, ACIC or ASI to be in good standing in any jurisdiction other than jurisdictions where it is duly registered, licensed or otherwise qualified and in good standing for such purpose. |
(b) | Each of the Company, ACIC and ASI is in compliance in all material respects with all provisions of the Licences and there are no proceedings in progress, or pending or threatened, which may result in revocation, cancellation, suspension or any adverse modification of any of the Licences. The Licences are free and clear of any Liens and no Licence is subject to any material restrictions or undertakings. |
(c) | Subject to obtaining all Required Consents and Approvals, no Licence is void or voidable or will be terminated or suspended as a result of the Merger and neither the terms and conditions relating to such Licences nor the legislation or regulations pursuant to which the same were issued require that any consent or approval of, or filing with or notice to, any Governmental Entity having jurisdiction over any the Company, ACIC or ASI or other Person be made to assure the continued holding by each of the Company, ACIC and ASI, as applicable, of such Licences after the Effective Time, except for the Required Consents and Approvals. |
(a) | Section 4.11 of the Disclosure Letter sets forth a complete and accurate list of all of the investments owned by each of ACIC and ASI as at November 30, 2010 including the security owned, the maturity date, the cost thereof to each of the Company, ACIC or ASI, gains realized since December 31, 2009 and the market value thereof as at November 30, 2010. The investments of the Company, ACIC and ASI comply with the requirements of all applicable laws relating thereto and with the applicable investment policies of each of the Company, ACIC or ASI, as the case may be, and all such investments are evidenced by appropriate written instruments and certificates (except where in non‑certified form), are valid and genuine and enforceable in accordance with their terms. |
(b) | Each of the Company, ACIC and ASI beneficially owns the investments listed in Section 4.11 of the Disclosure Letter under its name free and clear of all Liens. No such investments are in default with respect to the payment of principal or interest. |
(a) | There are no outstanding orders, notices or similar requirements relating to any of the Company, ACIC and ASI or their respective properties, Assets and operations, issued by any Governmental Entity having jurisdiction over any of the Company, ACIC or ASI which have been received by any of the Company, ACIC and ASI and which would have a Material Adverse Effect on the Company, ACIC or ASI and there are no matters under discussion with any such Governmental Entities relating to such orders, notices or similar requirements. |
(b) | Each of the Company, ACIC and ASI is in compliance with all applicable regulatory requirements and agreements. All policies, policy forms and policy wording are and in compliance with applicable laws. To the extent any compliance issues were raised in the past, they have been addressed. True and complete copies of all regulatory reports, examinations (market conduct, compliance, actuarial or otherwise) and inspections and related correspondence in connection with all Governmental Entities having jurisdiction over any of the Company, ACIC or ASI during the past five (5) years have been provided to JJR VI. |
(c) | All risks insured by policies issued by each the Company, ACIC and ASI have been underwritten in accordance with the written underwriting guidelines of such company which existed at the time the policies were issued. The current written underwriting guidelines of each of the Company, ACIC and ASI have been provided to JJR VI. |
(a) | Section 4.14 of the Disclosure Letter contains a list of all reinsurance agreements and treaties in effect to which any of the Company, ACIC or ASI is a party, including any terminated or expired agreement or treaty under which there remains any outstanding liability in excess of five hundred thousand dollars ($500,000), the effective date of each such agreement or treaty, the termination date of any agreement or treaty which has a definite termination date, the renewal date and notice of renewal requirements for any agreement or treaty which has renewal rights. No side agreements or letters exist that alter any terms of any reinsurance agreements or treaties listed in Section 4.14 of the Disclosure Letter. |
(b) | Each reinsurance transaction is evidenced by an appropriate signed agreement or treaty; no reinsurance transactions have been entered into by any of the Company, ACIC or ASI since December 31, 2009 other than ordinary course quota share cession of amounts in excess of any of the Company’s, ACIC’s or ASI’s risk retention in respect of newly written business, nor has any of the Company, ACIC or ASI authorized or agreed or otherwise become committed to enter into any such reinsurance transaction. All of the Company’s, ACIC’s or ASI’s reinsurance agreements and treaties are valid and binding obligations, enforceable in accordance with their terms and will be given effect to as bona fide reinsurance agreements with real transfer of risk for all accounting, tax, regulatory and actuarial purposes. |
(c) | Neither the Company, ACIC nor ASI is in default under any reinsurance agreement or treaty, has received notice from any reinsurer that it is not in good standing thereunder or has failed to meet the underwriting standards required for any business reinsured thereunder and there exists no material dispute between any of the Company, ACIC or ASI and the other party or parties to such agreements or treaties. All reinsurance premium payments due in connection with the policies issued by any of the Company, ACIC or ASI have been paid in full. There are no circumstances or events which are likely to lead to the cancellation, withdrawal or suspension of any reinsurance agreement or treaty. Neither the Company, ACIC nor ASI has waived any rights thereunder, and no default or breach exists in respect thereof on the part of any of the other parties thereto and no event has occurred which, after the giving of notice or the lapse of time or both, would constitute such a default or breach. |
(d) | Except as described in Section 4.14 of the Disclosure Letter, there are no circumstances or events which are likely to lead to the cancellation or suspension of any reinsurance agreement or treaty to which any of the Company, ACIC or ASI is a party in relation to the business or to the termination of any such agreement or treaty at a date earlier than the date otherwise provided under such agreement or treaty. |
(e) | No reinsurance agreement or treaty contains: (i) any provision pursuant to which the other party or parties thereto are entitled to terminate such agreement or treaty by reason of the transactions contemplated by this Agreement; or (ii) any “sunset” or similar provision pursuant to which claims which would otherwise be covered by reinsurance will not be covered unless reported within a specified period of time or prior to a specified date nor, in respect of any reinsurance agreement or treaty, is any consent, approval, Licence, order, authorization, registration, declaration or filing required with any Governmental Entity having jurisdiction over any of the Company, ACIC or ASI in connection with the transactions contemplated by this Agreement. |
(f) | With respect to each reinsurance agreement or treaty listed in Section 4.14 of the Disclosure Letter: (i) all benefits claimed by any of the Company, ACIC or ASI as a result of such agreement or treaty, whether established as an asset, reserve credit or otherwise, reflect obligations legally owed to such company under the terms of such agreement or treaty; and (ii) all amounts owing by any of the Company, ACIC or ASI under such agreements or treaties have been properly reflected as liabilities of such company on its books. |
(g) | Since December 31, 2009, there has been no material change, including cancellation, commutation, recapture or repricing, to any reinsurance agreement or treaty to which any of the Company, ACIC or ASI is a party. |
(a) | Section 4.15 of the Disclosure Letter contains a complete and accurate list of all Distributors through whom any of the Company, ACIC or ASI currently provide insurance products or services or who such company sponsors with an annual direct written premium volume of five hundred thousand dollars ($500,000) or more. Particulars of all the material terms and conditions upon which each of the Company, ACIC or ASI carries on its business through its Distributors have been made available to JJR VI. |
(b) | Section 4.15 of the Disclosure Letter contains a complete and accurate list of all underwriting management agreements and underwriting binding authority agreements to which any of the Company, ACIC or ASI is a party. None of the Distributors with binding authority appointed by any of the Company, ACIC or ASI pursuant to the agreements listed in Section 4.15 of the Disclosure Letter have exceeded their authority nor have any of them exceeded any premium volume limitations imposed by the applicable agreement and all of them have provided and continue to provide such company with accurate and up‑to‑date reports concerning premiums written by them on behalf of such company and claims incurred in respect of business accepted by them on behalf of such company. |
(a) | liabilities disclosed or reflected in or provided for in the Company’s Financial Statements; |
(b) | the KAI Notes; or |
(c) | liabilities incurred since the date of the Company’s Financial Statements which were incurred in the ordinary course of the routine daily affairs of the business of the Company, ACIC or ASI, respectively or, in the aggregate, are not materially adverse to their business. |
(a) | is a party to any material contract; and |
(b) | is bound by any outstanding contract or commitment except those entered into in the ordinary course of business. |
(a) | None of the Company, ACIC or ASI has any Benefit Plans. Each of the Company, ACIC and ASI has complied in all material respects with all laws relating to wages, fringe benefits and the payment of withholding and similar taxes and all applicable provisions of all laws dealing with employees and employee pension and other benefit plans, have made all filings required to be made in connection therewith and have made in a timely manner all contributions to any such plan that they are required to make. |
(b) | All of the Benefit Plans of the Company, ACIC and ASI have been established, registered, invested and administered in all material respects in accordance with all applicable laws and in accordance with their terms. |
(c) | All contributions or premiums required to be made or remitted by the Company, ACIC and ASI under the terms of a Benefit Plan and applicable laws have been made or remitted in a timely fashion in accordance therewith. |
(d) | Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will accelerate the time of payment or vesting under any Benefit Plan, or increase the amount of compensation or benefits due any employee of the Company, ACIC and ASI. |
(a) | None of the Company, ACIC or ASI is party, either directly or by operation of law, to any labour or collective bargaining agreements. |
(b) | There are no material complaints, charges, orders, investigations, prosecutions, proceedings or claims against any of the Company, ACIC or ASI initiated or threatened in writing to be brought or filed, with any Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by any of them including pursuant to employment or labour standards, employment equity, pay equity, labour relations, workers’ compensation or workplace safety and insurance, occupational health and safety, privacy, wrongful dismissal or human rights laws. |
(a) | All Intellectual Property owned by the Company, ACIC or ASI necessary for the conduct of their businesses on the date hereof and registered with any Governmental Entity is set forth in Section 4.34 of the Disclosure Letter and such Intellectual Property is in full force and effect, unamended. |
(b) | The Company, ACIC and ASI own or possess adequate licenses or other valid rights to use (in each case, free and clear of any Liens) all Intellectual Property used in connection with their business as previously conducted or currently conducted, and the consummation of the transactions contemplated by this Agreement will not alter or impair the Intellectual Property used in the conduct of such business. |
(c) | To the knowledge of the Company, the use by the Company, ACIC or ASI of any of their Intellectual Property does not infringe upon or otherwise violate the rights of any Person. |
(d) | The use by the Company, ACIC or ASI of any Intellectual Property claimed to be owned by any third party is in accordance with any applicable license granted by such third party (or any Person authorized by such third party) pursuant to which the applicable company acquired the right to use such Intellectual Property. |
(e) | To the knowledge of the Company, no Person is challenging, infringing upon or otherwise violating any right of any of the Company, ACIC or ASI with respect to any Intellectual Property owned by or licensed to any of them. |
(a) | any limitation under applicable laws relating to bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors’ rights generally; and |
(b) | the fact that equitable remedies, including the remedies of specific performance and injunction, may only be granted in the discretion of a court. |
(a) | the representations and warranties of a Party relating to tax matters will survive the Closing for ninety (90) days following the expiration of any time allowed for objecting to and appealing from the determination of any proceedings relating to any assessment or reassessment of tax against the applicable Party or its subsidiaries, as the case may be; |
(b) | the limitation period applicable to any proceeding relating to the representations and warranties contained in Sections 3.4, 4.2, 4.7 and 5.5 of this Agreement will survive the Closing for a period of 2 years and remain in effect for such period; and |
(c) | the limitation period applicable to any proceeding relating to each of the representations and warranties contained in this Agreement other than those contemplated by (a) and (b) or any Ancillary Agreement (unless otherwise stated in the Ancillary Agreement) will survive the Closing for a period of 18 months and remain in effect for such period; |
(a) | issue any debt, equity or other securities, except in connection with the Private Placement; |
(b) | borrow money or incur any indebtedness for money borrowed, except in the ordinary course of business or enter into any material operating lease or create any Liens or other encumbrances on its property; |
(c) | make loans, advances, or other payments, excluding routine advances to employees for expenses incurred in the ordinary course; |
(d) | declare or pay any dividends, make other distributions or return of capital or distribute any of the properties or assets of the Company, ACIC or ASI to shareholders or otherwise dispose of any of such properties or assets; |
(e) | adopt, establish, increase or modify the amount of (or accelerate the payment or vesting of) any benefit or amount payable as compensation or under, any Benefit Plan or any other contract, agreement, commitment, arrangement, plan or policy providing for compensation or benefits to any former, present or future director, officer or employee of it; |
(f) | take or fail to take any action which would render, or that would be reasonably expected to render, any of such party’s representations or warranties hereunder to be untrue or would be reasonably expected to prevent or materially impede, interfere with or delay the Merger; |
(g) | amend or consent to any amendment of, the Subscription Receipt Agreement or Escrow Agreement or consent to any waiver of any condition in the Subscription Receipt Agreement or Escrow Agreement without the prior written consent of JJR VI; |
(h) | alter or amend the articles or by‑laws of the Company, ACIC or ASI, except as expressly required to give effect to the matters contemplated herein; and |
(i) | except as otherwise permitted or contemplated herein, enter into any transaction or material contract which is not in the ordinary course of business or engage in any business enterprise or activity materially different from that carried on by the Company, ACIC and ASI as of the date hereof. |
(a) | Each of the Company and KFS shall keep confidential any information, trade secrets or financial or business documents (collectively, the “JJR VI Information”) received by it from JJR VI concerning JJR VI or its business and shall not disclose such JJR VI Information to any third party provided that any of such JJR VI Information may be disclosed to the directors, officers, employees, representatives and professional advisors of the Company or KFS, as applicable, who need to know such JJR VI Information in connection with the transactions contemplated hereby (provided the Company and KFS shall use all reasonable efforts to ensure that such directors, officers, employees, representatives and professional advisors keep confidential such JJR VI Information) and provided further that neither the Company nor KFS will be liable for disclosure of JJR VI Information upon occurrence of one or more of the following events: |
(i) | JJR VI Information becoming generally known to the public other than through a breach of this Agreement; |
(ii) | JJR VI Information being lawfully obtained by the Company or KFS, as applicable, from a third party or parties without breach of this Agreement by the Company or KFS, as shown by documentation sufficient to establish the third party as a source of JJR VI Information; |
(iii) | JJR VI Information being known to the Company or KFS, as applicable, prior to disclosure by JJR VI, as shown by documentation sufficient to establish such knowledge; |
(iv) | the disclosure is required by law; or |
(v) | JJR VI having provided its prior written approval for such disclosure. |
(b) | In the event this Agreement is terminated in accordance with the provisions hereof, the Company and KFS shall: |
(i) | use all reasonable efforts to ensure that all JJR VI Information and all documents prepared or obtained in the course of its investigations of JJR VI or its business and all copies thereof are either destroyed or returned to JJR VI so as to insure that, so far as possible, any JJR VI Information obtained during and as a result of such investigations by the directors, officers, employees, representatives and professional advisors of the Company and KFS is not disseminated beyond those individuals concerned with such investigations; and |
(ii) | not directly or indirectly, use for its own purposes, any JJR VI Information, discovered or acquired by it or by the directors, officers, employees representatives and professional advisors of the Company and KFS as a result of JJR VI making available to them those documents and assets relating to the business of JJR VI. |
(a) | issue any debt, equity or other securities, except in connection with any outstanding options, warrants or other rights or the Private Placement or the Transaction; |
(b) | borrow money or incur any indebtedness for money borrowed; |
(c) | declare or pay any dividends or distribute any of its properties or assets to shareholders; |
(d) | alter or amend its articles or by‑laws except as required to give effect to the matters contemplated herein including the Consolidation, Name Change, Continuance and Share Amendment; |
(e) | except as otherwise permitted or contemplated herein, enter into any transaction or material contract which is not in the ordinary course of business or engage in any business enterprise or activity materially different from that carried on by JJR VI as of the date hereof. |
(a) | JJR VI shall keep confidential any information, trade secrets or financial or business documents (collectively the “Company Information”) received by it from the Company or KFS concerning the Company, ACIC, ASI or any of their businesses and shall not disclose such Information to any third party provided that any of such Company Information may be disclosed to JJR VI’s directors, officers, employees, representatives and professional advisors who need to know such Company Information in connection with the transactions contemplated hereby (provided JJR VI shall use all reasonable efforts to ensure that such directors, officers, employees, representatives and professional advisors keep confidential such Company Information) and provided further that JJR VI will not be liable for disclosure of the Company Information upon the occurrence of one or more of the following events: |
(i) | the Company Information becoming generally known to the public other than through a breach of this Agreement; |
(ii) | the Company Information being lawfully obtained by JJR VI from a third party or parties without breach of this Agreement by JJR VI, as shown by documentation sufficient to establish the third party as a source of the Company Information; |
(iii) | the Company Information being known to JJR VI prior to disclosure by the Company, or its Affiliates, as shown by documentation sufficient to establish such knowledge; |
(iv) | the disclosure is required by law; or |
(v) | the Company having provided its prior written approval for such disclosure by JJR VI. |
(b) | In the event this Agreement is terminated in accordance with the provisions hereof JJR VI shall: |
(i) | use all reasonable efforts to ensure that all Company Information and all documents prepared or obtained in the course of its investigations of the Company or its business and all copies thereof are either destroyed or returned to the Company so as to ensure that, so far as possible, any Company Information obtained during and as a result of such investigations by the directors, officers, employees, representatives and professional advisors of JJR VI is not disseminated beyond those individuals concerned with such investigations; and |
(ii) | not directly or indirectly, use for its own purposes, any Company Information, discovered or acquired by it or by the directors, officers, employees, representatives and professional advisors of JJR VI as a result of the Company making available to them those documents and assets relating to the business of the Company. |
(a) | Truth of Representations and Warranties. The representations and warranties of the Company and KFS contained in this Agreement or in any Ancillary Agreement shall have been true and correct as of the date of this Agreement, or the Ancillary Agreement, as applicable and shall be true and correct as of the Effective Time in all material respects (save and except for any representation or warranty already qualified by materiality which shall be true and correct in all respects) with the same force and effect as if such representations and warranties had been made on and as of such time except as affected by transactions contemplated or permitted by this Agreement. |
(b) | Performance of Obligations. The Company and KFS shall have performed, fulfilled or complied with, in all material respects, all of their obligations, covenants and agreements contained in this Agreement and in any Ancillary Agreement to be fulfilled or complied with by them at or prior to the Effective Time. |
(c) | No Material Adverse Effect. From the date of this Agreement, there shall not have occurred a Material Adverse Effect in any of the Company, ACIC or ASI, financial or otherwise, prior to the Effective Time. |
(d) | Officer’s Certificate. JJR VI shall have received a certificate of the Company and KFS at the Closing signed by a senior officer of each and confirming that the conditions in subsections 10.1(a), (b) and (c) have been satisfied. |
(e) | Approvals and Consents. All Required Consents and Approvals shall have been obtained or given on terms acceptable to JJR VI acting reasonably. |
(f) | Deliveries. The Company and KFS shall have delivered or caused to be delivered to JJR VI the closing documents as set forth in Section 11.2 in a form satisfactory to JJR VI acting reasonably. |
(g) | Proceedings. All proceedings to be taken in connection with the transactions contemplated in this Agreement and any Ancillary Agreement shall be satisfactory in form and substance to JJR VI, acting reasonably, and JJR VI shall have received copies of all instruments and other evidence as it may reasonably request in order to establish the consummation or closing of such transactions and the taking of all necessary final and non‑appealable proceedings in connection therewith. |
(h) | Private Placement. The Subscription Receipts shall have been exchanged in accordance with their terms into Company Common Shares and Company Warrants, and the proceeds of the Private Placement of $7,970,005 shall have been received by the Company from Equity as escrow agent. |
(i) | Continuance and Consolidation. The Continuance and Consolidation shall have been completed. |
(j) | Premises. The Company shall have entered into the UCC Lease Agreement in substantially the form attached hereto as Schedule 10.1(j). |
(k) | Tax‑Sharing Arrangements. All tax‑sharing agreements or similar agreements with respect to or involving the Company or its subsidiaries (including, for greater certainty, the amended and restated Kingsway affiliated group tax allocation agreement effective October 30, 2009 referenced on Schedule 10.1(o) of the Disclosure Letter hereto) shall be terminated as of the Closing and after the Closing, the Company and its subsidiaries shall not be bound thereby or have any liability thereunder and such agreements shall have no further effect for any taxable period (whether the current year or any past or future period). |
(l) | Transition Services Agreement. KFS shall have entered into the Transition Services Agreement with the Company in substantially the form attached hereto as Schedule 10.1(l). |
(m) | Director and Officer Release. Each of Roger T. Beck, Stephen P. Marsden, Hassan Baqar, D. Ann Brooks and Leeann H. Repta shall have provided a full and final release to the Company, ACIC and/or ASI, as applicable, on terms satisfactory to JJR VI. |
(n) | Surviving Agreements. The KFS Surviving Agreements shall remain in full force and effect, unamended on the Effective Date. |
(o) | Terminating Agreements. The KFS Terminating Agreements shall have been terminated on terms satisfactory to JJR VI without cost or penalty to the Company and/or its subsidiaries. |
(p) | Assigning Agreements. The KFS Assigning Agreements shall have been assigned to the Company, ACIC and/or ASI, as applicable, on terms satisfactory to JJR VI. |
(q) | Intellectual Property. The KFS Transferred Intellectual Property shall have been transferred or licensed to the Company, ACIC or ASI, as applicable, on terms satisfactory to JJR VI. |
(r) | Indebtedness. There shall be no debts or amounts owing by the Company, ACIC or ASI to KFS or any Affiliate thereof or any past or present officer, director or employee of the Company, ACIC, ASI, KFS or an Affiliate thereof. The KAI Notes and Subordinated Surplus Debentures shall have been repaid in full or otherwise eliminated. |
(s) | Building Expense Subsidy Agreement. KAI and the Company shall have entered into the Building Expense Subsidy Agreement in substantially the form attached hereto as Schedule 10.1(s). |
(t) | Adverse Development Agreement. KFS and the Company shall have entered into the Adverse Development Agreement in substantially the form attached hereto as Schedule 10.1(t). |
(u) | No Legal Action. No action or proceeding shall be pending or threatened by any Person (other than JJR VI or KFS or any of their respective Affiliates) in any jurisdiction, to enjoin, restrict or prohibit any of the transactions contemplated by this Agreement or any of the Acquisition Agreements. |
(v) | Change in Law. Since the date of this Agreement, no law, proposed law or any change in any law or in the interpretation or enforcement of any law shall have been introduced, enacted or announced, the effect of which would be to prevent JJR from, or to increase materially the cost to JJR of, completing the transaction contemplated in this Agreement or any of the Acquisition Agreements. |
(w) | Tax Obligations. The Company shall have delivered to JJR VI a properly executed statement that shares of capital stock of the Company do not constitute “United States real property interests” under Section 897(c) of the Code for purposes of satisfying JJR VI’s obligations, if any, under Treasury Regulations Section 1.1445‑2(c)(3). In addition, simultaneously with delivery of such statement, the Company shall have provided to JJR VI a form of notice to the Internal Revenue Service in accordance with the requirements of Treasury Regulations Section 1.897‑2(h)(2) along with written authorization for JJR VI to deliver such notice form to the Internal Revenue Service on behalf of the Company upon the Closing. |
(a) | Truth of Representations and Warranties. The representations and warranties of JJR VI contained in this Agreement or in any Ancillary Agreement shall have been true and correct as of the date of this Agreement or the Ancillary Agreement, as applicable, and shall be true and correct as at the Effective Time in all material respects (save and except for any representation or warranty already qualified by materiality, which shall be true and correct in all respects) with the same force and effect as if such representations and warranties had been made at such time except as affected by transactions contemplated or permitted by this Agreement. |
(b) | Performance of Obligations. JJR VI shall have performed, fulfilled or complied with, in all material respects, all of its obligations, covenants and agreements contained in this Agreement and in any Ancillary Agreement to be fulfilled or complied with by JJR VI at or prior to the Effective Time. |
(c) | No Material Adverse Effect. From the date of this Agreement, there shall not have occurred a Material Adverse Effect in JJR VI, except for a decrease in JJR VI’s working capital position necessary to facilitate the Acquisition. |
(d) | Officer’s Certificate. The Company and KFS shall have received a certificate of JJR VI as at the Closing signed by a senior officer or director and confirming that the conditions in subsections 10.2(a), (b) and (c) have been satisfied. |
(e) | Approvals and Consents. All Required Consents and Approvals shall have been obtained or given on terms acceptable to the Company and KFS acting reasonably. The Consolidation and the Continuance, including the filing of the Cayman Articles, shall have occurred. |
(f) | Deliveries. JJR VI shall have delivered or caused to be delivered to the Company and KFS the closing documents as set forth in Section 11.3 in a form satisfactory to the Company and KFS, as applicable, acting reasonably. |
(g) | Proceedings. All proceedings to be taken in connection with the transactions contemplated in this Agreement and any Ancillary Agreement shall be satisfactory in form and substance to the Company and KFS, acting reasonably, and the Company and KFS shall have received copies of all instruments and other evidence as it may reasonably request in order to establish the consummation or closing of such transactions and the taking of all necessary proceedings in connection therewith. |
(h) | Registration Rights Agreement. JJR VI shall have executed a registration rights agreement (the “Registration Rights Agreement”) on terms and conditions acceptable to KFS and JJR VI acting reasonably. |
(i) | Records Retentions Agreement. The Company shall have entered into a records retentions agreement with KAI on terms satisfactory to KFS and JJR VI acting reasonably. |
(j) | Opinion. KFS shall have received an opinion of Cayman counsel to JJR VI that the Resulting Issuer Ordinary Shares, the Resulting Issuer Restricted Voting Shares and the Resulting Issuer Preferred Shares to be issued on the Merger shall have been validly issued. |
(k) | No Legal Action. No action or proceeding shall be pending or threatened by any Person (other than JJR VI or KFS or any of their respective Affiliates) in any jurisdiction, to enjoin, restrict or prohibit any of the transactions contemplated by this Agreement or any of the Acquisition Agreements. |
(l) | Change in Law. Since the date of this Agreement, no law, proposed law or any change in any law or in the interpretation or enforcement of any law shall have been introduced, enacted or announced, the effect of which would be to prevent KFS or the Company from, or to increase materially the cost to KFS or the Company of, completing the transaction contemplated in this Agreement or any of the Acquisition Agreements. |
(a) | certificates evidencing the Company Common Shares, Company Preferred Shares and Company Warrants; |
(b) | a certified copy of the resolutions of the directors and/or shareholders, as required, of the Company and KFS approving and authorizing the transactions herein contemplated; |
(c) | a certified copy of the charter documents and by‑laws of the Company, ACIC and ASI; |
(d) | executed copies of the Building Expense Subsidy Agreement, Adverse Development Agreement, Transition Services Agreement and the UCC Lease Agreement; |
(e) | evidence of the termination of the KFS Terminating Agreements and the assignment to the Company, ACIC and/or ASI of the KFS Assigning Agreements; and |
(f) | such other certificates, instruments and documents as may be reasonably requested by JJR VI prior to the Closing to evidence the satisfaction of the conditions precedent and to carry out the intent and purposes of this Agreement. |
(a) | a certified copy of the resolutions of the directors and shareholders, as required, of JJR VI and Subco approving and authorizing the transactions herein contemplated; |
(b) | a certified copy of the charter documents and by‑laws of JJR VI and Subco; |
(c) | evidence of the conditional approval of the TSXV of the Acquisition; |
(d) | an executed copy of the Registration Rights Agreement; and |
(e) | such other certificates, instruments and documents as may be reasonably requested by the Company and KFS prior to the Closing to evidence the satisfaction of the conditions precedent and to carry out the intent and purposes of this Agreement. |
(a) | by mutual written consent of the Parties hereto; |
(b) | by any Party by notice to the other Parties if the Merger has not been consummated by 5:00 p.m. (Toronto time) on the Final Date (provided that the right to terminate this Agreement under this subsection 12.2(b) shall not be available to any Party whose breach of or failure to (or whose Affiliate’s breach of or failure to) fulfill any obligation under this Agreement has been a principal cause, or resulted in, the failure of the Merger to occur on or before the Final Date); |
(c) | by JJR VI by notice to the other Parties if any condition set out in Section 10.1 has not been satisfied (or is incapable of being satisfied) or has not been waived on or before the time of Closing provided, however, that the right to terminate this Agreement under this subsection 12.2(c) shall not be available to JJR VI if its failure or the failure of an Affiliate to perform any material covenant, agreement or obligation hereunder has been a principal cause, or resulted in, the failure of the Closing to occur on or before such date; or |
(d) | by the Company or KFS by notice to the other Parties if any condition set out in Section 10.2 has not been satisfied (or is incapable of being satisfied) or has not been waived on or before the time of Closing provided, however, that the right to terminate this Agreement under this subsection 12.2(d) shall not be available to any Party whose failure or whose Affiliate’s failure to perform any material covenant, agreement or obligation hereunder has been a principal cause, or resulted in, the failure of the Closing to occur on or before such date. |
(a) | If any legal proceeding is initiated, or any claim is asserted, by a third party (a “Third Party Claim”) against a JJR Indemnified Party or a KFS Indemnified Party, as the case may be, (the “Indemnified Person”) and the Indemnified Person proposes to demand indemnification from a Party (the “Indemnifying Party”), the Indemnified Person shall immediately give notice to that effect to the Indemnifying Party. The failure to give, or delay in giving, such notice will not relieve the Indemnifying Party of its obligations except and only to the extent of any prejudice caused to the Indemnifying Party by such failure or delay. From the time the Indemnified Person receives notice of the Third Party Claim, the Indemnified Person shall protect its rights and the rights of the Indemnifying Party in respect of such Third Party Claim. |
(b) | After the Closing, as between the Parties, KFS shall exercise at its expense, control over the handling, disposition and settlement of any audit, investigation or similar proceeding in respect of any taxes due or payable by the Company for which KFS may be liable or against which KFS may be required to indemnify JJR VI (a “Tax Proceeding”). JJR VI shall notify KFS in writing promptly upon receiving written notice of any such Tax Proceeding. If KFS fails, within a reasonable time, to exercise control over the Tax Proceeding, JJR VI may, in its sole discretion, assume control of the Tax Proceeding at its expense. |
(c) | The Indemnifying Party has the right (but not the obligation), by notice to the Indemnified Person given not later than thirty (30) days after receipt of the notice described in subsection 13.4(a), to assume control of the defence, compromise or settlement of the Third Party Claim. |
(d) | Upon the assumption of control by the Indemnifying Party: |
(i) | the Indemnifying Party will proceed with the defence, compromise or settlement of the Third Party Claim at the Indemnifying Party’s sole cost and expense; |
(ii) | the Indemnifying Party will keep the Indemnified Person advised with respect to the defence, compromise or settlement of the Third Party Claim; and |
(iii) | the Indemnified Person may retain separate co counsel at its sole cost and expense, and may participate in the defence of the Third Party Claim (provided the Indemnifying Party will continue to control such defence). |
(e) | The Indemnifying Party will not enter into any compromise or settlement with respect to a Third Party Claim or a Tax Proceeding without the consent of the Indemnified Person (which consent may not be unreasonably or arbitrarily withheld or delayed). |
(f) | The Indemnified Person shall co‑operate with the Indemnifying Party, make available to the Indemnifying Party all relevant information in its possession or under its control and take such other steps as are, in the reasonable opinion of counsel for the Indemnifying Party, necessary or desirable to enable the Indemnifying Party to conduct its defence of the Third Party Claim or to handle, dispose of or settle a Tax Proceeding. |
(g) | If the Indemnifying Party fails to give the Indemnified Person the notice provided in subsection 13.4(c), the Indemnified Person may, in its sole discretion, assume control of the defence, compromise or settlement of the Third Party Claim and retain such counsel as it may deem appropriate, the whole at the Indemnifying Party’s sole cost and expense. |
(h) | If the Indemnified Person assumes control pursuant to subsection 13.4(g), any settlement, compromise or other final determination of the Third Party Claim will be binding upon the Indemnifying Party subject to the right of the Indemnifying Party to dispute that indemnification is required pursuant to this Agreement. |
(a) | The Indemnified Person must, and nothing in this Agreement in any way is intended to restrict or limit the obligation at law or otherwise of the Indemnified Person to, mitigate any damages which it may suffer or incur by reason of (i) the breach by an Indemnifying Party of any representation, warranty, covenant or obligation of the Indemnifying Party under this Agreement, or (ii) the occurrence of any indemnifiable event pursuant to the Agreement. The amount of damages under this Article 13 will be determined net of any amounts recovered or recoverable by the Indemnified Person under insurance policies, indemnities, reimbursement arrangements or similar agreements. The Indemnified Person shall take all commercially reasonable steps to seek such recovery. Each Party waives, to the extent permitted under its applicable insurance policies, any subrogation rights that its insurer may have with respect to any indemnifiable damages. |
(b) | The Indemnified Person shall, to the extent permitted by law, subrogate its rights and, to the extent applicable, the rights of the Company relating to any Third Party Claim to the Indemnifying Party and shall make or permit to be made all counterclaims and join to any litigation all other Persons as may be reasonably required by the Indemnifying Party, the whole at the cost and expense of the Indemnifying Party. |
(c) | In determining the amount of Damages for which a claim may be made under this Article 13, if a deduction, tax credit, loss carry over or other amount (each a “Tax Benefit”) of the Indemnified Person is utilized to reduce the amount of income, taxable income or tax payable for any taxation year in which a liability or claim is realized or, but for the utilization of such Tax Benefit, would be realized, the amount of the liability or claim shall be determined without taking into account any such Tax Benefit. |
(a) | KFS shall have no liability under this Article 13 and no damages may be recovered from KFS under this Article 13 unless the Claims of the JJR Indemnified Parties exceed in the aggregate $100,000. In the event such Claims exceed $100,000, KFS shall be liable for all such Claims, including the initial $100,000. Further, the liability of KFS in respect of Claims for damages under this Article 13 shall not exceed in the aggregate $7,967,005. Such limitations, however, shall have no application to any Claim by JJR VI Indemnified Parties in respect of an intentional breach of this Agreement or any Ancillary Agreement by KFS or KFS’ fraudulent or deceitful act. |
(b) | JJR VI shall have no liability under this Article 13 and no damages may be recovered from JJR VI under this Article 13 unless the Claims of the KFS Indemnified Parties exceed in the aggregate $100,000. In the event such Claims exceed $100,000, JJR VI shall be liable for all such Claims, including the initial $100,000. Further, the liability of JJR VI in respect of Claims for damages under this Article 13 shall not exceed in the aggregate $2,000,000. Such limitations, however, shall have no application to any Claim by KFS Indemnified Parties in respect of an intentional breach of this Agreement or any Ancillary Agreement by JJR VI or JJR VI’s fraudulent or deceitful act. |
(a) | in respect of any matter or thing done or omitted to be done by or at the direction or with the consent of the Indemnified Party; and |
(b) | in respect of more than one representation, warranty or covenant that relates to the same matter or thing in this Agreement or an Ancillary Agreement. |
(a) | For a period of three (3) years following the Closing Date, KFS shall not, directly or indirectly, and shall ensure that its Affiliates (other than the Company, ACIC, or ASI) do not, either alone or in concert with any Person, solicit, market, sell, underwrite or service commercial automobile liability and commercial auto physical damage insurance using the rates, forms and pricing methodologies developed by the Company or as filed by ACIC and/or ASI in states where they are licensed to write business on the Closing Date. For the avoidance of doubt, business of the type written by KFS Affiliates on the Closing Date, other than the Company, ACIC or ASI, is not considered competing business. It is understood that KFS will not use information that was only available to it as a result of ownership of the Company, ACIC or ASI, to enhance or otherwise modify the nature of business written by KFS or its Affiliates to make those products similar to the Company’s, ACIC’s or ASI’s. Pricing methodologies developed by KFS or its Affiliates relating to Truck Insurance remain the property of KFS or its Affiliates post‑Closing, whether or not resources of the Company, ACIC or ASI were involved in the development of Truck Insurance‑related business, and it is not considered a violation of this Agreement for KFS or its Affiliates to solicit, market, sell, underwrite or service Truck Insurance. For purposes of this subsection, “Truck Insurance” means insurance where the subject of coverage is semi‑truck, semi‑truck and trailer or other similar vehicles used for the transport of cargo where vehicle weights are typically greater than 30,000 pounds. |
(b) | For a period of three (3) years following the Closing Date, KFS shall not, directly or indirectly, and shall ensure that its Affiliates do not, directly or indirectly, solicit, induce or entice for employment, engagement or retainer, any executive, officer or employee of the Company, ACIC or ASI or otherwise persuade or influence, or in any manner attempt to persuade or influence, any such executive, officer or employee to terminate or discontinue his, her or its employment, engagement or retainer with the Company, ACIC or ASI, to alter his or her relationships with the Company, ACIC or ASI, or to become employed, engaged or retained by any Person other than the Company, ACIC or ASI. This subsection 14.1(b) does not apply to the employment of any Person (including, for greater certainty, a Transferred Employee) where contact with KFS in such regard was initiated by (i) the Person, in response to an advertisement or otherwise, or (ii) a recruitment agency that was not directed to solicit executives, officers or employees of the Company, ACIC or ASI. |
(a) | acknowledges and agrees that it has carefully considered, with the assistance of its counsel, the nature and extent of the restrictive covenants set forth in Section 14.1; |
(b) | acknowledges and agrees that the provisions of Section 14.1 are reasonable and necessary to protect and preserve JJR VI’s interests in and right to use the Assets and operate the business of the Company from and after Closing; |
(c) | irrevocably waives (and agrees not to raise) as a defence any issue of reasonableness (including the reasonableness of the territory or the duration and scope of the covenants) in any proceeding to enforce the provisions of Section 14.1; |
(d) | acknowledges and agrees that JJR VI may suffer irreparable harm if KFS or any of its Affiliates breach any of their obligations set out in Section 14.1; and |
(e) | acknowledges and agrees that monetary damages may not be a sufficient remedy for a breach of the provisions of Section 14.1. |
(a) | Neither this Agreement nor any Ancillary Agreement shall constitute an assignment or an attempted assignment of any Non‑Assignable Contract. KFS agrees to assign and to cause each Affiliate to assign any Non‑Assignable Contract to the Company, ACIC or ASI, as applicable, when such assignment is permitted and as the Company may from time‑to‑time direct. KFS shall, and shall cause each Affiliate to, deliver all notices, if any, required by the terms of the Non‑Assignable Contract in connection with the assignment thereof and use commercially reasonable efforts to obtain all consents required for the assignment to the Company, ACIC or ASI, as applicable, of the Non‑Assignable Contract. |
(b) | In respect of Non‑Assignable Contracts, to the extent permitted by applicable law and the provisions of such Non‑Assignable Contract: (i) if any of the Non‑Assignable Contracts are not assignable by the terms thereof or consents to the assignment thereof have not been obtained prior to the Effective Time, such Non‑Assignable Contracts shall be held by KFS or the applicable Affiliate party thereto in trust for the Company, ACIC or ASI, as applicable, and all benefits and obligations existing thereunder shall be for the account of the Company, ACIC or ASI, as applicable; and (ii) KFS shall take, and shall cause any applicable Affiliate (if other than KFS) to take or cause to be taken such reasonable action in its name or otherwise as the Company may reasonably require so as to provide the Company, ACIC or ASI, as applicable, with the benefits thereof. KFS shall continue to use and cause its Affiliates to continue to use commercially reasonable efforts to obtain and deliver all remaining consents required for the assignment to the Company, ACIC or ASI, as applicable, of the remaining Non‑Assignable Contracts after the Effective Time. |
(c) | KFS and the Company shall use commercially reasonable efforts to cause each of the Shared Contracts to be split into two contracts, one with respect to the rights relating to the business of KFS and the other with respect to the business of the Company, ACIC and/or ASI. Each reference in this Agreement relating to the assignment or non‑assignment of Non‑Assignable Contracts shall, as it pertains to Shared Contracts, be deemed to be a reference to the intended splitting of such Shared Contracts as described in this subsection. |
(a) | the Atlas Information becomes generally known to the public other than through a breach of this Agreement; |
(b) | the Atlas Information being lawfully obtained by KFS, as applicable, from a third party or parties without breach of this Agreement by KFS or its Affiliates, as shown by documentation sufficient to establish the third party as a source of Atlas Information; |
(c) | the disclosure is required by law; or |
(d) | JJR VI has provided its prior written approval for such disclosure. |
(a) | Schedules and Exhibits. The following Schedules attached to this Agreement and the Disclosure Letter are hereby incorporated by reference in this Agreement and form part hereof: |
(b) | Sections and Headings. The division of this Agreement into Articles, sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. |
(a) | if delivered as aforesaid, be deemed to have been given, sent, delivered and received on the date of delivery; |
(b) | if sent by mail as aforesaid, be deemed to have been given, sent, delivered and received (but not actually received) on the fourth Business Day following the date of mailing, unless at any time between the date of mailing and the fourth Business Day thereafter there is a discontinuance or interruption of regular postal service, whether due to strike or lockout or work slowdown, affecting postal service at the point of dispatch or delivery or any intermediate point, in which case the same shall be deemed to have been given, sent, delivered and received in the ordinary course of the mail, allowing for such discontinuance or interruption of regular postal service; and |
(c) | if sent by facsimile, be deemed to have been given, sent, delivered and received on the date if sent prior to 5:00 p.m. on a Business Day, if not on the next Business Day. |
(a) | words in the singular number include the plural and such words shall be construed as if the plural had been used; |
(b) | words in the plural include the singular and such words shall be construed as if the singular had been used; and |
(c) | words importing the use of any gender shall include all genders where the context or the Party referred to so requires, and the rest of the sentence shall be construed as if the necessary grammatical and terminological changes had been made. |
JJR VI ACQUISITION CORP. | ||
By: | /s/ Jordan Kupinsky | |
Name: Jordan Kupinsky | ||
Title: Director | ||
KINGSWAY FINANCIAL SERVICES INC. | ||
By: | /s/ Larry G. Swets, Jr. | |
Name: Larry G. Swets, Jr. | ||
Title: President & CEO | ||
By: | /s/ William A. Hickey, Jr. | |
Name: William A. Hickey, Jr. | ||
Title: Chief Operating Officer | ||
AMERICAN INSURANCE ACQUISITION INC. | ||
By: | /s/ Scott D. Wollney | |
Name: Scott D. Wollney | ||
Title: President | ||
ATLAS ACQUISITION CORP. | ||
By: | /s/ Jordan Kupinsky | |
Name: Jordan Kupinsky | ||
Title: Director |
1. | CPC Escrow Agreement dated as of January 28, 2010 among JJR VI, Equity and certain shareholders of JJR VI. |
2. | Agency Agreement dated as of January 28, 2010 between JJR VI and Macquarie Private Wealth Inc. |
3. | Transfer Agency and Registrarship Agreement dated as of January 27, 2010 between JJR VI and Equity. |
1. | INTRODUCTION |
2. | WHO IS COVERED? |
3. | DIRECTOR, OFFICER AND EMPLOYEE OBLIGATIONS |
4. | CONFLICTS OF INTEREST |
• | Employees receiving remuneration, gifts, entertainment or other compensation of a material nature from any entity performing work or services for the Company or from any entity which is seeking to do business with the Company. Gifts or favours that are generally considered as common business or social courtesies are acceptable only as long as they are reasonable and customary in type, frequency and value such as a luncheon or dinner. |
• | Employees having a financial interest in an entity that sells goods or services to the Company where the employee is able to influence the Company’s business transactions with that entity. |
• | Employees using, for their own personal gain or for the benefit of others, any confidential or “inside” information obtained as a result of their employment with the Company. |
• | Employees misappropriating to themselves or to others the benefit of any business venture or opportunity about which the employees learn or develop in the course of their employment and which is related to a current or prospective business of the Company. |
5. | USE OF INFORMATION |
6. | CONFIDENTIALITY OF INFORMATION |
7. | CONFIDENTIALITY OF INTELLECTUAL PROPERTY |
8. | CORPORATE OPPORTUNITIES |
9. | USE OF INSIDE INFORMATION (INSIDER TRADING) |
10. | FAIR DEALING |
11. | ANTI-RETALIATION |
12. | PROTECTION AND USE OF COMPANY ASSETS |
13. | OFFERING OF GIFTS |
14. | ACCOUNTING PRACTICES |
15. | RECORDS RETENTION |
16. | COMPLIANCE WITH LAWS, RULES & REGULATIONS |
17. | COMMUNICATING WITH REGULATORS AND OTHERS |
18. | DUTY TO REPORT AND CONSEQUENCE |
19. | SCOPE |
20. | CONTACT US |
Subsidiaries | Jurisdiction of Incorporation/Organization |
Kingsway America II Inc. | Delaware |
1347 Advisors LLC | Delaware |
1347 Capital LLC | Delaware |
Acadia GP | Delaware |
Acadia Acquisition Partners, LP | Delaware |
Hamilton Risk Management Company | Florida |
Appco Finance Corporation | Pennsylvania |
Insurance Management Services Inc. | Florida |
Kingsway Amigo Insurance Company | Florida |
American Country Underwriting Agency Inc. | Illinois |
ARM Holdings, Inc. | Illinois |
Mattoni Insurance Brokerage Inc. | Washington |
Assigned Risk Solutions Ltd. | New Jersey |
Auto Underwriters Holdings LLC | Delaware |
KAI Advantage Auto, Inc. | Illinois |
KFS Capital LLC | Delaware |
Kingsway 2007 General Partnership | Delaware |
Kingsway 2009 LLC | Delaware |
Kingsway America Inc. | Delaware |
Kingsway LGIC Holdings, LLC | Delaware |
Kingsway Reinsurance (Bermuda) Ltd. | Bermuda |
Mendota Insurance Company | Minnesota |
Boston General Agency, Inc. | Texas |
Mendakota Insurance Company | Minnesota |
Mendota Insurance Agency, Inc. | Texas |
MIC Insurance Agency Inc. | Texas |
Northeast Alliance Insurance Agency, LLC | Delaware |
Universal Casualty Company | Illinois |
Kingsway America Agency Inc. | Illinois |
Kingsway General Insurance Company | Ontario |
Kingsway Reinsurance Corporation | Barbados |
Kingsway Linked Return of Capital Trust | Ontario |