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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
December 18, 2023
Date of Report (date of earliest event reported)
HAGERTY, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 001-40244 | 86-1213144 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
121 Drivers Edge
Traverse City, Michigan 49684
(Address of principal executive offices and zip code)
(800) 922-4050
Registrant's telephone number, including area code
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbols | | Name of each exchange on which registered |
| Class A common stock, par value $0.0001 per share | | HGTY | | The New York Stock Exchange |
Warrants, each whole warrant exercisable for one share
of Class A common stock, each at an exercise price of
$11.50 per share | | HGTY.WS | | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement
On December 18, 2023, The Hagerty Group, LLC ("OpCo"), a subsidiary of Hagerty, Inc. (the "Company") entered into the Fifth Amended and Restated Master Alliance Agreement (the "Alliance Agreement") between OpCo, the Company, and Markel Corporation ("Markel"), which amended and restated the Fourth Amended and Restated Master Alliance Agreement, dated December 8, 2021, between the parties as described below. In connection with the amendments to the Alliance Agreement, the Company and Markel also entered into amendments to the Limited Liability Company Agreement of OpCo, as described below, and amended the agency agreement referenced in the Alliance Agreement which moved five (5) points from the Contingent Underwriting Commission ("CUC") to base commission and changed the frequency of payments of CUC to monthly rather than annually. Markel is a significant stockholder of the Company, holding in excess of 5% of the Company's outstanding common stock. Markel has the right to nominate one director to the Company’s Board of Directors.
Fifth Amended and Restated Master Alliance Agreement
The Alliance Agreement was amended to, among other non-material things, (i) include a new definition of "Enthusiast Business", and remove Enthusiast Business from both definitions of "Restricted Business" and "Alliance Business"; (ii) delay the Company's acquisition rights with respect to Essentia Insurance Company until 2026 at the earliest and 2030 at the latest, and; (iii) grant the Company a new waiver to pursue a strategic opportunity with a third party insurance company. The foregoing description of the Alliance Agreement does not purport to be complete and is qualified in its entirety by the full text of the Alliance Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Sixth Amended and Restated LLC Agreement
The Company executed the Sixth Amended and Restated Limited Liability Company Agreement of The Hagerty Group, LLC on December 18, 2023, with Markel and the other members of OpCo (the "Amended LLC Agreement"). The Amended LLC Agreement, among other non-material changes, removes the definition "Enthusiast Business" from the definition of "Restricted Business" to align with the changes being made to the Alliance Agreement. The foregoing description of the Amended LLC Agreement does not purport to be complete and is qualified in its entirety by the full text of the LLC Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| | | | | | | | |
| Exhibit No. | | Description |
| 10.1* | | |
| 10.2 | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL) |
| | | | | | | | |
| * | | Portions of this Exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. A copy of the non-redacted Exhibit will be furnished to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | HAGERTY, INC. |
| | |
| | /s/ Diana M. Chafey |
Date: December 22, 2023 | | Diana M. Chafey |
| | Chief Legal Officer and Corporate Secretary |
| | |
| | |
Material indicated with a “[***]” has been omitted from this Exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.
EXECUTION VERSION
Exhibit 10.1
FIFTH AMENDED AND RESTATED MASTER ALLIANCE AGREEMENT
between
HAGERTY, INC.
THE HAGERTY GROUP, LLC
and
MARKEL GROUP INC.
dated
DECEMBER 18, 2023
Table of Contents
Exhibits
Exhibit A Permitted Activities
FIFTH AMENDED AND RESTATED MASTER ALLIANCE AGREEMENT
THIS FIFTH AMENDED AND RESTATED MASTER ALLIANCE AGREEMENT (including all exhibits hereto, and all amendments hereto, this “Agreement”) is made and entered into this December 18, 2023 by and between (i) Hagerty, Inc., a corporation organized under the laws of the State of Delaware (“HGTY”), and The Hagerty Group, LLC, a limited liability company organized under the laws of the State of Delaware (“Hagerty”), on the one hand, and (ii) Markel Group Inc. (formerly known as Markel Corporation), a corporation incorporated under the laws of the Commonwealth of Virginia (“Markel”), on the other hand. HGTY, Hagerty and Markel may hereinafter be referred to from time to time as a “Party” in their individual capacities and as “Parties” collectively.
WITNESSETH:
WHEREAS, pursuant to that certain Master Alliance Agreement, dated as of March 9, 2012 (the “Original Alliance Agreement”), between Hagerty and Markel, Hagerty and Markel entered into a business relationship (the “Alliance”) involving the marketing, production, underwriting, selling and administration of personal property and casualty Insurance Policies (other than overseas cargo Insurance Policies) for classic and collector motor vehicles, collectibles, automotive tools and spare parts, “automobilia” (i.e., any historic or collectible item linked with motor vehicles) and vintage camper trailers within the fifty (50) United States and the District of Columbia that are eligible for and included in the Core Program (the “Alliance Business”) and the ownership of an insurer with respect thereto;
WHEREAS, on October 16, 2012, Hagerty and Markel entered into that certain First Amended and Restated Master Alliance Agreement, amending and restating the Original Alliance Agreement (as amended by Amendment No. 1 to the First Amended and Restated Master Alliance Agreement, dated December 28, 2012, the “First Amended Alliance Agreement”);
WHEREAS, on March 22, 2017, Hagerty and Markel entered into that certain Second Amended and Restated Master Alliance Agreement, amending and restating the First Amended Alliance Agreement (the “Second Amended Alliance Agreement”);
WHEREAS, on June 20, 2019, Hagerty and Markel entered into that certain Third Amended and Restated Master Alliance Agreement, amending and restating the Second Amended Alliance Agreement and, on February 5, 2021, entered into the First Amendment thereto (as amended, the “Third Amended Alliance Agreement”);
WHEREAS, on December 8, 2021, Hagerty and Markel entered into that certain Fourth Amended and Restated Master Alliance Agreement, amending and restating the Third Amended Alliance Agreement (the “Fourth Amended Alliance Agreement”); and
WHEREAS, the Parties desire to amend and restate the Fourth Amended Alliance Agreement in its entirety on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Terms. The terms defined in this Article I shall have the meanings ascribed to them herein whenever they are used in this Agreement.
“2013 Evanston Reinsurance Agreement” means that certain Personal Property and Casualty 100% Quota Share Reinsurance Agreement, effective January 1, 2013, between the Insurer and Evanston, as terminated effective January 1, 2017.
“2017 Evanston Reinsurance Agreement” means that certain Personal Property and Casualty 100% Quota Share Reinsurance Agreement, effective as of January 1, 2017, by and between the Insurer and Evanston.
“2024 Evanston Reinsurance Agreement” means that certain First Amended and Restated Personal Property and Casualty 100% Quota Share Reinsurance Agreement, effective as of January 1, 2024, by and between the Insurer and Evanston.
“Action” means any claim, action, suit, complaint, charge, litigation, arbitration, petition, demand, inquiry, audit, proceeding (including any formal or informal civil, criminal administrative, investigative or appellate process), prosecution, contest, hearing, examination or investigation that has been, is being or may in the future be commenced, brought, conducted or heard by or before, or that otherwise involves or may involve, any Governmental Authority, mediator or mediation panel.
“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such specified Person.
“Agreement” shall have the meaning set forth in the Preamble.
“Alliance” shall have the meaning set forth in the Recitals.
“Alliance Business” shall have the meaning set forth in the Recitals. For the avoidance of doubt, Enthusiast Business, unless deemed to be Alliance Business in accordance with the process set forth in Section 5.8(a), is excluded from the definition of Alliance Business.
“Alliance Effective Date” means January 1, 2014.
“Alliance Steering Committee” shall have the meaning set forth in Section 6.1.
“Alternative Insurer” shall have the meaning set forth in Section 5.2(b).
“A.M. Best” means A.M. Best Company, Inc.
“Business Day” means any day that is not a Saturday, a Sunday or any other day on which commercial banks located in New York, New York are authorized or required by any applicable Law or Governmental Order to be closed.
“Capital Contribution Notice” shall have the meaning set forth in Section 5.24(a).
“Change of Control” means, (a) with respect to HGTY or Hagerty, as applicable, any Person holds a greater percentage of the ultimate voting power, directly or indirectly, of HGTY or Hagerty, as applicable, than each of (i) Markel and its Affiliates and (ii) the Hagerty Owners and its Affiliates; provided, that, no Change of Control shall be deemed to have occurred pursuant to this clause (a) to the extent caused by or otherwise resulting from the transfer of Markel’s or its Affiliates’ direct or indirect ownership interests in HGTY or Hagerty, as applicable, and (b) with respect to Markel, the acquisition or assumption (other than by an Affiliate of Markel) of (i) Control of Markel, whether by merger, consolidation, stock acquisition, or otherwise or (ii) all or substantially all of the assets, liabilities or business of Markel.
“Claims Services Agreement” means that certain Claims Services Agreement, dated as of July 23, 2019, by and between MSI and the Insurer.
“Claims Services and Management Agreement” means that certain First Amended and Restated Claims Services and Management Agreement, dated as of December 18, 2023, by and between Hagerty Agency and MSI.
“Code” means the United States Internal Revenue Code of 1986.
“Confidential Information” shall have the meaning set forth in Section 5.16.
“Control” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. The terms “Controlled”, “Controlled by” and “under common Control with” shall have correlative meanings.
“Core Program” shall have the meaning set forth in the Second Amended Agency Agreement.
“Dispute” shall have the meaning set forth in Section 9.6(a).
“Enthusiast Business” shall have the meaning set forth in Schedule III to the Second Amended Agency Agreement.
“Estimated Insurer Acquisition Price” shall have the meaning set forth in Section 5.6(b).
“Estimated Insurer Acquisition Price Notice” shall have the meaning set forth in Section 5.6(b).
“Evanston” means Evanston Insurance Company, an Illinois-domiciled insurance company.
“Evanston Permits” shall have the meaning set forth in Section 3.5.
“Evanston Reinsurance Agreement” means (i) the 2013 Evanston Reinsurance Agreement, (ii) the 2017 Evanston Reinsurance Agreement, or (iii) the 2024 Evanston Reinsurance Agreement, as applicable.
“Evanston Reinsured Policy” means any Insurance Policy with respect to which Liability is ceded or retroceded by the Insurer to Evanston pursuant to the Evanston Reinsurance Agreement.
“Expenses” shall have the meaning set forth in the Claims Services and Management Agreement.
“Final Insurer Acquisition Price” shall have the meaning set forth in Section 5.6(c).
“First Amended Alliance Agreement” shall have the meaning set forth in the Recitals.
“First Amended Agency Agreement” means that certain First Amended and Restated Personal Lines Agency Agreement, dated as of April 24, 2023, by and among Hagerty Agency, the Insurer and Hagerty Marine.
“Fourth Amended Alliance Agreement” shall have the meaning set forth in the Recitals.
“Fronting Insurer” shall have the meaning set forth in Section 5.7(b).
“Fronting Period” shall have the meaning set forth in Section 7.5.
“GAAP” means generally accepted accounting principles in the United States of America.
“Governmental Approval” means any approval, authorization, consent, qualification, permit, license, order, permission, registration, certificate, variance, clearance or any waiver of any of the foregoing, obtained or required to be obtained from, or any notice, statement or other communication required to be filed with or delivered to, any Governmental Authority.
“Governmental Authority” means any foreign or United States federal, state, provincial or local governmental, quasi-governmental, legislative, regulatory or administrative authority, agency, body, commission or other similar entity or any court, tribunal, or judicial or arbitral body.
“Governmental Order” means any order, writ, judgment, injunction, declaration, decree, stipulation, determination, award or agreement entered by or with any Governmental Authority.
“Hagerty” shall have the meaning set forth in the Preamble.
“Hagerty Acquisition Notice” shall have the meaning set forth in Section 5.6(a).
“Hagerty Agency” means Hagerty Insurance Agency, LLC.
“Hagerty International” means Hagerty International Limited.
“Hagerty International Reinsurance Agreement” means that certain Proportional Treaty, dated as of February 19, 2021, by and between MIICL and Hagerty Re.
“Hagerty Marine” means Hagerty Classic Marine Insurance Agency, LLC.
“Hagerty Motor Binding Authority Agreement” means that certain binding authority agreement, effective as of February 1, 2021, by and between Hagerty International and MIICL.
“Hagerty Owners” means (a) the Persons that Control HGTY or Hagerty, as applicable, directly or indirectly, as of the date hereof, (b) with respect to any such Person that is a natural person, any spouse, ancestor or descendant (whether natural or adopted) of such Person, (c) any trust, family limited partnership or family limited liability company established for estate planning purposes for the benefit of such Person or the estate, spouse, ancestors or descendants of such Person, (d) with respect to any trust, the beneficiary of such trust or any spouse, ancestor or descendant (whether natural or adopted) of (i) the grantor of such trust or (ii) the beneficiary of such trust and (e) Affiliates of any Persons described in clauses (a)–(d) above.
“Hagerty Party” shall have the meaning set forth in Section 7.2(b).
“Hagerty Permits” shall have the meaning set forth in Section 4.5.
“Hagerty Re” means Hagerty Reinsurance Limited, a Bermuda exempted company.
“Hagerty Reinsurance Agreement” means (i) the Hagerty Reinsurance Limited Quota Share Reinsurance Agreement, dated as of March 22, 2017, or (ii) the First Amended and Restated Hagerty Reinsurance Limited Quota Share Reinsurance Agreement, dated as of December 18, 2023, each by and between Evanston and Hagerty Re, as applicable.
“HGTY” shall have the meaning set forth in the Preamble.
“Indebtedness” means, without duplication, (a) all obligations for borrowed money; (b) all obligations to pay the deferred purchase price of property or services; (c) all obligations evidenced by notes, bonds, debentures or other similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property; (e) all reimbursement obligations, contingent or otherwise, under a drawn acceptance, letter of credit or a similar facility; and (f) all guarantees of any of the foregoing.
“Independent Expert” shall have the meaning set forth in Section 5.6(c).
“Insolvency Event” means with respect to any Person: (a) such Person commences a voluntary case concerning itself under any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws; (b) an involuntary case is commenced against such Person under any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws and is not dismissed within ninety (90) days of its commencement; (c) a custodian is appointed under any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws for, or takes charge of, all or any substantial part of the property of such Person; (d) any Governmental Order is issued declaring such Person insolvent or bankrupt; (e) such Person makes a general assignment for the benefit of creditors or otherwise enters into a general arrangement for the restructuring of its Liabilities with creditors; (f) such Person has suspended payment of its Liabilities generally; or (g) such Person is unable to pay, or shall be unable to pay, its debts, generally as they become due.
“Insurance Policy” means any treaty, policy, binder or contract of insurance or reinsurance, including any amendments or endorsements thereto, which may be evidenced by group or individual policy forms, certificates, binders or slips.
“Insurer” means Essentia Insurance Company, a Missouri-domiciled insurance company.
“Insurer Acquisition Price” shall have the meaning set forth in Section 5.6(a).
“Insurer Acquisition Price Adjustment” shall have the meaning set forth in Section 5.6(c).
“Insurer Acquisition Price Notice” shall have the meaning set forth in Section 5.6(c).
“Insurer Acquisition Price Notice of Disagreement” shall have the meaning set forth in Section 5.6(c).
“Insurer Permits” means all Permits, except for such incidental Permits that would be readily obtainable by any qualified applicant without undue burden in the event of any lapse, termination, cancellation or forfeiture thereof, that are held by the Insurer.
“Insurer Shares” means shares of common stock, par value $100.00 per share, of the Insurer.
“Law” means any foreign or United States federal, state, national, provincial or local, law, ordinance, regulation, rule, code, order, common law, other requirement or rule of law or stock exchange rule imposed by any Governmental Authority.
“Liabilities” means any and all debts, liabilities, claims (including unasserted claims), demands, losses, damages, Taxes, deficiencies, obligations and commitments of any kind or nature, whether accrued or fixed, absolute or contingent, known or unknown, matured or unmatured, secured or unsecured or determined or undeterminable, and whether arising under any Law, Action, Governmental Order, contract or otherwise.
“Lien” means, with respect to any property or asset, any mortgage, deed of trust, lien, option, right of first offer or refusal, pledge, hypothecation, charge, security interest, lease, encumbrance or other claim of any kind in respect of such property or asset.
“Losses” means any Liabilities, Actions, judgments or causes of action, assessments, costs, expenses (including reasonable attorneys’ fees and expenses), Taxes, interest and penalties.
“MAIC” shall have the meaning set forth in Section 5.7(a).
“Management Services Agreement” means that certain Management Services Agreement, dated as of January 1, 2013, by and between the Insurer and MSI.
“Marine Business” shall have the meaning set forth in Section 5.15(a).
“Markel” shall have the meaning set forth in the Preamble.
“Markel Rating Event” means a downgrade of the financial strength rating of the Markel Group by A.M. Best below “A-” (Excellent”) that is not caused primarily by losses incurred in the Alliance Business.
“Markel Sellers” shall have the meaning set forth in Section 5.6(a).
“MIC” shall have the meaning set forth in Section 5.7(a).
“MIICL” means Markel International Insurance Company Limited.
“MSI” means Markel Service, Incorporated.
“Option Price” shall have the meaning set forth in Section 2.3.
“Original Alliance Agreement” shall have the meaning set forth in the Recitals.
“Party” shall have the meaning set forth in the Preamble.
“Permit” means any qualification, registration, filing, privilege, license, franchise, permit, certificate, approval or other similar authorization obtained from or issued by any Governmental Authority.
“Person” means any natural person, general or limited partnership, corporation, limited liability company, firm, association, trust, joint venture, Governmental Authority or other legal entity.
“Renewal Rights” means the right to service, continue and renew, and collect all commissions and other amounts, including contingency commission payments, on, all Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business with respect to current, former and prospective customers, including all (a) rights to produce Insurance Policies with respect to such customer, subject to the rights of such customers to choose whether to do business with Hagerty and its Affiliates, (b) terms, conditions, premium rates and dates of expiration of all of the Insurance Policies comprising the Alliance Business, (c) agent lists (whether former, current or prospective) owned or used by Hagerty Agency or any of its Affiliates in the conduct of the Alliance Business (provided that agent lists that have been furnished to Hagerty Agency by the Insurer or any Affiliate of the Insurer may continue to be used by the Insurer or any such Affiliate outside the Alliance Business), and (d) customer lists (whether former, current or prospective) owned or used by Hagerty Agency or any of its Affiliates in the conduct of the Alliance Business and the following information relating to each of the customers: (i) the customer name, address and contact information, (ii) the insurance products purchased from Hagerty Agency or any of its Affiliates, (iii) the purchasing preferences of such customers and (iv) strategies for placing insurance with such customers.
“Representatives” means, with respect to any Person, such Person’s directors, officers, employees, agents, contractors or advisors (including financial advisors, attorneys, accountants and auditors).
“Restricted Business” shall have the meaning set forth in Section 5.13(a).
“SAP” means the statutory accounting principles and practices prescribed or permitted by the Missouri Department of Insurance.
“SBV Notice” shall have the meaning set forth in Section 7.3(c).
“SBV Notice of Disagreement” shall have the meaning set forth in Section 7.3(c).
“Second Amended Agency Agreement” means that certain Second Amended and Restated Personal Lines Agency Agreement, dated as of December 18, 2023, by and among Hagerty Agency, the Insurer and Hagerty Marine (solely for purposes of Section 2.2 and Article XVII thereof).
“Second Amended Alliance Agreement” shall have the meaning set forth in the Recitals.
“Statutory Book Value” means, as of any date of determination, an amount equal to the statutory capital and surplus of the Insurer, determined in accordance with SAP.
“Subsidiary” means, with respect to any Person, any corporation, general or limited partnership, joint venture, limited liability company, limited liability partnership, trust, estate or other Person that is a legal entity, the securities or other ownership interests of which (a) having ordinary voting power to elect a majority of the board of directors (or a majority of another body performing similar functions) of such corporation or other Person, (b) representing more than fifty percent (50%) of all of the securities or ownership interests of such corporation or other Person or (c) representing more than fifty percent (50%) of the interest in the capital or profits of such corporation or other Person, are at the time directly or indirectly owned by such Person.
“Tax” means: (a) any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax (including taxes under Code Section 59A), escheat
payments or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any governmental authority and (b) any liability for the payment of amounts determined by reference to amounts described in clause (a) as a result of being a member of an affiliated, consolidated, combined or unitary group, as a result of any obligation under any Tax sharing arrangement, as transferee or successor, or otherwise.
“Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including any information return, claim for refund, amended return or declaration of estimated Tax.
“Term” shall have the meaning set forth in Section 7.1.
“Termination Date” means the date on which this Agreement expires or is terminated in accordance with Section 7.1 or Section 7.2, respectively.
“Termination Election Notice” shall have the meaning set forth in Section 7.4(a).
“Third Amended Alliance Agreement” shall have the meaning set forth in the Recitals.
“Transaction Agreements” means, collectively, this Agreement, the First Amended Agency Agreement, the Second Amended Agency Agreement, the Management Services Agreement, the Claims Services Agreement, the Claims Services and Management Agreement, the Evanston Reinsurance Agreement, the Hagerty Reinsurance Agreement and the Trust Agreement and any other agreement or instrument to be entered into in connection with the transactions contemplated by any such agreements.
“Trust Agreement” means that certain Trust Agreement, dated as of May 12, 2021, by and among Hagerty Re, Evanston and KeyBank National Association.
“UK Agreements” means the Hagerty Motor Binding Authority Agreement and the Hagerty International Reinsurance Agreement.
“UK Business” means the insurance business as contemplated by the UK Agreements.
1.2 Interpretation. For purposes of this Agreement, (a) words in the singular shall include the plural and vice versa, and words of one gender shall include the other gender as the context requires, (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement and not to any particular provision of this Agreement, (c) references to Article, Section, paragraph and Exhibit mean the Articles, Sections, paragraphs and Exhibits to this Agreement unless otherwise specified, (d) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified, (e) references to an agreement, instrument or other document mean such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement and (f) references to any entity includes any successor thereto or permitted assigns thereof. Titles to Articles and headings of Sections in this Agreement are for convenience only and do not substantively affect the terms of this Agreement. This Agreement and the other Transaction Agreements shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting such agreement or causing such agreement to be drafted.
ARTICLE II
CONTINUATION OF THE ALLIANCE
2.1 Continuation of Alliance. The Parties hereby agree to continue the Alliance upon the terms and subject to the conditions of this Agreement and the other Transaction Agreements.
2.2 Transfer of Insurer Equity. Notwithstanding anything to the contrary in this Agreement, Markel may, in its sole discretion, transfer all or a portion of its equity interests in the Insurer to a wholly owned Subsidiary of Markel, so long as any such transfer does not adversely impact the rights of Hagerty or its Affiliates under any of the Transaction Agreements, including Hagerty’s right to acquire the Insurer pursuant to Section 5.6(a), Section 7.4(a) or Section 7.4(b).
2.3 Option Payments. If Hagerty exercises its option to acquire all of the issued and outstanding capital stock of the Insurer pursuant to Section 5.6(a) or if this Agreement is terminated prior to December 31, 2030 and Hagerty elects to acquire all of the issued and outstanding capital stock of the Insurer pursuant to Section 7.4, then the amount of the purchase price Hagerty is required to pay to Markel on the closing date of Hagerty’s acquisition of all of the issued and outstanding capital stock of the Insurer shall be reduced by an amount equal to $1,750,000 (the “Option Price”) in accordance with Section 5.6(b), Section 7.4(a) or Section 7.4(b), as applicable. If Hagerty does not exercise its option to acquire all of the issued and outstanding capital stock of the Insurer pursuant to Section 5.6(a) or if this Agreement is terminated prior to December 31, 2030 and Hagerty does not elect to acquire all of the issued and outstanding capital stock of the Insurer pursuant to Section 7.4, then Markel shall retain the Option Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MARKEL
Markel hereby represents and warrants to HGTY and Hagerty as follows as of the date hereof:
3.1 Incorporation and Authority of Markel and the Insurer.
(a) Markel is a corporation duly formed, validly existing and in good standing under the Laws of Virginia. Markel is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, except for failures to be so qualified or in good standing as would not have a material adverse effect on its ability to consummate the transactions contemplated by, and perform its obligations under, the Transaction Agreements to which it is a party. Markel has all necessary corporate power and authority to conduct its business as it is currently being conducted.
(b) The Insurer is an insurance company duly formed, validly existing and in good standing under the Laws of the State of Missouri and is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary. The Insurer has all necessary corporate power and authority to conduct its business as it is currently being conducted.
(c) Each of Markel, the Insurer and each other applicable Affiliate of Markel has all necessary organizational power and authority to execute and deliver, carry out and perform its obligations under, and consummate the transactions contemplated by, each of the Transaction
Agreements to which it is or will be a party. The execution and delivery by Markel, the Insurer and each other applicable Affiliate of Markel of, the performance by Markel, the Insurer and each other applicable Affiliate of Markel of its obligations under, and the consummation by Markel, the Insurer and each other applicable Affiliate of Markel of the transactions contemplated by, each of the Transaction Agreements to which Markel, the Insurer or such other applicable Affiliate of Markel is or will be a party have been duly authorized by all necessary corporate or other similar organizational action on the part of Markel, the Insurer and each such other applicable Affiliate of Markel. Each of the Transaction Agreements to which Markel, the Insurer or any other applicable Affiliate of Markel is or will be a party has been, or upon execution and delivery thereof will be, duly executed and delivered by Markel, the Insurer and each such other applicable Affiliate of Markel. Assuming due authorization, execution and delivery by each other party thereto, each of the Transaction Agreements to which Markel, the Insurer or any other applicable Affiliate of Markel is or will be a party constitutes, or upon execution and delivery thereof will constitute, legal, valid and binding obligations of Markel, the Insurer and each other applicable Affiliate of Markel, enforceable against them in accordance with their respective terms, except as such enforcement may be limited by any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws of general applicability now or hereafter in effect relating to or affecting creditors’ rights generally.
3.2 No Conflict. The execution and delivery by Markel, the Insurer and each other applicable Affiliate of Markel of, the performance by each of Markel, the Insurer and each other applicable Affiliate of Markel of its obligations under, and the consummation by Markel, the Insurer and each other applicable Affiliate of Markel of the transactions contemplated by, each of the Transaction Agreements to which Markel, the Insurer or such other applicable Affiliate of Markel is or will be a party do not and will not (a) violate or conflict with the organizational documents of Markel, the Insurer or any other applicable Affiliate of Markel, (b) conflict with or violate in any material respect any Law or Governmental Order applicable to Markel, the Insurer or any other applicable Affiliate of Markel or to which any of them or any of their respective properties or assets is subject or bound, (c) result in a violation of, or cause the revocation, withdrawal, suspension, cancellation or termination of, or modification to, any Insurer Permit, or (d) result in any breach or violation of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would constitute a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any material contract, note, instrument, indenture, mortgage, lease or other agreement to which Markel or the Insurer is a party or by which any of them or any of their respective properties or assets is subject or bound.
3.3 Governmental Approvals. Except for any Governmental Approvals that have already been obtained and provided to Hagerty, the execution and delivery by Markel, the Insurer and each other applicable Affiliate of Markel of, the performance by each of Markel, the Insurer and each other applicable Affiliate of Markel of its obligations under, and the consummation by Markel, the Insurer and each other applicable Affiliate of Markel of the transactions contemplated by, each of the Transaction Agreements to which Markel, the Insurer or such other applicable Affiliate of Markel is or will be a party do not and will not require any Governmental Approval to be obtained by Markel, the Insurer or any other applicable Affiliate of Markel.
3.4 Legal Proceedings. There is no Governmental Order or Action pending or, to the knowledge of Markel, threatened against or affecting Markel or any of its Affiliates that would materially adversely affect the consummation by Markel and its Affiliates of the transactions contemplated by the Transaction Agreements or the ability of Markel or any of its Affiliates to perform its obligations under any of the Transaction Agreements to which it is or will be a party.
3.5 Insurer Permits and Evanston Permits. The Insurer holds all Insurer Permits that are material to the operation of the Insurer’s business as currently conducted. Evanston holds
all Permits that are required for Evanston to execute and deliver, and perform its obligations under, the Evanston Reinsurance Agreement and the Hagerty Reinsurance Agreement (collectively, the “Evanston Permits”), in each case, as of the date hereof. As of the date hereof, the Insurer Permits are valid and in full force and effect, and the Insurer is not in violation of or default under any of the Insurer Permits. As of the date hereof, Evanston holds all of the Evanston Permits, the Evanston Permits are valid and in full force and effect, and Evanston is not in violation of or default under any of the Evanston Permits. As of the date hereof, there is no pending or, to the knowledge of Markel, threatened Action seeking the revocation, suspension, termination, modification, impairment or non-renewal of any Insurer Permit or any Evanston Permit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HAGERTY
HGTY and Hagerty hereby represent and warrant to Markel as of the date hereof:
4.1 Incorporation and Authority.
(a) HGTY is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. HGTY is duly qualified to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, except for failures to be so qualified or in good standing as would not have a material adverse effect on its ability to perform its obligations under the Transaction Agreements to which it is a party. HGTY has all necessary corporate power and authority to conduct its business as it is currently being conducted.
(b) Hagerty is a limited liability company duly formed, validly existing and in good standing under the Laws of the State of Delaware. Hagerty is duly qualified to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, except for failures to be so qualified or in good standing as would not have a material adverse effect on its ability to perform its obligations under the Transaction Agreements to which it is a party. Hagerty has all necessary limited liability company power and authority to conduct its business as it is currently being conducted.
(c) Hagerty Agency is a limited liability company duly formed, validly existing and in good standing under the Laws of the State of Delaware and is duly qualified to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary. Hagerty Agency has all necessary limited liability company power and authority to conduct its business as it is currently being conducted. Hagerty Agency is Controlled by Hagerty.
(d) Hagerty Re is a Bermuda class 3A reinsurer duly formed, validly existing and in good standing under the Laws of Bermuda and is duly qualified to do business, and is in good standing, in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary. Hagerty Re has all necessary corporate power and authority to conduct its business as it is currently being conducted. Hagerty Re is Controlled by Hagerty Insurance Holdings Inc., which is Controlled by Hagerty.
(e) Each of HGTY, Hagerty, Hagerty Agency and Hagerty Re has all necessary limited liability company or corporate, as applicable, power and authority to execute and deliver, carry out and perform its obligations under, and consummate the transactions contemplated by, each of the Transaction Agreements to which it is or will be a party. The execution and delivery by HGTY, Hagerty, Hagerty Agency and Hagerty Re of, the performance by HGTY, Hagerty,
Hagerty Agency and Hagerty Re of its obligations under, and the consummation by HGTY, Hagerty, Hagerty Agency and Hagerty Re of the transactions contemplated by, each of the Transaction Agreements to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is or will be a party have been duly authorized by all necessary limited liability company or corporate, as applicable, action on the part of HGTY, Hagerty, Hagerty Agency and Hagerty Re. Each of the Transaction Agreements to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is or will be a party has been, or upon execution and delivery thereof will be, duly executed and delivered by HGTY, Hagerty, Hagerty Agency and Hagerty Re. Assuming due authorization, execution and delivery by each other party thereto, each of the Transaction Agreements to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is or will be a party constitutes, or upon execution and delivery thereof will constitute, legal, valid and binding obligations of HGTY, Hagerty, Hagerty Agency and Hagerty Re, enforceable against them in accordance with their respective terms, except as such enforcement may be limited by any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws of general applicability now or hereafter in effect relating to or affecting creditors’ rights generally.
4.2 No Conflict. The execution and delivery by HGTY, Hagerty, Hagerty Agency and Hagerty Re of, the performance by each of HGTY, Hagerty, Hagerty Agency and Hagerty Re of its obligations under, and the consummation by HGTY, Hagerty, Hagerty Agency and Hagerty Re of the transactions contemplated by, each of the Transaction Agreements to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is or will be a party do not and will not (a) violate or conflict with the organizational documents of HGTY, Hagerty, Hagerty Agency or Hagerty Re, (b) conflict with or violate in any material respect any Law or Governmental Order applicable to HGTY, Hagerty, Hagerty Agency or Hagerty Re or to which any of them or any of their respective properties or assets is subject or bound, (c) result in a violation of, or cause the revocation, withdrawal, suspension, cancellation or termination of, or modification to, any Permit held by Hagerty Agency or Hagerty Re (except for such incidental Permits that would be readily obtainable by any qualified applicant without undue burden in the event of any lapse, termination, cancellation or forfeiture thereof), or (d) result in any breach or violation of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would constitute a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any material contract, note, instrument, indenture, mortgage, lease or other agreement to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is a party or by which any of them or any of their respective properties or assets is subject or bound.
4.3 Governmental Approvals. Except for any Governmental Approvals that have already been obtained and provided to Markel, the execution and delivery by HGTY, Hagerty, Hagerty Agency and Hagerty Re of, the performance by each of HGTY, Hagerty, Hagerty Agency and Hagerty Re of its obligations under, and the consummation by HGTY, Hagerty, Hagerty Agency and Hagerty Re of the transactions contemplated by, each of the Transaction Agreements to which HGTY, Hagerty, Hagerty Agency or Hagerty Re is or will be a party do not and will not require any Governmental Approval to be obtained by HGTY, Hagerty, Hagerty Agency or Hagerty Re.
4.4 Legal Proceedings. There is no Governmental Order or Action pending or, to the knowledge of HGTY or Hagerty, threatened against or affecting HGTY, Hagerty, Hagerty Agency or Hagerty Re that would materially adversely affect the consummation by HGTY, Hagerty, Hagerty Agency and Hagerty Re of the transactions contemplated by the Transaction Agreements or the ability of HGTY, Hagerty, Hagerty Agency or Hagerty Re to perform its obligations under any of the Transaction Agreements to which it is or will be a party.
4.5 Hagerty Permits. Hagerty Agency and Hagerty Re hold all Permits that are material to the operation of their respective businesses as currently conducted (collectively, the “Hagerty Permits”). As of the date hereof, the Hagerty Permits are valid and in full force and
effect, and neither Hagerty Agency nor Hagerty Re is in violation of or default under any of the Hagerty Permits applicable to it. As of the date hereof, there is no pending or, to the knowledge of HGTY or Hagerty, threatened Action seeking the revocation, suspension, termination, modification, impairment or non-renewal of any Hagerty Permit.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Operating Covenants. During the period from the date hereof until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, except as otherwise expressly permitted or required by this Agreement or any Transaction Agreement, required by applicable Law or requested or consented to in writing by Hagerty (such consent not to be unreasonably withheld, conditioned or delayed):
(a) Markel shall cause the Insurer to conduct its business in the ordinary course consistent with past practice and to use reasonable best efforts to maintain the Insurer’s goodwill and relationships with the Insurer’s policyholders, regulators and rating agencies; and
(b) Markel shall cause Evanston to not provide any consent or waive any rights under, or otherwise take or fail to take any discretionary action under, the Evanston Reinsurance Agreement without the prior written consent of Hagerty Re; and
(c) Markel shall cause the Insurer to not do any of the following:
(i) amend, modify or change the organizational documents of the Insurer in any material respect;
(ii) issue or authorize for issuance any shares of capital stock or other equity or voting interests of the Insurer, or grant options, warrants, calls or other rights to purchase, acquire or subscribe to, or redeem, repurchase or otherwise acquire any shares of capital stock or other equity or voting interests of the Insurer, except that Markel may cause additional shares of capital stock of the Insurer to be issued to Markel or its Affiliates;
(iii) (A) merge or consolidate with any other Person, (B) acquire (by merger, consolidation, acquisition of stock or assets, bulk reinsurance or otherwise) any Person or assets or liabilities comprising a business or a segment, division or line of business or any material amount of property or assets in or of any Person, (C) sell all or substantially all of the Insurer’s assets, (D) create or acquire any Subsidiaries or (E) enter into any partnership or joint venture;
(iv) take or authorize any action to wind up the affairs of the Insurer or dissolve, liquidate, rehabilitate or otherwise restructure the Insurer;
(v) file or authorize a voluntary case concerning the Insurer under any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws, or make a general assignment for the benefit of creditors or otherwise enter into a general arrangement for the restructuring of its liabilities with creditors, or consent to the appointment of a custodian under any applicable bankruptcy, insolvency, moratorium, rehabilitation, liquidation or similar Laws for all or any substantial part of the Insurer’s property or assets;
(vi) enter into any agreement or transaction with Markel or its Affiliates that is not terminable without penalty upon any acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty;
(vii) (A) incur any Indebtedness, other than trade accounts payable and short-term working capital financing, in each case, incurred in the ordinary course of business consistent with past practice, (B) make any loans, advances or capital contributions to, or investments in, any other Person, other than investments made in the ordinary course of business in accordance with its investment policies or as may be required by applicable Law or (C) assume, grant, guarantee or endorse, pledge or otherwise secure any assets or property or otherwise as an accommodation become responsible for (whether primary or secondary), the obligations of any Person;
(viii) enter into any agreement, contract, understanding or similar arrangement (other than Insurance Policies and third-party catastrophe, excess of loss or facultative reinsurance or retrocessional treaties or agreements entered into in accordance with the terms of this Agreement) with any Person other than Markel, HGTY or their respective Affiliates;
(ix) adopt, establish, contribute to or otherwise incur any liability with respect to any employee benefit plan, program, policy or arrangement;
(x) hire or retain the services of any employee or independent contractor (other than independent contractors retained in the ordinary course of business in connection with the administration of its business);
(xi) forfeit, abandon, modify or otherwise change, waive, terminate, fail to renew or maintain or let lapse any Insurer Permit, except as may be required in order to comply with applicable Law or this Agreement;
(xii) fail to submit any material reports, statements, documents, registrations, filings or submissions required to be filed by the Insurer with any Governmental Authority or otherwise fail to materially comply with any applicable Law;
(xiii) issue or assume any Insurance Policies other than Insurance Policies produced by Affiliates of Hagerty in connection with the Alliance Business, or otherwise engage in any business other than the Alliance Business;
(xiv) (i) enter into any new line of business, or introduce any new products or services, except as may be required by applicable Law, or (ii) change in any material respect existing products or services, except as may be required by applicable Law;
(xv) (i) fail to pay any Tax when due, fail to timely file all Tax Returns required to be filed, fail to withhold or collect for payment all Taxes required to be so withheld or collected, fail to remit any Taxes so withheld and collected, and (ii) on any Tax Return, take any position, make any election, or adopt any method which would have the effect of deferring income to periods (or portions thereof) after the Termination Date or accelerating deductions to periods (or portions thereof) on or prior to the Termination Date;
(xvi) enter into any reinsurance or retrocessional treaty or agreement, other than in accordance with the terms of this Agreement;
(xvii) enter into any agreement, contract, understanding or similar arrangement with (A) any officer, director or employee of the Insurer or any of its Affiliates, or (B) any spouse, ancestor or descendant (whether natural or adopted) of any officer, director or employee of the Insurer or any of its Affiliates; or
(xviii) agree or commit to do any of the foregoing; and
(d) Markel shall not, and shall cause its Affiliates not to:
(i) sell, transfer, assign, pledge, mortgage, hypothecate or otherwise dispose of or encumber (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest of Markel or its Affiliates in the Insurer;
(ii) permit MSI to terminate the Claims Services and Management Agreement or replace or reduce the duties and responsibilities of Hagerty Agency thereunder or permit the delegation of any administrative function with respect to the Evanston Reinsured Policies to any person, other than to Hagerty Agency; or
(iii) take any action with respect to the Insurer on an affiliated, consolidated, combined or unitary group Tax Return of which the Insurer is a part that would, if taken by the Insurer directly, constitute a violation of clause (xv) of Section 5.1(c).
5.2 Permits and Governmental Approvals.
(a) Each of Markel and HGTY shall take or cause to be taken all actions reasonably necessary to preserve, renew and maintain in full force and effect all Permits and Governmental Approvals necessary to conduct the Alliance Business in all fifty (50) of the United States and the District of Columbia.
(b) If any Permit or Governmental Approval necessary for the Insurer to conduct the Alliance Business in any of the United States or the District of Columbia is not preserved, renewed or otherwise maintained in full force and effect at any time following the date hereof through the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, then Markel shall make available such alternative insurance company Subsidiary of Markel reasonably acceptable to Hagerty that (A) is rated at least “A” (Excellent) by A.M. Best and (B) has the requisite Permits to conduct the Alliance Business in such jurisdiction (the “Alternative Insurer”) for the purpose of underwriting all Insurance Policies produced in connection with the Alliance Business in such jurisdiction until such time that the Insurer obtains such Permits. Markel shall cause any such Alternative Insurer to become a party to the Second Amended Agency Agreement, as applicable, or otherwise enter into a personal lines agency agreement with Hagerty Agency substantially in the form of the Second Amended Agency Agreement. Any such Insurance Policies that are underwritten by such Alternative Insurer shall be (I) transitioned to the Insurer, at Markel’s sole cost and expense, as promptly as reasonably practicable following the date on which the Insurer obtains all of the requisite Permits to conduct the Alliance Business in such jurisdiction and (II) ceded to, and assumed by, the Insurer on a one hundred percent (100%) indemnity basis until such time that such Insurance Policies are so transitioned to the Insurer. The Parties agree that, for purposes of calculating any compensation pursuant to the Second Amended Agency Agreement, as applicable, including any profit sharing commission, (x) the written premium with respect to any Insurance Policies that are underwritten by such Alternative Insurer shall be aggregated with the written premium with respect to any Insurance Policies that are underwritten by the Insurer and (y) the loss data with respect to any Insurance Policies that are underwritten by such Alternative Insurer shall be aggregated with the loss data with respect to any Insurance Policies that are underwritten by the Insurer.
(c) Markel and HGTY shall, and shall cause their Affiliates to, work together in good faith to preserve, renew and maintain in full force and effect all such Governmental Approvals as are reasonably necessary to cause the Insurer to be exempt from any assigned risk programs, “take all comer” Laws and other similar programs and Laws that would otherwise be applicable to the Insurer.
5.3 Insurer Rating.
(a) Until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, Markel shall promptly provide Hagerty with copies of all reports, presentations, correspondence or other information or communications provided by Markel or any of its Affiliates or Representatives to A.M. Best or received by Markel or any of its Affiliates or Representatives from A.M. Best, in each case, solely to the extent relating to the Insurer.
(b) Until the earlier of (i) such time as the Insurer has a stand-alone financial strength rating by A.M. Best of at least “A” (Excellent) and (ii) the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, Markel shall continue to include the Insurer as a member of the Markel North America Insurance Group for A.M. Best financial strength rating purposes, such that the financial strength rating of the Insurer by A.M. Best is the same as the other member insurance companies comprising the Markel North America Insurance Group.
(c) Until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, Markel shall use its reasonable best efforts to ensure that the financial strength rating of the Insurer by A.M. Best at all times is at least “A” (Excellent).
5.4 Name of the Insurer. Until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, upon the request of Hagerty and subject to obtaining all required Governmental Approvals (which the Parties shall cooperate and work together in good faith in seeking), the Parties shall take all actions necessary to effect a change in the name of the Insurer to such name as may be agreed by the Parties; provided, that if the name of either Party is proposed to be included in such name, it shall be a condition of any such name change that the Parties and the Insurer enter into mutually acceptable trademark or service mark licenses with respect to the use of the Party’s names and a mutually acceptable arrangement with respect to the change of the Insurer’s name following the termination of this Agreement if the Party whose name is used does not retain an ownership interest in the Insurer. In such event, the Parties shall cooperate to ensure that (i) the Insurer is authorized to use such name in the United States and (ii) the Insurer maintains all Permits and is compliant with all rate and form filing requirements under its new name in all applicable jurisdictions. HGTY or Hagerty shall be responsible for designing and developing the trademarks, service marks, logos and other identifying symbols of the Insurer and the Alliance Business, subject to Markel’s review and approval (not to be unreasonably withheld, conditioned or delayed). For the avoidance of doubt, in the event Hagerty acquires the Insurer pursuant to Section 5.6(a), nothing herein shall prohibit HGTY or Hagerty from changing the name of the Insurer following the effective date of such acquisition.
5.5 Governmental Approvals.
(a) The Parties agree to work together in good faith to ensure that the Second Amended Agency Agreement remains in place during the term of this Agreement and for the duration of any Fronting Period. As promptly as reasonably practicable following the date on which the term of the Second Amended Agency Agreement expires in accordance with its terms,
Markel and HGTY shall use, and cause their Affiliates to use, reasonable best efforts to extend the term of the Second Amended Agency Agreement to and including (i) December 31, 2030 or (ii) at the request of Hagerty, the last day of the Fronting Period, and in the case of each of clause (i) and (ii), Markel shall use reasonable best efforts to obtain all Governmental Approvals that are or become required under applicable Law to extend the term of the Second Amended Agency Agreement.
5.6 Acquisition of the Insurer by Hagerty.
(a) Hagerty shall have the exclusive right, exercisable in its sole discretion by providing six (6) months’ prior written notice (the “Hagerty Acquisition Notice”) to Markel to purchase one hundred percent (100%) of the issued and outstanding capital stock of the Insurer from Markel and such Affiliates of Markel that own any capital stock of the Insurer (collectively, the “Markel Sellers”). The Hagerty Acquisition Notice shall set forth the proposed effective date of such acquisition, which date (x) shall be the first day of a calendar year and (y) may not be earlier than January 1, 2026 or later than January 1, 2030. The purchase price payable by Hagerty in consideration for such acquisition shall be an amount equal to (i) $23,000,000, plus (ii) the Statutory Book Value as of the December 31 immediately preceding the proposed effective date of such acquisition set forth in the Hagerty Acquisition Notice, determined on a pro forma basis giving effect to the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f), the distribution and assignment of rights contemplated by Section 5.6(g) and the settlement of claims contemplated by Section 5.6(h), if applicable (such purchase price, the “Insurer Acquisition Price”). Following receipt by Markel of the Hagerty Acquisition Notice, the Parties shall work together in good faith and reasonably cooperate with each other to negotiate and prepare a share purchase agreement containing customary terms and conditions pursuant to which Hagerty or its designee shall purchase, acquire and accept from the Markel Sellers, and the Markel Sellers shall sell, convey, assign, transfer and deliver to Hagerty or its designee, all of the issued and outstanding capital stock of the Insurer free and clear of all Liens. Such share purchase agreement shall include, among other things: (i) a requirement for Markel to indemnify Hagerty and its Affiliates for all non-insurance Liabilities of the Insurer arising prior to the date of such sale of all of the issued and outstanding capital stock of the Insurer to Hagerty (excluding any such Liabilities that were taken into account in determining the Statutory Book Value as of the December 31 immediately preceding the proposed effective date set forth in the Hagerty Acquisition Notice, but including, with respect to Taxes, all Liabilities for which the Insurer could be liable as a result of being a member of an affiliated, combined, consolidated or unitary group prior to the date of such sale); (ii) unqualified representations and warranties by Markel that (A) the Markel Sellers own all of the issued and outstanding capital stock of the Insurer free and clear of all Liens, (B) the Insurer has no employees or independent contractors (other than independent contractors retained in the ordinary course of business in connection with the administration of the Insurer’s business), (C) the Insurer does not, and has no obligation to, sponsor, maintain or contribute to any employee benefit plan, (D) the Insurer is not a party to any agreement, contract, understanding or similar arrangement (other than Insurance Policies and third-party catastrophe, excess of loss or facultative reinsurance or retrocessional treaties or agreements entered into in accordance with the terms of this Agreement) with any Person other than HGTY, Markel or their respective Affiliates) and (E) the Insurer does not own or have a leasehold interest in any real property; and (iii) a requirement that (A) the Insurer has assets in an amount and of the type required in order for the Insurer to maintain all Insurer Permits and all statutory deposits required to be maintained by the Insurer under applicable Law and (B) any additional assets of the Insurer above the amount referenced in clause (A) consist of cash and/or cash equivalents and corporate debt securities rated AA/Aa2 or better. The consummation of the acquisition pursuant to this Section 5.6(a) shall be subject to the receipt of all Governmental Approvals necessary with respect to the acquisition of Control of the Insurer by the Hagerty Party. Hagerty’s obligation to consummate
the acquisition contemplated by this Section 5.6(a) shall be further subject to the receipt of all Governmental Approvals required to effect the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f) and the distribution and assignment of rights contemplated by Section 5.6(g). Each Party agrees to, and to cause its Affiliates to, take all actions reasonably necessary to give effect to the transactions contemplated by this Section 5.6 (including the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f) and the distribution and assignment of rights contemplated by Section 5.6(g) and establishment of the escrow accounts contemplated by Section 5.6(g) and Section 5.6(i)), including using (and causing its Affiliates to use) reasonable best efforts to obtain any required Governmental Approvals as promptly as practicable following the delivery of the Hagerty Acquisition Notice. The consummation of the acquisition pursuant to this Section 5.6(a) shall become effective at 12:00:01 a.m. on the effective date proposed by Hagerty in the Hagerty Acquisition Notice, or, if later, at 11:59:59 p.m. on the date that is three (3) Business Days following the receipt of all Governmental Approvals necessary with respect to the acquisition of Control of the Insurer by Hagerty or, at the sole discretion of Hagerty, if later, at 11:59:59 p.m. on the date that is three (3) Business Days following the receipt of all applicable Governmental Approvals required to consummate the transactions contemplated by this Section 5.6(a) (including all Governmental Approvals required to effect the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f) and the distribution and assignment of rights contemplated by Section 5.6(g)). If Hagerty exercises its option to acquire all of the issued and outstanding capital stock of the Insurer pursuant to this Section 5.6(a), then following Markel’s receipt of the Hagerty Acquisition Notice, Markel shall, until such time of the consummation of the acquisition pursuant to this Section 5.6(a), cooperate with Hagerty and provide Hagerty with any information reasonably requested by Hagerty in connection with any effort by Hagerty to maintain the Insurer’s financial strength rating by A.M. Best or obtain a stand-alone financial strength rating for the Insurer by A.M. Best.
(b) If Hagerty exercises its option to purchase all of the issued and outstanding capital stock of the Insurer in accordance with Section 5.6(a), then at least fifteen (15) Business Days prior to the proposed effective date of such acquisition set forth in the Hagerty Acquisition Notice, Markel shall prepare a reasonably detailed calculation of the Insurer Acquisition Price using Markel’s good faith estimate of the Statutory Book Value as of the December 31 immediately preceding the proposed effective date of such acquisition set forth in the Hagerty Acquisition Notice and provide written notice (the “Estimated Insurer Acquisition Price Notice”) thereof to Hagerty. On the date on which the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty is consummated pursuant to Section 5.6(a), Hagerty shall pay to Markel an amount equal to Markel’s estimate of the Insurer Acquisition Price set forth in the Estimated Insurer Acquisition Price Notice (such amount, the “Estimated Insurer Acquisition Price”), minus the Option Price.
(c) No later than ninety (90) days following the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a), Hagerty shall prepare a reasonably detailed calculation of the Insurer Acquisition Price and provide written notice (the “Insurer Acquisition Price Notice”) thereof to Markel. Markel shall have thirty (30) days following its receipt of the Insurer Acquisition Price Notice to provide written notice (“Insurer Acquisition Price Notice of Disagreement”) of its disagreement with the calculation of the Insurer Acquisition Price set forth in the Insurer Acquisition Price Notice. If Markel does not provide such Insurer Acquisition Price Notice of Disagreement to Hagerty within such time period, then the calculation of the Insurer Acquisition Price set forth in the Insurer Acquisition Price Notice shall be final and binding on the Parties. During the thirty (30)
days immediately following the delivery of the Insurer Acquisition Price Notice of Disagreement, the Parties will seek in good faith to resolve any disputes as to the calculation of the Insurer Acquisition Price set forth in the Insurer Acquisition Price Notice. In the event that any such dispute is not resolved within such time period, each Party shall submit its calculation of the Insurer Acquisition Price to Grant Thornton LLP or such other nationally recognized independent accounting firm with actuarial expertise as shall be agreed by the Parties (an “Independent Expert”). The Parties shall request that the Independent Expert provide its determination of the Insurer Acquisition Price within twenty (20) days after the submission of such matter to the Independent Expert, or as soon as reasonably practicable thereafter, and the Independent Expert’s determination of the Insurer Acquisition Price shall be final and binding on the Parties. The Independent Expert’s calculation of the Insurer Acquisition Price, if not in accordance with the calculation submitted by Hagerty or Markel, shall not be more favorable to Hagerty than the calculation submitted by Hagerty or more favorable to Markel than the calculation submitted by Markel. All fees and expenses relating to the work performed by the Independent Expert pursuant to this Section 5.6(c) shall be shared equally between Hagerty and Markel. The “Final Insurer Acquisition Price” shall be equal to (i) the Estimated Insurer Acquisition Price, if Hagerty does not deliver the Insurer Acquisition Price Notice to Markel in accordance with this Section 5.6(c), (ii) the Insurer Acquisition Price set forth in the Insurer Acquisition Price Notice, if Markel does not deliver the Insurer Acquisition Price Notice of Disagreement within the time period set forth in this Section 5.6(c), (iii) the amount agreed upon between Hagerty and Markel or (iv) the Insurer Acquisition Price determined by the Independent Expert pursuant to this Section 5.6(c), if Markel delivers the Insurer Acquisition Price Notice of Disagreement and Hagerty and Markel are unable to agree upon the Insurer Acquisition Price. The Final Insurer Acquisition Price minus the Estimated Insurer Acquisition Price shall be referred to as the “Insurer Acquisition Price Adjustment”. If the Insurer Acquisition Price Adjustment is a positive amount, then Hagerty shall pay to Markel an amount in cash equal to the Insurer Acquisition Price Adjustment within five (5) Business Days following determination of the Final Insurer Acquisition Price in accordance with this Section 5.6(c). If the Insurer Acquisition Price Adjustment is a negative amount, then Markel shall pay to Hagerty an amount in cash equal to the absolute value of the Insurer Acquisition Price Adjustment within five (5) Business Days following determination of the Final Insurer Acquisition Price in accordance with this Section 5.6(c).
(d) Immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), if there are any Liabilities associated with Insurance Policies written, renewed or assumed by the Insurer prior to the effective date of such acquisition that were not assumed by Evanston pursuant to the Evanston Reinsurance Agreement, then Markel shall cause the Insurer and Evanston to enter into a loss portfolio transfer reinsurance agreement, pursuant to which, effective immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), the Insurer shall transfer cash and/or assets (as determined and selected in the sole discretion of Evanston) with a fair market value equal to any and all such Liabilities associated with such Insurance Policies, and Evanston shall assume from the Insurer, any and all such Liabilities associated with such Insurance Policies.
(e) Immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), all agreements between the Insurer, on the one hand, and Markel and/or any Affiliates of Markel, on the other hand (other than the Evanston Reinsurance Agreement, and the Claims Services Agreement) and the loss portfolio transfer reinsurance agreement contemplated by Section 5.6(d)) shall be terminated, effective immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), and each party thereto shall be released from any and all Liabilities arising in
connection therewith, and Markel shall agree to waive any and all rights that it may have against the Insurer thereunder. In addition, Markel shall cause each loan, note, advance, receivable, payable and other obligation between the Insurer, on the one hand, and Markel and/or any of its Affiliates, on the other hand, regardless of its maturity, to be settled, discharged, offset, paid, repaid in full, terminated or extinguished, for the amount due, including any accrued and unpaid interest to but excluding the date of payment, prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b). At the request of Hagerty, the Parties agree to work together in good faith to negotiate and prepare a transition services agreement containing customary terms and conditions pursuant to which Markel and its applicable Affiliates would continue to provide certain management and administrative services to the Insurer, subject to reasonable compensation therefor, on a transitional basis following such closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b).
(f) Subject to the receipt of all required Governmental Approvals, immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), Markel shall cause the Insurer to declare and pay a dividend to Markel in an amount equal to the maximum amount permitted by the Missouri Department of Insurance; provided, that, following the payment of such dividend, the Insurer retains the minimum statutory capital and surplus required as of such date in order for the Insurer to maintain all Insurer Permits and all statutory deposits required to be maintained by the Insurer under applicable Law.
(g) (i) Immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), and subject to the receipt of all necessary Governmental Approvals, Markel shall cause the Insurer to distribute and assign to Markel, effective immediately prior to such closing, all of the Insurer’s indemnification rights under the First Amended Agency Agreement and the Second Amended Agency Agreement with respect to any Liabilities arising prior to such closing to the extent such Liabilities have been assumed by Markel, and (ii) if any claims by the Insurer against HGTY or its Affiliates for Liabilities (including Liabilities described in clause (i) above) arising under the First Amended Agency Agreement or the Second Amended Agency Agreement remain outstanding and such Liabilities have been assumed by Markel and are not covered under Hagerty Agency’s or Hagerty Marine’s errors and omissions insurance policy or otherwise recoverable from a third party not affiliated with HGTY, then upon the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), Hagerty shall deposit into an escrow account, established with an escrow agent mutually acceptable to Markel and Hagerty, cash in an amount equal to the lesser of (A) $3,000,000 and (B) the average of (x) Markel’s reasonable estimate of the amount that would be sufficient to resolve any claims for such Liabilities and (y) Hagerty’s reasonable estimate of the amount that would be sufficient to resolve any claims for such Liabilities.
(h) Following receipt by Markel of the Hagerty Acquisition Notice, the Parties shall work together in good faith and use reasonable best efforts to identify and resolve any outstanding claims for Liabilities between the Insurer and HGTY or its Affiliates arising under the First Amended Agency Agreement or the Second Amended Agency Agreement prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b).
(i) If any claims by HGTY or its Affiliates against the Insurer for Liabilities arising under the First Amended Agency Agreement or the Second Amended Agency Agreement remain outstanding and such Liabilities are not otherwise recoverable from a third party not affiliated with Markel, then upon the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), Markel shall
deposit into an escrow account, established with an escrow agent mutually acceptable to Markel and Hagerty, cash in an amount equal to the lesser of (A) $3,000,000 and (B) the average of (x) Markel’s reasonable estimate of the amount that would be sufficient to resolve any claims for such Liabilities and (y) Hagerty’s reasonable estimate of the amount that would be sufficient to resolve any claims for such Liabilities.
(j) Immediately prior to the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b), Markel and HGTY shall cause Evanston and Hagerty Re, respectively, to terminate the Hagerty Reinsurance Agreement with respect to new business, effective upon the closing of the acquisition of all of the issued and outstanding capital stock of the Insurer by Hagerty pursuant to Section 5.6(a) and Section 5.6(b). Upon the closing of such acquisition, (i) HGTY shall cause the Insurer and Hagerty Re to enter into a reinsurance agreement substantially in the form of the Hagerty Reinsurance Agreement; provided, that such agreement shall cover Insurance Policies written, renewed or assumed by the Insurer in connection with the Alliance Business with an effective date during the period from and including the effective date of such acquisition, through and including December 31, 2030 and shall contemplate the reinsurance agreement described in clause (ii) below, and (ii) HGTY and Markel shall cause the Insurer and Evanston, as applicable, to enter into an amendment to the 2024 Evanston Reinsurance Agreement providing for Evanston’s quota share participation thereunder to become twenty percent (20%) with respect to the Alliance Business (including any Insurance Policies underwritten by a Fronting Insurer pursuant to Section 5.7(b)) with an effective date during the period from and including the effective date of such acquisition, through and including December 31, 2030 (provided, that Evanston’s quota share participation shall be determined prior to giving effect to (x) the reinsurance contemplated by clause (i) above and (y) any property catastrophe reinsurance protection purchased by the Insurer).
5.7 Alliance Business.
(a) Subject to Section 5.2(b), Section 5.7(b), Section 5.7(c) and Section 5.10, except as otherwise agreed in writing between the Parties, the Parties agree that all Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business shall be underwritten by the Insurer; provided, that, upon mutual agreement of the Parties, Insurance Policies produced in connection with the Alliance Business may be underwritten by Markel American Insurance Company (“MAIC”) and/or Markel Insurance Company (“MIC”) so long as the attendant costs are proportionally shared between HGTY and Markel (based on Hagerty Re’s then-current quota share percentage under the Hagerty Reinsurance Agreement). In the event any Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business are underwritten by MAIC or MIC in accordance with this Section 5.7(a), Markel shall cause MAIC and/or MIC, as applicable, to become a party to the Second Amended Agency Agreement, as applicable, or otherwise enter into a personal lines agency agreement with Hagerty Agency substantially in the form of the Second Amended Agency Agreement. Any such Insurance Policies that are underwritten by MAIC or MIC shall be ceded to, and assumed by, the Insurer on a one hundred percent (100%) indemnity basis; provided, that no commercial business produced by Hagerty Agency or any of its Affiliates and underwritten by MAIC or MIC shall be ceded to the Insurer. The Parties agree that, for purposes of calculating any compensation pursuant to the Second Amended Agency Agreement, as applicable, including any profit sharing commission, (x) the written premium with respect to any Insurance Policies that are underwritten by MAIC and/or MIC shall be aggregated with the written premium with respect to any Insurance Policies that are underwritten by the Insurer and any Fronting Insurer and (y) the loss data with respect to any Insurance Policies that are underwritten by MAIC and/or MIC shall be aggregated with the loss data with respect to any Insurance Policies that are underwritten by the Insurer and any Fronting Insurer.
(b) Upon Hagerty’s request, Markel shall cause State National Insurance Company, Inc. or another Subsidiary of Markel agreed upon by Hagerty and Markel (each, a “Fronting Insurer”) to underwrite Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business and not underwritten by the Insurer, MAIC or MIC. In the event any such Insurance Policies are underwritten by a Fronting Insurer in accordance with this Section 5.7(b), Markel shall cause such Fronting Insurer to enter into a personal lines agency agreement with Hagerty Agency on terms mutually agreed upon by the parties and consistent with such Fronting Insurer’s standard requirements and documentation, including with respect to collateral arrangements and fronting fee payment mechanics. Any such Insurance Policies that are underwritten by any Fronting Insurer shall be ceded to, and assumed by, the Insurer on a one hundred percent (100%) indemnity basis. The Parties agree that, for purposes of calculating any compensation pursuant to the Second Amended Agency Agreement, as applicable, including any profit sharing commission, (x) the written premium with respect to any Insurance Policies that are underwritten by any Fronting Insurer shall be aggregated with the written premium with respect to any Insurance Policies that are underwritten by the Insurer, MAIC and MIC and (y) the loss data with respect to any Insurance Policies that are underwritten by any Fronting Insurer shall be aggregated with the loss data with respect to any Insurance Policies that are underwritten by the Insurer, MAIC and MIC. If a Fronting Insurer underwrites Insurance Policies as contemplated by this Section 5.7(b), then Hagerty or one of its Affiliates shall pay to such Fronting Insurer an annual fronting fee equal to the greater of (A) five percent (5%) of the annual gross written premium underwritten by such Fronting Insurer in connection with the Alliance Business, net of any state mandated assessments and fees passed directly through to the state, and (B) $250,000.
(c) If Hagerty acquires the Insurer pursuant to Section 5.6(a) prior to the termination of this Agreement, then, in Hagerty’s sole discretion, Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business may be underwritten by any insurance carrier selected by Hagerty; provided, that any such Insurance Policies that are not underwritten by the Insurer must be ceded to, and assumed by, the Insurer.
(d) Unless otherwise agreed in writing by Hagerty, until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, no Insurance Policies shall be issued or assumed by the Insurer other than Insurance Policies produced by Hagerty Agency or any of its Affiliates in connection with the Alliance Business.
5.8 Enthusiast Business. The Parties acknowledge and agree that Hagerty Agency may seek to produce Enthusiast Business that is to be underwritten by the Insurer, with up to one hundred percent (100%) of the premiums and risks to be ceded by the Insurer to Hagerty Re through Evanston, subject to the following terms and conditions:
(a) If a risk that qualifies as Enthusiast Business meets the applicable eligibility requirements and conditions set forth in the Second Amended Agency Agreement for coverage in the Core Program (i.e., incidental Enthusiast Business) and Hagerty Agency determines that it is to be covered in the Core Program, then such incidental Enthusiast Business will be deemed Alliance Business and the Insurance Policies relating thereto and produced by Hagerty Agency shall be underwritten by the Insurer pursuant to Section 5.7(a) so long as (i) such incidental Enthusiast Business continues to meet the applicable eligibility requirements and conditions set forth in the Second Amended Agency Agreement for coverage in the Core Program, (ii) the Insurer has all Permits required to underwrite such incidental Enthusiast Business in the jurisdictions in which Hagerty Agency seeks to produce such incidental Enthusiast Business, (iii) the underwriting to be performed by the Insurer is compliant with all rate and form filing requirements of the jurisdiction in which Hagerty Agency seeks to produce such incidental Enthusiast Business, (iv) the Insurer is able to cede one hundred percent (100%) of the risks and premiums from such incidental Enthusiast Business to Evanston, and (v) Evanston is able to
retrocede at least eighty percent (80%) of such risks and premiums to Hagerty Re. Such incidental Enthusiast Business as contemplated by this Section 5.8(a) will be produced pursuant to the Second Amended Agency Agreement.
(b) If a risk that qualifies as Enthusiast Business does not meet the applicable eligibility requirements and conditions set forth in the Second Amended Agency Agreement for coverage in the Core Program (i.e., stand-alone Enthusiast Business), then such stand-alone Enthusiast Business will not be deemed Alliance Business. Notwithstanding the foregoing, upon Hagerty’s request, Markel shall cause the Insurer to underwrite Insurance Policies relating thereto and produced by Hagerty Agency so long as (i) the Insurer has all Permits required to underwrite such Enthusiast Business in the jurisdictions in which Hagerty Agency seeks to produce such stand-alone Enthusiast Business, (ii) the underwriting to be performed by the Insurer is compliant with all rate and form filing requirements of the jurisdictions in which Hagerty Agency seeks to produce such stand-alone Enthusiast Business, (iii) the Insurer is able to cede one hundred percent (100%) of the risks and premiums from such stand-alone Enthusiast Business to Evanston, (iv) Evanston is able to retrocede one hundred percent (100)% of such risks and premiums to Hagerty Re and receives an appropriate ceding commission therefor from Hagerty Re, (v) an annual fronting fee equal to five percent (5%) of the annual gross written premium underwritten by the Insurer in connection with such stand-alone Enthusiast Business, net of any state mandated assessments and fees passed directly through to the state, is paid to the Insurer by Hagerty Agency and (vi) definitive agreements, including a personal lines agency agreement between the Insurer and Hagerty Agency, a reinsurance agreement between the Insurer and Evanston and a reinsurance agreement between Evanston and Hagerty Re, memorializing the above and any other customary terms and conditions are entered into by the applicable parties.
(c) In either case of (a) or (b) above, if Hagerty Agency decides to use any other insurance carrier to underwrite Enthusiast Business, Hagerty shall provide Markel and its Affiliates the opportunity to provide reinsurance protection on such Enthusiast Business at market terms; provided, that neither Markel nor its Affiliates shall be obligated to provide reinsurance protection on such Enthusiast Business.
(d) In either case of (a) or (b) above, if the Insurer needs to obtain Permits or submit filings in any jurisdiction in which Hagerty Agency seeks to produce Enthusiast Business for the Insurer to become compliant with rate and form filing requirements of such jurisdiction, Hagerty shall bear all fees and expenses in connection therewith and shall cooperate with the Insurer.
5.9 Ownership of Intellectual Property. Markel hereby acknowledges that, subject to the terms of the Second Amended Agency Agreement, all Renewal Rights shall be the property of Hagerty and its Affiliates, and neither Markel nor any of its Affiliates shall have any ownership interest therein. The Parties further agree that:
(a) all intellectual property (i) owned or licensed by Hagerty and its Affiliates as of the date of the Original Alliance Agreement, or (ii) developed and/or paid for by HGTY, Hagerty or their Affiliates in connection with the Alliance Business shall be the property of HGTY and its Affiliates, and neither Markel nor any of its Affiliates shall have any ownership interest therein;
(b) all intellectual property (i) owned or licensed by Markel and its Affiliates as of the date of the Original Alliance Agreement, or (ii) developed and/or paid for by Markel or its Affiliates in connection with the Alliance Business, shall be the property of Markel and its Affiliates, and neither HGTY nor any of its Affiliates shall have any ownership interest therein; and
(c) all intellectual property (i) developed by HGTY, Hagerty or their Affiliates jointly with Markel or its Affiliates in connection with the Alliance Business, (ii) developed and/or paid for by the Insurer, or (iii) owned or licensed by the Insurer as of the date of the First Amended and Restated Alliance Agreement, shall be the property of the Insurer, and none of HGTY, Markel or any of their respective Affiliates (other than the Insurer) shall have any ownership interest therein; provided, however, that the Insurer shall grant to Markel and its Affiliates and to HGTY and its Affiliates a perpetual, irrevocable, worldwide, royalty-free fully paid-up, non-exclusive right and license to use all such intellectual property that is used in the operation or conduct of the Alliance Business.
5.10 Certain Other Activities. Notwithstanding anything to the contrary in this Agreement, nothing contained in this Agreement shall prohibit or limit the performance by the Parties or their Affiliates of their respective obligations in respect of, or preclude, prohibit or restrict the Parties or their Affiliates from engaging, in any manner, in the transactions and activities set forth in Exhibit A.
5.11 Evanston Reinsurance Agreement.
(a) In the event that the financial strength rating of Evanston is downgraded by A.M. Best below (i) “A” (Excellent), at any time during which the aggregate reserves, determined in accordance with SAP, relating to the Liabilities reinsured by Evanston under the Evanston Reinsurance Agreement exceed $10,000,000, or (ii) “B++” (Good), at any other time, Markel shall (x) take, or cause to be taken, all such actions as are necessary to restore, within one hundred eighty (180) days following such downgrade, such financial strength rating to an “A” (Excellent) or “B++” (Good), as applicable, (y) cause (A) the Evanston Reinsured Policies to be reinsured by an Affiliate of Markel that has a financial strength rating of at least “A” (Excellent) by A.M. Best and (B) such Affiliate to enter into a reinsurance agreement with Hagerty Re in the form of the Hagerty Reinsurance Agreement or (z) implement, or cause to be implemented, such security arrangements as are reasonably acceptable to Hagerty.
(b) In the event that, at any time while either the Hagerty Reinsurance Agreement or the 2024 Evanston Reinsurance Agreement remains in force, Markel no longer Controls Evanston, Markel shall cause (i) an Affiliate of Markel that has a financial strength rating of at least “A” (Excellent) by A.M. Best to provide reinsurance protection with respect to the Evanston Reinsured Policies and (ii) such Affiliate to enter into a reinsurance agreement with Hagerty Re in the form of the Hagerty Reinsurance Agreement.
5.12 Reinsurance Program.
(a) The Parties agree that the Insurer is permitted to purchase third-party catastrophe, excess of loss and facultative reinsurance as it deems advisable. Until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable, (i) Markel shall provide notice to Hagerty in writing at least sixty (60) days prior to making any change to the catastrophe, excess of loss or facultative reinsurance program the Insurer has in place from time to time for the Alliance Business (including any material cost increase or coverage reduction) and (ii) for each annual assessment of third-party catastrophe, excess or loss and facultative reinsurance, Markel shall use its reasonable best efforts (through its internal and external expertise) to assist the Insurer with pricing and coverage.
(b) Until the Termination Date, Markel shall use reasonable best efforts to, and shall cause MIICL to use reasonable best efforts to, maintain in place unlimited liability reinsurance protection, solely to the extent insurance business written under the Hagerty Motor Binding Authority Agreement is required by Law to provide unlimited liability cover, sufficient to permit MIICL to insure business written under the Hagerty Motor Binding Authority Agreement;
provided, that if such reinsurance protection is no longer available to MIICL or it is no longer economically feasible to obtain or maintain such reinsurance protection (as determined by MIICL in its sole discretion), then MIICL shall no longer be required to write insurance business as contemplated by the Hagerty Motor Binding Authority Agreement.
5.13 Non-Competition.
(a) The Parties agree that, during the period commencing on the date of the Original Alliance Agreement and ending on the Termination Date, (i) Markel and HGTY shall, and shall cause their respective Affiliates not to, directly or indirectly, other than through the Alliance, engage in the business of marketing, producing, selling, underwriting and administering within the fifty (50) United States and the District of Columbia any Insurance Policies of the type marketed, produced, sold, underwritten or administered in connection with the Alliance Business other than Enthusiast Business (whether or not deemed Alliance Business) (the “Restricted Business”) and (ii) neither Party shall permit the use of its name and service marks in connection with any Restricted Business. For the avoidance of doubt, the Parties acknowledge and agree that Enthusiast Business (whether or not deemed Alliance Business) is not Restricted Business, and HGTY, Hagerty, Hagerty Agency or any Affiliate thereof may underwrite, in its sole discretion, Enthusiast Business through or with any Affiliate carrier or any third-party carrier.
(b) Notwithstanding anything to the contrary in Section 5.13(a), and without implication that the following activities otherwise would be subject to the provisions of this Section 5.13, nothing in this Agreement shall:
(i) preclude, prohibit or restrict Markel from engaging, or require Markel to cause any of its Affiliates not to engage, in any manner in any of the following:
(A) acquiring less than an aggregate of five percent (5%) of any class of stock of a Person engaged, directly or indirectly, in the Restricted Business if such stock is publicly traded and listed on any stock exchange;
(B) acquiring, merging or combining with any Person or business that engages, directly or indirectly, in the Restricted Business, so long as the gross revenues of such Person or business derived from the Restricted Business for the most recent fiscal year ended prior to the date of such acquisition were less than ten percent (10%) of the total consolidated gross revenues of such Person or business for such fiscal year; provided, however, that, subject to the requirements of Law, (I) Markel shall, and shall cause its Affiliates to, use reasonable best efforts to transfer to the Insurer any Insurance Policies written by such acquired Person, or in connection with such acquired business, that would be included in the Alliance Business and would comport with the underwriting guidelines set forth in the Second Amended Agency Agreement upon the normal course renewal of each such Insurance Policy, and (II) to the extent that any such Insurance Policies cannot be so transferred to the Insurer or do not comport with the underwriting guidelines set forth in the Second Amended Agency Agreement, Markel shall, and shall cause its Affiliates to, as promptly as practicable, either (x) cause such acquired Person or business to cease engaging in the Restricted Business and terminate all producer agreements relating to the Restricted Business or (y) sell or otherwise transfer all of its interest in the portion of such acquired Person or business conducting the Restricted Business to an unaffiliated third party; provided, further, that in no event shall Markel permit the use by such acquired Person or business of the “Markel” name and service marks in connection with the Restricted Business;
(C) marketing, producing, selling, underwriting or administering any Insurance Policies other than Insurance Policies of the type comprising the Alliance Business;
(D) marketing, producing, selling, underwriting or administering Insurance Policies in connection with Marine Business;
(E) acquiring the Insurer; and
(F) underwriting or administering any Insurance Policies that are produced by Hagerty Agency or any of its Affiliates; or
(ii) preclude, prohibit or restrict HGTY from engaging, or require HGTY to cause any of its Affiliates not to engage, in any manner in any of the following:
(A) acquiring, merging or combining with any Person or business that engages, directly or indirectly, in the Restricted Business; provided, however, that, subject to the requirements of Law, HGTY shall, and shall cause its Affiliates to, use reasonable best efforts to transfer to the Insurer any Insurance Policies written by such acquired Person, or in connection with such acquired business, that would be included in the Alliance Business and that would comport with the underwriting guidelines set forth in the Second Amended Agency Agreement, upon the normal course renewal of each such Insurance Policy;
(B) marketing, producing, selling, underwriting or administering any products (insurance or otherwise) other than Insurance Policies of the type comprising the Alliance Business;
(C) marketing, producing, selling, underwriting or administering any Insurance Policies prior to the Alliance Effective Date;
(D) marketing, producing, selling, underwriting or administering any Insurance Policies in any jurisdiction other than the fifty (50) United States and the District of Columbia;
(E) administering any Insurance Policies that are produced by Hagerty Agency or any of its Affiliates prior to the Alliance Effective Date;
(F) providing any ancillary services relating to Insurance Policies;
(G) marketing, producing, selling, underwriting or administering any Insurance Policies in any jurisdiction in which the Alliance Business cannot be conducted as a result of the breach by Markel of its obligations under Section 5.2(b) of this Agreement; and
(H) marketing, producing, selling, underwriting or administering any Insurance Policies that (I) do not comport with the underwriting guidelines set forth in the Second Amended Agency Agreement or the rate filings made in connection with the Alliance; (II) the Alliance Steering Committee has determined should not be underwritten by the Insurer; (III) are cancelled or non-renewed by the Insurer in accordance with the terms of the Second Amended Agency Agreement; or (IV) the Insurer or, if applicable, an Alternative Insurer declines or is unable to underwrite.
5.14 Non-Solicitation of Customers. Except as contemplated by the Second Amended Agency Agreement, Markel shall not, and shall cause its Affiliates not to, directly or indirectly, use any Confidential Information or any HGTY name or service mark or otherwise reference the Alliance to solicit the holders of Insurance Policies issued by the Insurer following the Alliance Effective Date for any purpose, including the sale of insurance products; provided that nothing in this Section 5.14 shall prohibit Markel or any of its Affiliates from engaging in general advertising and solicitation that is not directed at any such holder.
5.15 Existing Business Activities Excluded from the Alliance.
(a) For the avoidance of doubt, the Parties agree that (i) general (standard) marine insurance coverage business and (ii) classic marine insurance coverage business (including insurance coverage for antique, classic and reproduction wooden boats) ((i) and (ii), collectively, the “Marine Business”) (x) shall not be a part of the Alliance or the Alliance Business, and, (y) subject to the provisions of Section 6.2(i) in respect of the Marine Business, shall not be affected by the Alliance.
(b) For the avoidance of doubt, the Parties agree that the UK Business (i) shall not be a part of the Alliance or the Alliance Business, and, (ii) subject to the provisions of Section 6.2(h) in respect of the UK Business, shall not be affected by the Alliance. To the extent there is any conflict between this Agreement and the UK Agreements, the latter shall prevail with respect to the UK Business and the former shall prevail with respect to the Alliance Business.
(c) For the avoidance of doubt, the Parties agree that Enthusiast Business that is not deemed to be Alliance Business (i.e., stand-alone Enthusiast Business) shall not be a part of the Alliance or the Alliance Business, subject to the provisions of Section 6.2(j) in respect of the Enthusiast Business.
5.16 Confidentiality. At all times after the date of the Original Alliance Agreement, unless agreed by the Parties, each Party shall, and shall cause its Affiliates and Representatives to, (a) keep confidential all data, reports, trade secrets, proprietary secrets and any other confidential information regarding the other Party and the Alliance Business, including underwriting manuals and guidelines, applications, policy forms, agent lists and information, customer lists and information, financial information, investment strategies, reserving practices, claims handling practices and other business practices (collectively, “Confidential Information”), as may have been disclosed to such Party or its Affiliates by or on behalf of the other Party or its Affiliates or as may have been obtained by such Party or its Affiliates by virtue of its direct or indirect ownership interest in the Insurer, and (b) not make competitive use of or disclose such Confidential Information to any other Person, except with the prior written consent of the other Party or as required by Law or Governmental Order; provided that, for the avoidance of doubt and subject to Section 5.13, this Section 5.16 shall not prohibit HGTY from disclosing or using any intellectual property (i) owned or licensed by HGTY and its Affiliates or (ii) developed and/or paid for by HGTY or its Affiliates in connection with the Alliance Business. Confidential Information shall not include any information that (A) is or becomes generally available to the public other than as a result of disclosure by or on behalf of HGTY or Markel in breach of this Section 5.16, (B) is or becomes available on a non-confidential basis from a source other than one of the Parties or its Representatives, provided that such source is not bound by a confidentiality or similar obligation with respect to such information, or (C) is independently developed by or on behalf of HGTY or Markel or any of their respective Affiliates without reliance on Confidential Information regarding the Alliance Business provided by the other Party. In the event that HGTY or Markel or any of their respective Affiliates or Representatives is required by applicable Law or Governmental Order to disclose any such Confidential Information, such Party shall, to the extent permitted by Law, promptly notify the other Party in writing so that a protective order and/or other measure to prevent or limit the production or
disclosure of such Confidential Information can timely be sought. The limitation set forth in this Section 5.16 shall not prohibit either Party from disclosing such Confidential Information to its independent accountants or auditors provided that such independent accountants or auditors are informed of the confidential nature of such information and instructed to keep such information confidential.
5.17 Access to Information. Markel shall, and shall cause its Affiliates (except that with respect to the Insurer, such obligation will continue only until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable) to, provide to Hagerty, its Affiliates and their respective Representatives, upon reasonable written notice by Hagerty to Markel and subject to Section 5.16, reasonable access during normal business hours to (i) the books, records, statements, correspondence, reports, contracts, Permits and other documents of the Insurer or of Markel and its other Affiliates relating to the Insurer or the Alliance Business, (ii) operating data and such other information concerning the Insurer or the Alliance Business as Hagerty may from time to time reasonably request and (iii) relevant employees and consultants of Markel and its Affiliates, and instruct such employees and consultants to reasonably cooperate with Hagerty, in each case, for any reasonable business purpose relating to the Alliance Business.
5.18 Books and Records; Internal Controls. Markel and HGTY shall, and shall cause their respective Affiliates (except that for Markel with respect to the Insurer, such obligation will continue only until the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable) to, maintain books and records with respect to the Alliance Business in accordance with insurance industry standards of record keeping. The Parties agree that such books and records shall be made available for examination, audit and inspection by any Governmental Authority with appropriate jurisdiction. Markel shall cause the Insurer to maintain a system of internal accounting controls with respect to the Alliance Business sufficient to provide reasonable assurances that, in all material respects, (a) all transactions are executed in accordance with management’s general or specific authorization, (b) all transactions are recorded as necessary to permit preparation of its financial statements in conformity in all material respects with SAP and GAAP and to maintain accountability for its assets and (c) access to the Insurer’s property and assets is permitted only in accordance with management’s general or specific authorization.
5.19 Independent Auditors. The Parties agree that KPMG, LLP, or such other independent certified public accounting firm in the United States of national recognition that serves as Markel’s independent registered public accounting firm, shall serve as the independent auditors for the Insurer.
5.20 Transaction Agreements. Unless otherwise agreed, recommended by the Alliance Steering Committee or in order to appropriately address requirements under applicable Law, Markel shall not cause or permit any termination, amendment, modification or change to any Transaction Agreement to which neither HGTY nor any of its Affiliates is a party without the prior written consent of HGTY. Markel shall promptly provide written notice to HGTY in the event any such Transaction Agreement is terminated, amended, modified or changed in order to appropriately address requirements under applicable Law.
5.21 Compliance with Law. Each Party agrees that during the period from the Alliance Effective Date until the Termination Date (except that for Markel with respect to the Insurer, the earlier of the Termination Date and the date on which Hagerty acquires the Insurer pursuant to Section 5.6(a), if applicable) it shall, and shall cause its applicable Affiliates to, conduct the Alliance Business in accordance with the terms and conditions of the Transaction Agreements and all applicable Laws.
5.22 Further Assurances. From time to time after the Alliance Effective Date, each Party shall take, or cause to be taken, such other action, and shall execute and deliver, or cause to be executed and delivered, such additional agreements, instruments, conveyances, notices, certificates and other documents, in each case, as the other Party may reasonably request in order to consummate more effectively the transactions contemplated by the Transaction Agreements.
5.23 Notice Obligation.
(a) Each Party shall promptly give the other Party written notice of (i) any notice or other communication received by such Party or its Affiliates from any Governmental Authority or third party in connection with the transactions contemplated by this Agreement or otherwise related to the Alliance Business, (ii) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition, agreement or obligation to be complied with or satisfied by it pursuant to this Agreement and (iii) the occurrence, or failure to occur, of any event, or the existence of any condition, that could reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement; provided, however, that providing such notice shall not change or affect any covenant, condition, agreement or obligation made by it under this Agreement, nor shall such notice change or affect the rights and obligations or other remedies of the Parties under this Agreement.
(b) Each Party shall promptly give the other Party written notice (i) in the event that it becomes the subject of a Change of Control and (ii) in the event that it or, with respect to Markel, the Insurer (prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)), or, with respect to HGTY, any of Hagerty Agency, Hagerty Re, the Insurer (following any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)) or any Subsidiary of HGTY that owns an interest in Hagerty Re or in the Insurer (following any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)) becomes the subject of an Insolvency Event.
5.24 Capital Contributions to Hagerty Re.
(a) No later than fifteen (15) days prior to the beginning of each calendar year, beginning with the calendar year commencing on January 1, 2021, HGTY shall (i) provide written notice (“Capital Contribution Notice”) to Markel of the amount of capital, if any, that HGTY will cause to be contributed to Hagerty Re within fifteen (15) days following the start of such calendar year, calculated as set forth below in Section 5.24(b), and (ii) cause its applicable Subsidiary to make a capital contribution to Hagerty Re within fifteen (15) days following the start of such calendar year in an amount equal to the amount set forth in the applicable Capital Contribution Notice.
(b) The amount of capital, if any, that HGTY shall cause to be contributed to Hagerty Re for each calendar year, beginning with the calendar year commencing on January 1, 2021, shall be an amount greater than or equal to the amount that would be required in order for (i) the ratio of (x) the projected written premium assumed by Hagerty Re under the Hagerty Reinsurance Agreement (which, for the avoidance of doubt, will include premium written under any arrangement contemplated by Section 5.7(b)) and the Hagerty International Reinsurance Agreement for the applicable calendar year (determined by Hagerty Re as of December 15 of the immediately preceding calendar year), to (y) the projected total statutory capital and surplus of Hagerty Re as of January 15 of the applicable calendar year, calculated in accordance with Bermuda statutory accounting rules, not to exceed a ratio of four and one half to one (4.5:1); and (ii) the projected total statutory capital and surplus of Hagerty Re as of December 31 of the applicable calendar year, calculated in accordance with Bermuda statutory accounting rules, to equal or exceed 130% of Hagerty Re’s projected “Enhanced Capital Requirement”, determined in accordance with applicable Bermuda law (ECR), as of December 31 of such calendar year. For the avoidance of doubt, Hagerty Re’s projected total statutory capital and surplus as of
December 31 of each calendar year shall include (A) projected earnings for such calendar year and (B) any additional capital contributions expected to be received by Hagerty Re by January 15 of such calendar year.
ARTICLE VI
ALLIANCE STEERING COMMITTEE
6.1 Alliance Steering Committee. The Parties shall maintain an Alliance steering committee (the “Alliance Steering Committee”) consisting of six (6) members, three (3) of which shall be appointed by Markel and three (3) of which shall be appointed by HGTY. Any member of the Alliance Steering Committee may be removed and replaced with a newly appointed individual by the Party who appointed such member at any time upon written notice to the other Party.
6.2 Responsibilities of Alliance Steering Committee. The Alliance Steering Committee shall perform the following functions, subject to applicable Law:
(a) setting the strategic direction of the Alliance, including reviewing and approving the Alliance’s annual business plans and the operating budgets and reinsurance programs of the Insurer;
(b) reviewing and monitoring the operating results of the Alliance Business;
(c) reviewing and monitoring the A.M. Best rating of the Insurer;
(d) reviewing and monitoring regulatory matters affecting the Insurer;
(e) reviewing and monitoring the underwriting guidelines of the Insurer;
(f) reviewing and monitoring adherence of the Parties to obligations under the Transaction Agreements;
(g) managing the relationship between the Parties as it relates to the Alliance;
(h) working with local management to oversee, review and monitor the relationship between the Parties as it relates to the UK Business, including reviewing and monitoring the strategic direction of the UK Business, reviewing and monitoring the operating results of the UK Business and monitoring adherence of the Parties to obligations under the UK Agreements;
(i) managing the relationship between the Parties as it relates to the Marine Business;
(j) managing the relationship between the Parties as it relates to the Enthusiast Business;
(k) reviewing and monitoring the Expenses (on an annualized basis) for which Hagerty Agency is reimbursed by MSI under the Claims Services and Management Agreement, which Expenses shall not exceed fifty (50) basis points of the annual gross written premium underwritten by the Insurer under the Second Amended Agency Agreement; and
(l) such other responsibilities as may be mutually agreed upon by the Parties from time to time.
6.3 Implementation of Strategic Direction. The Parties shall, and shall cause their respective Affiliates to, use reasonable best efforts to take any and all actions necessary to carry
out the strategic direction of the Alliance as set by the Alliance Steering Committee. The Alliance Steering Committee shall have no power or authority to directly bind or act on behalf of the Parties or their respective Affiliates, to execute any agreement or instrument on behalf of the Parties or their respective Affiliates or otherwise render the Parties or their respective Affiliates liable for any purpose.
6.4 Meetings. Unless otherwise agreed to by HGTY and Markel, the Alliance Steering Committee shall meet at least once during every calendar year, or more frequently as HGTY and Markel mutually deem appropriate, on such dates, and at such locations and times, as such Parties shall agree; provided, that any member of the Alliance Steering Committee shall be permitted to call a special meeting of the Alliance Steering Committee at any time and from time to time. All such meetings shall be held upon at least ten (10) days’ notice to the members of the Alliance Steering Committee. The members of the Alliance Steering Committee may participate in any meeting of the Alliance Steering Committee by telephone or video conference, and such participation in such meeting shall constitute presence in person at such meeting. HGTY and Markel each may, upon prior written notice to the other Party, invite non-member Representatives of such Party to attend meetings of the Alliance Steering Committee.
6.5 Quorum and Voting. Attendance by at least two (2) members of the Alliance Steering Committee appointed by each of HGTY and Markel shall constitute a quorum for the transaction of business. The Parties shall use reasonable best efforts to ensure that a quorum is present at all duly called meetings of the Alliance Steering Committee. All decisions of the Alliance Steering Committee shall be made by majority vote; provided that the votes of any member of the Alliance Steering Committee absent from the applicable meeting may be cast by any other member of the Alliance Steering Committee appointed by the same Party as such absent member. In the event of a deadlock with respect to any vote of the Alliance Steering Committee relating to the approval of the Alliance’s annual operating budget, the Parties agree that the operating budget with respect to the previous year shall remain in effect until a new budget is approved by the Alliance Steering Committee.
6.6 Expenses. Each Party shall bear all expenses of its respective Alliance Steering Committee members relating to their participation on the Alliance Steering Committee and attendance at meetings of the Alliance Steering Committee.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. The term of this Agreement (as extended or earlier terminated, the “Term”) shall begin on the date of the Original Alliance Agreement and shall expire on December 31, 2030, unless otherwise extended by mutual agreement of the Parties or terminated in accordance with the terms of this Article VII.
7.2 Termination. This Agreement may be terminated at any time:
(a) by written agreement of the Parties;
(b) by HGTY and Hagerty (the “Hagerty Party”) immediately upon written notice to Markel upon the termination of the Second Amended Agency Agreement in accordance with its terms;
(c) by Markel immediately upon written notice to the Hagerty Party upon the termination of the Second Amended Agency Agreement in accordance with its terms;
(d) by the Hagerty Party upon one hundred eighty (180) days prior written notice to Markel if Markel is the subject of a Change of Control; provided that such written notice is received by Markel within one hundred eighty (180) days of the occurrence of such Change of Control;
(e) by Markel upon one hundred eighty (180) days prior written notice to the Hagerty Party if either of HGTY or Hagerty is the subject of a Change of Control; provided that such written notice is received by the Hagerty Party within one hundred eighty (180) days of the occurrence of such Change of Control;
(f) by Markel upon written notice to the Hagerty Party:
(i) if HGTY, Hagerty, Hagerty Agency or Hagerty Re commits a material breach of any of its representations, warranties, covenants or obligations under any Transaction Agreement that is not remedied within ninety (90) days following the receipt by such Person of written notice of such breach;
(ii) if HGTY, Hagerty, Hagerty Agency, Hagerty Re, the Insurer (following any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)) or any Subsidiary of HGTY that owns an interest in Hagerty Re or in the Insurer (following any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)) is the subject of an Insolvency Event (which, in the case of prongs (f) and (g) of the definition of Insolvency Event, has not been cured within sixty (60) days after notice to Hagerty; provided, that such cure period shall not be available if such a cure period has been utilized in respect of any of such Persons in the preceding twelve (12) months);
(iii) if the Insurer terminates the Second Amended Agency Agreement “for cause” pursuant to the Second Amended Agency Agreement; or
(iv) if HGTY or any of its Affiliates has (A) committed fraud or embezzlement in connection with any aspect of the Alliance Business, (B) been found by Governmental Order to have violated any material Law in connection with the Alliance Business, other than upon reliance on advice of counsel, and such violation is not cured within ninety (90) days following HGTY’s or any of its Affiliates’ receipt of such Governmental Order, (C) committed any act or omission constituting willful misconduct in connection with the Alliance Business or (D) been convicted or entered a guilty plea or plea of nolo contendere in connection with any felony involving dishonesty or moral turpitude in connection with the Alliance Business.
(g) by the HGTY Party upon written notice to Markel:
(i) if Markel or any of its applicable Affiliates commits a material breach of any of its representations, warranties, covenants or obligations under any Transaction Agreement that is not remedied within ninety (90) days following the receipt by such Person of written notice of such breach;
(ii) if Markel, the Insurer (prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)) or Evanston is the subject of an Insolvency Event (which, in the case of prongs (f) and (g) of the definition of Insolvency Event, has not been cured within sixty (60) days after notice to Markel; provided, that such cure period shall not be available if such a cure period has been utilized in respect of any of such Persons in the preceding twelve (12) months);
(iii) if Hagerty Agency terminates the Second Amended Agency Agreement “for cause” pursuant to the Second Amended Agency Agreement (prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a));
(iv) if Markel or any of its Affiliates has (A) committed fraud or embezzlement in connection with any aspect of the Alliance Business, (B) been found by Governmental Order to have violated any material Law in connection with the Alliance Business, other than upon reliance on advice of counsel, and such violation is not cured within ninety (90) days following Markel’s or any of its Affiliates’ receipt of such Governmental Order, (C) committed any act or omission constituting willful misconduct in connection with the Alliance Business or (D) been convicted or entered a guilty plea or plea of nolo contendere in connection with any felony involving dishonesty or moral turpitude in connection with the Alliance Business;
(v) if the financial strength rating of the Insurer by A.M. Best is lower than “A” (Excellent) for more than one hundred eighty (180) consecutive days (prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a)); or
(vi) (A) if, prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a), any Insurer Permit necessary to conduct the Alliance Business in any jurisdiction, or in any combination of jurisdictions, of the United States in which at least ten percent (10%) of the Insurer’s gross direct written premium is generated is forfeited, abandoned, waived, terminated, suspended, cancelled, non-renewed or otherwise not maintained and is not reinstated within thirty (30) days thereafter, or (B) if, prior to any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a), any Insurer Permit necessary to conduct the Alliance Business in any other jurisdiction of the United States is forfeited, abandoned, waived, terminated, suspended, cancelled, non-renewed or otherwise not maintained and is not reinstated within one hundred eighty (180) days thereafter.
7.3 Effects of Termination.
(a) Termination of this Agreement shall be without prejudice to the accrued rights and liabilities of the Parties at the date of termination, unless waived in writing by mutual agreement of the Parties.
(b) In the event of the expiration or termination of this Agreement in accordance with Section 7.1 or Section 7.2, respectively:
(i) the Alliance shall automatically and immediately be terminated;
(ii) The Hagerty Party shall promptly either (x) return to Markel or (y) destroy (with the choice between (x) and (y) being at the sole discretion of the Hagerty Party) all relevant data, documents, records and other materials in its possession or control containing Confidential Information of Markel (provided that it may keep one electronic copy of such Confidential Information of Markel for archival purposes only); and
(iii) Markel shall promptly either (x) return to the Hagerty Party or (y) destroy (with the choice between (x) and (y) being at the sole discretion of Markel) all relevant data, documents, records and other materials in its possession or control containing Confidential Information of the Hagerty Party (provided that it may keep one electronic copy of such Confidential Information of the Hagerty Party for archival purposes only).
(c) In the event of any termination of this Agreement in accordance with Section 7.2 that gives rise to Hagerty’s right to acquire all of the issued and outstanding capital stock of the Insurer pursuant to Section 7.4, following receipt of written notice from Hagerty that it is considering exercising its option to purchase all of the issued and outstanding capital stock of the Insurer, Markel shall prepare a reasonably detailed calculation of the Statutory Book Value as of the end of the calendar quarter immediately preceding the Termination Date (or as of the Termination Date if such date is the end of a calendar quarter) and provide written notice (the “SBV Notice”) thereof to Hagerty no later than the last Business Day of the month following the month in which the Termination Date occurs. Hagerty shall have thirty (30) days following its receipt of the SBV Notice to provide written notice (“SBV Notice of Disagreement”) of its disagreement with the calculation set forth in the SBV Notice. If Hagerty does not provide such SBV Notice of Disagreement to Markel within such time period, then the calculation set forth in the SBV Notice shall be final and binding on the Parties. During the thirty (30) days immediately following the delivery of a SBV Notice of Disagreement, the Parties will seek in good faith to resolve any disputes as to the calculations set forth in the SBV Notice. In the event that any such dispute is not resolved within such time period, the Hagerty Party and Markel shall submit its calculation of the Statutory Book Value as of the Termination Date to an Independent Expert. The Parties shall request that the Independent Expert provide its determination of the Statutory Book Value as of the Termination Date within twenty (20) days after the submission of such matter to the Independent Expert, or as soon as reasonably practicable thereafter, and the Independent Expert’s determination of the Statutory Book Value as of the Termination Date shall be final and binding on the Parties. The Independent Expert’s calculation of the Statutory Book Value as of the Termination Date, if not in accordance with the calculation submitted by the Hagerty Party or Markel, shall not be more favorable to the Hagerty Party than the calculation submitted by the Hagerty Party or more favorable to Markel than the calculation submitted by Markel. All fees and expenses relating to the work performed by the Independent Expert pursuant to this Section 7.3(c) shall be shared equally between the Hagerty Party and Markel.
7.4 Acquisition of the Insurer. In addition to the effects of termination described in Section 7.3(b):
(a) In the event that Hagerty has not exercised its option to acquire the Insurer pursuant to Section 5.6(a) and this Agreement is terminated pursuant to Section 7.2(a), Section 7.2(b), Section 7.2(c), Section 7.2(d), Section 7.2(g)(v) (only if there was no Markel Rating Event), or Section 7.2(g)(vi) (only if the forfeiture, abandonment, waiver, termination, suspension, cancellation, non-renewal or failure to maintain the Insurer Permit(s) leading to such termination was caused by any act or omission by Hagerty or its Affiliates), at the option of Hagerty, exercisable in its sole discretion by providing written notice (the “Termination Election Notice”) to Markel within thirty (30) days following its receipt of the SBV Notice, Hagerty shall have the right to purchase one hundred percent (100%) of the issued and outstanding capital stock of the Insurer from the Markel Sellers. The purchase price payable by Hagerty or its designee to the Markel Sellers in consideration for such sale and transfer shall be an amount in cash equal to (i) (A) $23,000,000, plus (B) the Statutory Book Value as of the Termination Date, determined on a pro forma basis giving effect to the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f), the distribution and assignment of rights contemplated by Section 5.6(g) and the settlement of claims contemplated by Section 5.6(h), if applicable, minus (ii) the Option Price. Except as otherwise set forth in this Section 7.4(a), all of the terms, conditions and requirements set forth in Section 5.6(a), Section 5.6(d), Section 5.6(e), Section 5.6(f), Section 5.6(g), Section 5.6(h) and Section 5.6(i) shall apply with respect to any sale of all of the issued and outstanding capital stock of the Insurer to Hagerty pursuant to this Section 7.4(a). For purposes of this Section 7.4(a), all references in Section 5.6(d) to the effective date of such acquisition shall be deemed to be references to the Termination Date. The consummation of any acquisition pursuant to this
Section 7.4(a) shall occur as promptly as practicable following the delivery of the Termination Election Notice, and in no event later than three (3) Business Days following the receipt of all Governmental Approvals necessary with respect to the acquisition of Control of the Insurer by Hagerty or, at the sole discretion of Hagerty, if later, the date that is three (3) Business Days following the receipt of all applicable Governmental Approvals required to consummate the transactions contemplated by this Section 7.4(a) (including all Governmental Approvals required to effect the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f) and the distribution and assignment of rights contemplated by Section 5.6(g)). Notwithstanding the foregoing, if any such Governmental Approvals are not received within two hundred seventy (270) days of the Termination Date, then (x) the Parties shall use, or cause their respective Affiliates to use, reasonable best efforts to obtain such Governmental Approvals as promptly as practicable, and (y) Hagerty may revoke its election to purchase all of the issued and outstanding capital stock of the Insurer.
(b) In the event that Hagerty has not exercised its option to acquire the Insurer pursuant to Section 5.6(a) and this Agreement is terminated by HGTY or Hagerty pursuant to Section 7.2(g) (provided, that this Section 7.4(b) shall not apply (x) in the case of Section 7.2(g)(v), if there was no Markel Rating Event, and (y) in the case of Section 7.2(g)(vi), if the forfeiture, abandonment, waiver, termination, suspension, cancellation, non-renewal or failure to maintain the Insurer Permit(s) leading to such termination was caused by any act or omission by HGTY or its Affiliates), without prejudice to any right HGTY or Hagerty may have to receive damages in consequence of breach of this Agreement, at the option of HGTY or Hagerty, exercisable in its sole discretion by providing the Termination Election Notice to Markel within fifteen (15) Business Days following its receipt of the SBV Notice, Hagerty shall have the right to purchase one hundred percent (100%) of the issued and outstanding capital stock of the Insurer from the Markel Sellers. The purchase price payable by Hagerty or its designee to the Markel Sellers in consideration for such sale and transfer shall be an amount in cash equal to (i) 0.90 multiplied by (ii) (A) (I) $23,000,000, plus (II) the Statutory Book Value as of the Termination Date, determined on a pro forma basis giving effect to the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f), the distribution and assignment of rights contemplated by Section 5.6(g) and the settlement of claims contemplated by Section 5.6(h), if applicable, minus (B) the Option Price. Except as otherwise set forth in this Section 7.4(b), all of the terms, conditions and requirements set forth in Section 5.6(a), Section 5.6(d), Section 5.6(e), Section 5.6(f), Section 5.6(g), Section 5.6(h) and Section 5.6(i) shall apply with respect to any sale of all of the issued and outstanding capital stock of the Insurer to Hagerty pursuant to this Section 7.4(b). For purposes of this Section 7.4(b), all references in Section 5.6(d) to the effective date of such acquisition shall be deemed to be references to the Termination Date. The consummation of any acquisition pursuant to this Section 7.4(b) shall occur as promptly as practicable following the delivery of the Termination Election Notice, and in no event later than three (3) Business Days following the receipt of all Governmental Approvals necessary with respect to the acquisition of Control of the Insurer by Hagerty or, at the sole discretion of Hagerty, if later, the date that is three (3) Business Days following the receipt of all applicable Governmental Approvals required to consummate the transactions contemplated by this Section 7.4(b) (including all Governmental Approvals required to effect the reinsurance transaction contemplated by Section 5.6(d), the termination and settlement of intercompany agreements and obligations contemplated by Section 5.6(e), the payment of the dividend contemplated by Section 5.6(f) and the distribution and assignment of rights contemplated by Section 5.6(g)). Notwithstanding the foregoing, if any such Governmental Approvals are not received within two hundred seventy (270) days of the Termination Date, then (x) the Parties shall use, or cause their respective Affiliates to use, reasonable best efforts to obtain such Governmental Approvals as
promptly as practicable, and (y) Hagerty may revoke its election to purchase all of the issued and outstanding capital stock of the Insurer.
(c) Nothing in this Section 7.4 shall impact the right of Hagerty to acquire the Insurer pursuant to Section 5.6(a).
7.5 Post-Termination Fronting. In the event this Agreement expires in accordance with Section 7.1 or terminates in accordance with Section 7.2 (other than any termination pursuant to Section 7.2(f)), respectively, and Hagerty does not exercise its option to purchase all of the issued and outstanding capital stock of the Insurer from the Markel Sellers pursuant to Section 5.6(a) or Section 7.4(a) or Section 7.4(b), (a) the Parties shall work together in good faith and cooperate to effect the transition of all Insurance Policies comprising the Alliance Business to an alternative insurance company designated by Hagerty as soon as reasonably practicable following termination of this Agreement; provided, that Hagerty shall be responsible for all reasonable out-of-pocket costs and expenses associated with such transition, subject to a cap of $150,000; and (b) at the request of Hagerty, (i) Markel shall cause the Insurer to enter into a customary reinsurance agreement with an insurer or reinsurer designated by Hagerty, pursuant to which the Insurer would cede (x) 80% of its Liabilities under Insurance Policies written, renewed or assumed by the Insurer in connection with the Alliance Business with effective dates through and including December 31, 2030 and (y) 100% of its Liabilities under Insurance Policies written, renewed or assumed by the Insurer in connection with the Alliance Business with effective dates after December 31, 2030, in each case, to Hagerty’s designee for a period not to exceed one (1) year from the date of expiration or termination of this Agreement (such period, the “Fronting Period”), and (ii) the Parties shall work together in good faith and reasonably cooperate with each other to negotiate and prepare such reinsurance agreement as promptly as reasonably practicable following Hagerty’s request therefor. If Hagerty requires the Insurer to enter into such a reinsurance agreement for the Fronting Period, then Hagerty shall cause its designee to pay to the Insurer a fee equal to five percent (5%) of the net written premium ceded to its designee under such reinsurance agreement. In connection with such reinsurance agreement, Hagerty shall cause its designee to provide collateral in support of its obligations under such reinsurance agreement in an amount and in a manner that satisfies the requirements under Missouri insurance laws and regulations for the Insurer to obtain full credit on its statutory financial statements for the reinsurance provided by Hagerty’s designee. The term of the Second Amended Agency Agreement, the Claims Services and Management Agreement and the Management Services Agreement shall automatically be extended for the duration of the Fronting Period, if any; provided, that the exclusivity provisions set forth in the Second Amended Agency Agreement shall not apply during the Fronting Period, if any. The Parties shall take, or cause their respective Affiliates to take, such actions and execute amendments to such agreements as are reasonably necessary to effect such extension.
7.6 Surviving Obligations. In the event of the expiration or termination of this Agreement in accordance with Section 7.1 or Section 7.2, respectively, this Agreement shall forthwith become null and void, except for the Parties’ rights and obligations which, by their nature, would continue beyond the expiration or termination of this Agreement, including those rights and obligations of the Parties set forth in this Article VII and in Section 5.6(c), Section 5.6(e), Section 5.6(g), Section 5.6(i), Section 5.6(j), Section 5.14, Section 5.16, Section 7.5, Article VIII and Article IX; provided, however, that the expiration or termination of this Agreement shall not relieve any Party of any liability for breach of this Agreement prior to the Termination Date.
7.7 Termination of Second Amended Agency Agreement. Markel and HGTY shall cause their Affiliates to terminate the Second Amended Agency Agreement, subject to the provisions thereof with respect to the effect of termination of such agreement and the provisions thereof that survive such termination pursuant to the terms thereof, (a) on the date that is not later
than twelve (12) months following the date on which this Agreement terminates in accordance with Section 7.2(f)(i), Section 7.2(g)(i), Section 7.2(g)(iv) or Section 7.2(g)(vi), and (b) on the date on which the Agreement expires in accordance with Section 7.1 or terminates in accordance with Section 7.2(a), Section 7.2(d), Section 7.2(e), Section 7.2(f)(ii), Section 7.2(f)(iv), Section 7.2(g)(ii) or Section 7.2(g)(v); provided, that in no event shall the Second Amended Agency Agreement be terminated prior to the expiration of, and the term of the Second Amended Agency Agreement shall automatically be extended for the duration of, the Fronting Period, if applicable. If the Second Amended Agency Agreement remains in effect in accordance with this Section 7.7, then the Alliance Steering Committee shall, notwithstanding any provision hereof to the contrary, remain in effect until termination of the Second Amended Agency Agreement for the purpose of reviewing and monitoring the underwriting guidelines of the Insurer; provided, that if HGTY does not appoint representatives to the Alliance Steering Committee during such period, or if such representatives fail to act as members of the Alliance Steering Committee, then Markel’s representatives shall have the unilateral right to make revisions to the underwriting guidelines.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Markel. Markel shall defend, indemnify and hold harmless HGTY and its Affiliates and each of their respective officers, directors, equityholders, employees, agents, successors and assigns, and the Insurer, from and against, and pay or reimburse each such person for, any and all Losses suffered by such persons to the extent arising out of or relating to (a) any breach of, or inaccuracy in, any of the representations or warranties made by Markel in this Agreement, (b) any breach or default in performance by Markel of any covenant, obligation or agreement of Markel contained in this Agreement, and (c) any Liability of the Insurer arising after the Alliance Effective Date and before the earlier of the Termination Date and the date of any acquisition of the Insurer by Hagerty pursuant to Section 5.6(a), if applicable, that does not arise out of or relate to the Alliance Business as conducted by the Insurer following the Alliance Effective Date.
8.2 Indemnification by Hagerty. Hagerty shall defend, indemnify and hold harmless Markel and its Affiliates and each of their respective officers, directors, equityholders, employees, agents, successors and assigns from and against, and pay or reimburse each such person for, any and all Losses suffered by such persons to the extent arising out of or relating to (a) any breach of, or inaccuracy in, any of the representations or warranties made by HGTY or Hagerty in this Agreement, or (b) any breach or default in performance by HGTY or Hagerty of any covenant, obligation or agreement of HGTY or Hagerty contained in this Agreement. In the event that HGTY becomes the direct or indirect owner of 100% of the issued and outstanding equity interests of Hagerty, HGTY shall become jointly and severally liable for the indemnification provided by Hagerty in this Section 8.2.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Except as otherwise provided in any of the Transaction Agreements, each Party shall pay its own costs, fees and expenses incurred in connection with the preparation and implementation of this Agreement, the other Transaction Agreements and the transactions contemplated hereby and thereby, including the fees and expenses of their respective legal, accounting, financial and other advisors, regardless of whether the transactions contemplated hereby shall be consummated.
9.2 Relationship of the Parties. This Agreement shall not be deemed to constitute (i) the Hagerty Party an agent of Markel or (ii) Markel an agent of the Hagerty Party. This
Agreement is not a partnership agreement and nothing in this Agreement shall be construed to establish a partnership relationship between the Hagerty Party and Markel.
9.3 Public Announcements. Subject to applicable Law, neither the Hagerty Party nor Markel shall issue any press release or make any public disclosure regarding the transactions contemplated by the Transaction Agreements without the prior approval of Markel or the Hagerty Party, as applicable, which approval shall not be unreasonably withheld or delayed.
9.4 Notices. All notices, requests, claims, demands and other communications to any Party hereunder shall be in writing and shall be given by delivery in person, by overnight courier service, by email (with confirmation of transmission) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses:
(a) if to Markel:
Markel Group Inc.
4521 Highwoods Parkway
Glen Allen, Virginia 23060
Telephone: 804-747-0136
Attention: Chief Legal Officer
Email: Richard.Grinnan@markel.com
and
Markel Group Inc.
4521 Highwoods Parkway
Glen Allen, Virginia 23060
Telephone: 804-527-3888
Attention: Managing Executive, Corporate Development
Email: Rob.Whitt@markel.com
(b) if to HGTY or Hagerty:
The Hagerty Group, LLC
141 River’s Edge Drive
Traverse City, Michigan 49684
Telephone: 312-401-7903
Attention: Chief Legal Officer
Email: dchafey@hagerty.com
or such other address or email as such Party may hereafter specify for the purpose by notice to the other Party hereto. All such notices, requests, claims, demands and other communications shall be deemed received (i) if by personal delivery, on the day of such delivery, (ii) if by certified or registered mail, on the fifth Business Day after the mailing thereof, (iii) if by overnight courier service, on the day delivered or (iv) if by email, on the day on which such email is sent if sent prior to 5:00 p.m. on a Business Day in the place of receipt, otherwise, on the next succeeding Business Day in the place of receipt.
9.5 Governing Law. This Agreement shall be governed in all respects, including as to validity, interpretation and effect, by the Laws of the State of Missouri, without giving effect to any conflict of law provisions that would permit or require the application of the Laws of another jurisdiction.
9.6 Dispute Resolution; Consent to Jurisdiction; Waiver of Jury Trial.
(a) The Parties shall attempt in good faith to resolve any dispute (“Dispute”) arising out of or in connection with this Agreement or the transactions contemplated hereby promptly through negotiations between executive officers of the Parties.
(b) If the Parties are unable to resolve any Dispute, including a dispute as to the validity or existence of this Agreement, in accordance with Section 9.6(a) within thirty (30) days after the commencement of negotiations, then the procedures outlined in this Section 9.6(b) shall be followed in order to resolve the Dispute. Each Party waives its right to seek relief in any judicial forum without first complying with the following procedures:
(i) The Parties shall engage in a structured dispute-resolution process that consists of mandatory mediation which, if unsuccessful, may be followed by the filing of a lawsuit in the state or federal courts of Delaware. The Parties must complete each level of the process outlined in this Section 9.6(b) before proceeding to the next level. Failure of a Party to participate in the structured dispute-resolution process in good faith shall constitute a separate breach of this Agreement, and shall entitle the non-breaching Party to recovery of all reasonable costs and fees incurred in enforcing its rights hereunder.
(ii) If the Hagerty Party or Markel wishes to pursue the claim that has led to the Dispute, the Hagerty Party or Markel, as applicable, must provide written notice to Markel or the Hagerty Party, as applicable, containing a brief description of the claim. The Parties will then jointly select a mediator by informal agreement. If agreement cannot be reached on appointment of the mediator within thirty (30) days after notice of the claim has been given, the Parties will select a mediator from a panel provided by JAMS, Inc.
(iii) The mediator shall not have any direct financial or personal interest in the outcome of the mediation. Before selection, mediator candidates shall disclose potential conflicts of interest.
(iv) After the mediator is selected, the Hagerty Party and Markel shall agree on a date, time and place for the mediation. However, if the Hagerty Party and Markel fail to agree, the mediator shall schedule the mediation on a Business Day during normal business hours. Unless the Parties agree otherwise, the mediation shall take place in Chicago, Illinois.
(v) Before the scheduled mediation, the Hagerty Party or Markel may provide the mediator with a brief written summary of the Dispute setting forth the Hagerty Party’s or Markel’s position, as applicable, concerning all claims relating to such Dispute.
(vi) The Parties may be assisted or represented by an attorney. Each Party shall ensure that the mediation is attended by a representative of such Party with actual authority to engage in good faith discussions to resolve the Dispute. The mediation shall be a private and confidential meeting of the Parties and the mediator. Without the agreement of the Parties, no one may attend the mediation except the mediator, representatives of the Parties, and their attorneys.
(vii) The entire mediation process is confidential, except for the fact that the mediation process has taken place, and the Parties, their respective representatives and the mediator shall not disclose to any non-Party the subject of the mediation or any information about the mediation except as may be required by Law, for insurance purposes, or as necessary to enforce this Agreement to mediate. The mediator and any documents and information in the mediator’s possession shall not be subpoenaed by the Parties in any Action relating to the Dispute, and the Parties shall oppose any effort to
have the mediator or any such documents or information subpoenaed. The Parties shall not be permitted to make a formal record or transcript, or use any electronic recording device, at the mediation. However, any attendee may make handwritten notes during the mediation.
(viii) The Hagerty Party, on the one hand, and Markel, on the other hand, will share equally in the costs of the mediation; provided, that each Party will be responsible for its own attorneys’ fees and for costs and expenses incurred by its representatives in preparing for and attending the mediation.
(ix) If the Parties are unable to resolve the Dispute at mediation, the Party bringing the applicable claim shall provide the Hagerty Party or Markel, as applicable, with a written notice that mediation has been unsuccessful and inform the Hagerty Party or Markel, as applicable, of its intent (if applicable) to proceed to litigation in accordance with Section 9.6(c).
(c) The Parties hereby irrevocably and unconditionally submit to the exclusive jurisdiction of the United States District Court for the District of Delaware and any court of the State of Delaware and waive, and agree not to assert by way of motion, as a defense or otherwise, any and all objections to the jurisdiction of any such court and any argument they may have that any such court is an inconvenient forum or an improper venue. The Parties agree that any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered, sent or mailed in accordance with Section 9.4, constitute good, proper and sufficient service thereof.
(d) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
9.7 Assignment. This Agreement and each and every covenant, term and condition hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns, but neither this Agreement nor any rights hereunder shall be assignable directly or indirectly by any Party hereto without the prior written consent of the Hagerty Party or Markel, as applicable; provided, that Hagerty may assign any rights hereunder relating to the acquisition by Hagerty of all of the issued and outstanding capital stock of the Insurer to any Person without the prior written consent of Markel so long as any assignee of Hagerty agrees to be bound by the applicable terms of the Transaction Agreements. Any attempted assignment in violation of this Section 9.7 shall be void.
9.8 Third-Party Beneficiaries. Except as set forth in Section 8.1 and Section 8.2, none of the provisions of this Agreement shall confer any rights, benefits, remedies, obligations or liabilities upon any Person other than the Parties and their respective permitted successors and assigns.
9.9 Specific Performance. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that any non-performance or breach of this Agreement by any Party would not be adequately compensated by monetary damages alone and that the Parties would not have any adequate remedy at law. It is accordingly agreed that, notwithstanding anything to the contrary in Section 9.6, the Parties shall be entitled to seek and obtain injunctive or other equitable relief (including a temporary restraining order, a temporary injunction, a permanent injunction or specific performance) against the Hagerty Party or Markel, as applicable, or HGTY’s or Markel’s Affiliates, agents, assigns or successors for a breach or
threatened breach of this Agreement. It is expressly understood by each of the Parties that this injunctive or other equitable relief shall not be the exclusive remedy for any breach of this Agreement and the non-breaching Party shall be entitled to seek any other relief or remedy that either may have by contract, statute, law or otherwise for any breach hereof.
9.10 Severability. If any term or provision of this Agreement is for any reason found invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any remaining portion, which shall remain in full force and effect as if the invalid portion was never a part of this Agreement when it was executed. If the severance of any such part of this Agreement materially affects any rights or obligations of the Parties hereunder, the Parties will negotiate in good faith to amend this Agreement in a manner satisfactory to the Parties.
9.11 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
9.12 Amendments; Waivers; etc. No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the Party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the Party granting such waiver in any other respect or at any other time. Neither the waiver by any of the Parties hereto of a breach of or a default under any of the provisions of any of the Transaction Agreements, nor the failure by any of the Parties, on one or more occasions, to enforce any of the provisions of any of the Transaction Agreements or to exercise any right or privilege thereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder or thereunder. The rights and remedies herein provided are cumulative and none is exclusive of any other, or of any rights or remedies that any Party may otherwise have at law or in equity.
9.13 Entire Agreement. Subject to Section 9.15, this Agreement shall, as of the date of execution hereof, supersede all previous representations, understandings or agreements, oral or written, between the Parties with respect to the subject matter hereof, and together with the exhibits and attachments hereto and the agreements and documents contemplated hereby, contains the entire understanding of the Parties with respect to the subject matter hereof. Terms included herein may not be contradicted by evidence of any prior oral or written agreement or of a contemporaneous oral or written agreement.
9.14 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument.
9.15 Applicability of this Agreement. Except as expressly set forth herein, (a) the First Amended Alliance Agreement shall continue to apply with respect to any claims or disputes resulting from any breach of the First Amended Alliance Agreement arising during the period commencing on the effective date thereof, to but excluding the date of the Second Amended Alliance Agreement, (b) the Second Amended Alliance Agreement shall continue to apply with respect to any claims or disputes resulting from any breach of the Second Amended Alliance Agreement arising during the period commencing on the effective date thereof, to but excluding the date of the Third Amended Alliance Agreement, (c) the Third Amended Alliance Agreement shall continue to apply with respect to any claims or disputes resulting from any breach of the Third Amended Alliance Agreement arising during the period commencing on the effective date thereof, to but excluding the date of the Fourth Amended Alliance Agreement and (d) the Fourth Amended Alliance Agreement shall continue to apply with respect to any claims or disputes
resulting from any breach of the Fourth Amended Alliance Agreement arising during the period commencing on the effective date thereof, to but excluding the date of this Agreement.
[Remainder of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the authorized representatives of the Parties have executed this Agreement as of the date first written above.
HAGERTY, INC.
By: /s/ McKeel Hagerty
Name: McKeel O. Hagerty
Title: Chief Executive Officer
THE HAGERTY GROUP, LLC
By: /s/ McKeel Hagerty
Name: McKeel O. Hagerty
Title: Chief Executive Officer
MARKEL GROUP INC.
By: /s/ Jeremy A. Noble
Name: Jeremy A. Noble
Title: President, Insurance
Signature Page to Fifth Amended and Restated Master Alliance Agreement
Exhibit A
Permitted Activities
State Farm
The activities contemplated by that certain Waiver Agreement, dated as of February 5, 2021, by and among Hagerty, Hagerty Agency, Hagerty Marine, Markel and the Insurer; provided, that if HGTY, Hagerty or any of their Affiliates desires to enter into an arrangement with State Farm Mutual Automobile Insurance Company, an Illinois-domiciled mutual insurance company, or any of its Affiliates (collectively, “State Farm”), where State Farm’s existing “Shine and Show”1 book of business is ceded, in whole or in part, directly or indirectly, by State Farm Classic Insurance Company (or another applicable State Farm insurance company) to Hagerty Re or any of its Affiliates, then HGTY, Hagerty and Hagerty Re shall provide advance written notice to Markel and Markel shall have the option, in its sole discretion, to participate in the same percentage as Markel’s participation on Alliance Business written by the Insurer pursuant to Article 7 of the Hagerty Reinsurance Agreement.
Nationwide
The transactions with Nationwide Mutual Insurance Company and Nationwide Insurance Company of America referenced in that certain Letter Agreement, dated May 21, 2013, between Hagerty and Markel (the “Nationwide Transactions”). Nothing contained in this Agreement shall prohibit or limit the performance by the Parties of their respective obligations in respect of the Nationwide Transactions.
[***]
The proposed transactions with [***] or one of its Affiliates, (collectively, “[***]”) referenced in that certain Waiver Agreement, dated as of August 9, 2023, by and among HGTY, Hagerty, Hagerty Agency, Hagerty Marine, Markel and the Insurer (the “[***] Arrangement”); provided, that within one (1) Business Day following the execution of each definitive transaction document (the “[***] Agreements”) by Hagerty Agency, Hagerty Agency shall provide written notice to Markel and the Insurer; provided, further, that if (i) the [***] Agreements are not entered into on or before February 29, 2024 or such later date as mutually agreed to in writing by the parties to the Waiver Agreement or (ii) the [***] Arrangement is terminated, then the [***] Arrangement shall no longer be a permitted activity hereunder.
1 “Shine and Show” book of business refers to insurance on a motor vehicle that is (a) twenty-five (25) years or more of age that (1) is maintained primarily for use in car club activities, exhibitions, parades, other functions of public interest or for a private collection and (2) is used only infrequently for other purposes; or (b) ten (10) to twenty-four (24) years of age and because of unique or rare design and limited production is an object of curiosity and qualifies as a non-daily driver vehicle in accordance with the underwriting guidelines under the Master Alliance Agreement by and between Hagerty and State Farm, dated as of December 28, 2020, and other definitive transaction documents contemplated thereby.
EXECUTION VERSION
Exhibit 10.2
SIXTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
THE HAGERTY GROUP, LLC
DATED AS OF DECEMBER 18, 2023
THE LIMITED LIABILITY COMPANY INTERESTS IN THE HAGERTY GROUP, LLC HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF ANY STATE, OR ANY OTHER APPLICABLE SECURITIES LAWS, AND HAVE BEEN OR ARE BEING ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS; (II) THE TERMS AND CONDITIONS OF THIS SIXTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT; AND (III) ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BETWEEN THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THE LIMITED LIABILITY COMPANY INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS, THIS SIXTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, AND ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BY THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THEREFORE, PURCHASERS AND OTHER TRANSFEREES OF SUCH LIMITED LIABILITY COMPANY INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.
Table of Contents
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| Exhibit A Members Unit Ownership Table | A-1 |
| Exhibit B Amended and Restated Exchange Agreement | B-1 |
| Schedule 7.4 Restricted Business | Sch.-1 |
SIXTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
THE HAGERTY GROUP, LLC
This SIXTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (as amended, supplemented or restated from time to time, this “Agreement”) is entered into as of December 18, 2023, by and among The Hagerty Group, LLC, a Delaware limited liability company (the “Company”), Hagerty, Inc., a Delaware corporation (“PubCo”), Hagerty Holding Corp., a Delaware corporation (“HHC”), Markel Group Inc. (f/k/a Markel Corporation), a Virginia corporation (“Markel”), and each other Person who is or at any time becomes a Member in accordance with the terms of this Agreement and the Act. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in Section 1.1.
RECITALS
WHEREAS, the Company was formed under the provisions of the Delaware Limited Liability Company Act (6 Del.C. §18-101, et seq.), as amended from time to time (the “Act”), as a result of the filing of a Certificate of Formation with the Secretary of State of the State of Delaware on September 23, 2009;
WHEREAS, at formation the Company adopted a Limited Liability Company Agreement, which has been amended and restated several times to date, including in connection with: the admission of HHC and Markel as members of the Company on March 17, 2019; the admission of PubCo as a member of the Company in connection with the transactions (the “Business Combination”) contemplated by that certain Business Combination Agreement, dated as of August 17, 2021 (the “Business Combination Agreement”); the admission of certain members of Broad Arrow Group, Inc. (the “BAG Members”) as members of the Company in connection with the transactions contemplated by that certain Contribution and Exchange Agreement, dated as of August 9, 2022 (the “BAG Contribution and Exchange Agreement”); and that certain Securities Purchase Agreement, dated as of June 23, 2023 (the “Securities Purchase Agreement”) where, among other things, certain investors agreed to purchase from PubCo, and PubCo agreed to sell to such investors, 8,483,561 Series A Preferred Shares of PubCo for an aggregate purchase price of $80.0 million, and the Members elected to authorize and issue a new class of Series A Preferred Units to PubCo, the Units owned by each of the Members, as of September 30, 2023, are set forth on Exhibit A;
WHEREAS, prior to the date hereof, the Company was governed by the Fifth Amended and Restated Limited Liability Company Agreement of the Company, dated as of June 23, 2023 (the “Fifth Amended and Restated LLC Agreement”);
WHEREAS, effective as of the date hereof, the Company, PubCo and Markel entered in into that certain the Fifth Amended and Restated Master Alliance Agreement (the “Alliance Agreement”), which, among other things, modified the definition of Alliance Business to address Enthusiast Business (as such terms are defined in the Alliance Agreement), which requires a corresponding modification to the definition of Restricted Business as set forth herein; and
WHEREAS, the Managing Member and the Members holding greater than 50% of the outstanding Units (as defined in the Fifth Amended and Restated LLC Agreement) held by
Members other than PubCo desire to amend and restate the Fifth Amended and Restated LLC Agreement and adopt this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement and the Schedules and Exhibits attached to this Agreement, the following definitions shall apply:
“501(c) Organization” means an entity that is exempt from taxation under Section 501(c)(3) or Section 501(c)(4) of the Internal Revenue Code (or any successor provision thereto).
“Accrued Distribution” has the meaning set forth in Section 5.1(a).
“Accrued Value” means with respect to each Series A Preferred Unit as of any determination date, the sum, subject to appropriate adjustment in the event of any unit distribution, unit split, combination or other similar recapitalization with respect to the Series A Preferred Unit, of (i) the Series A Purchase Price (as defined in the Certificate of Designations), plus (ii) the aggregate amount of any Accrued Distributions on such Series A Preferred Unit as of such date.
“Act” has the meaning given to such term in the recitals to this Agreement.
“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.
“Adjusted Basis” has the meaning given such term in Section 1011 of the Code.
“Adjusted Capital Account Deficit” means the deficit balance, if any, in such Member’s Capital Account at the end of any Fiscal Year or other taxable period, with the following adjustments:
(a) credit to such Capital Account any amount that such Member is obligated to restore under Treasury Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to last sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account thereunder any changes during such year in Company Minimum Gain and Member Minimum Gain; and
(b) debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
This definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)(d) and 1.704-2 and shall be interpreted consistently therewith.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For these purposes, “control” means the possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that, for purposes of this Agreement, (a) no Member shall be deemed an Affiliate of the Company or any of its Subsidiaries and (b) none of the Company or any of its Subsidiaries shall be deemed an Affiliate of any Member.
“Agreement” is defined in the preamble to this Agreement.
“Alliance Agreement” has the meaning given to such term in the recitals to this Agreement.
“Amended and Restated Exchange Agreement” means that certain amended and restated exchange agreement, dated as of March 23, 2022, by and among PubCo, the Company, HHC, Markel and such other Persons from time to time party thereto, as the same may be amended, supplemented or restated from time to time, attached hereto as Exhibit B.
“Annual Dividend Date” means each annual anniversary of the date hereof.
“Annual Rate” means 7.0% per annum.
“BAG Contribution and Exchange Agreement” has the meaning given to such term in the recitals to this Agreement.
“BAG Members” has the meaning given to such term in the recitals to this Agreement.
“beneficially own” and “beneficial owner” has the meaning given to such term in Rule 13d-3 of the rules promulgated under the Exchange Act.
“Board” means the board of directors of PubCo.
“Business” means (a) the automotive lifestyle, brand, membership, roadside assistance, media, content and valuation businesses and personal and commercial collector vehicle and other collectible insurance business, (b) ancillary businesses relating to the preservation, safety and enjoyment of vehicles, boats and collectibles and (c) any other business in which the Company and its Subsidiaries are engaged.
“Business Combination” has the meaning given to such term in the recitals to this Agreement.
“Business Combination Agreement” has the meaning given to such term in the recitals to this Agreement.
“Business Combination Registration Rights Agreement” means the Registration Rights Agreement, by and among PubCo and the Members, entered into concurrently with the closing of the Business Combination.
“Business Day” means any day (other than a Saturday or Sunday) on which commercial banks in the city of the Company’s principal place of business are generally open for business.
“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with Section 3.4.
“Capital Contribution” means, with respect to any Member, the amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member. Any reference to the Capital Contribution of a Member will include any Capital
Contributions made by a predecessor holder of such Member’s Units to the extent that such Capital Contribution was made in respect of Units Transferred to such Member.
“Cash Distribution” has the meaning set forth in Section 5.1(a).
“Certificate of Designations” means that certain Certificate of Designations, Preferences and Rights filed with the Secretary of State of the State of Delaware in connection with the closing of the Securities Purchase Agreement.
“Change of Control” means the occurrence of any of the following events or series of events:
(a) any Person (excluding a corporation or other entity owned, directly or indirectly, by the shareholders of PubCo in substantially the same proportions as their ownership of PubCo Shares and excluding the Members and their Affiliates) is or becomes the beneficial owner, directly or indirectly, of securities of PubCo representing greater voting power of PubCo than the voting power of PubCo held by HHC at such time;
(b) there is consummated a merger or consolidation of PubCo with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, the voting securities of PubCo immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of the then-outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or
(c) the shareholders of PubCo approve a plan of complete liquidation or dissolution of PubCo or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by PubCo of all or substantially all of PubCo’s assets, other than such sale or other disposition by PubCo of all or substantially all of PubCo’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of PubCo in substantially the same proportions as their ownership of PubCo immediately prior to such sale.
“Change of Control Exchange Date” is defined in Section 3.6.
“Charitable Trust” means a trust that is a 501(c) Organization (whether a determination letter with respect to such exemption is issued before, at or after the date hereof), and further includes any successor entity that is a 501(c) Organization upon a conversion of, or transfer of all or substantially all of the assets of, a Charitable Trust to such successor entity (whether a determination letter with respect to such successor’s exemption is issued before, at or after the conversion date).
“Class A Shares” means, as applicable, (a) the Class A Common Stock, par value $0.0001 per share, of PubCo or (b) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class A Shares or into which the Class A Shares is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.
“Class V Shares” means, as applicable, (a) the Class V Common Stock, par value $0.0001 per share, of PubCo or (b) following any consolidation, merger, reclassification or other
similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Class V Shares or into which the Class V Shares is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Commission” means the U.S. Securities and Exchange Commission, including any governmental body or agency succeeding to the functions thereof.
“Common Units” means all Units of the Company other than the Series A Preferred Units or any other specifically designated Unit of the Company.
“Company” is defined in the preamble to this Agreement.
“Company Level Taxes” means any U.S. federal, state, or local taxes, additions to tax, penalties, and interest payable by the Company or any of its Subsidiaries as a result of any examination of the Company’s or any of its Subsidiaries’ affairs by any U.S. federal, state, or local tax authorities, including resulting administrative and judicial proceedings under the Partnership Tax Audit Rules.
“Company Minimum Gain” has the meaning of “partnership minimum gain” set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). It is further understood that Company Minimum Gain shall be determined in a manner consistent with the rules of Treasury Regulations Section 1.704-2(b)(2), including the requirement that if the adjusted Gross Asset Value of property subject to one or more Nonrecourse Liabilities differs from its adjusted tax basis, Company Minimum Gain shall be determined with reference to such Gross Asset Value.
“Company Representative” has the meaning assigned to the term “partnership representative” in Section 6223 of the Code and any “designated individual,” if applicable, as defined in the Treasury Regulations promulgated thereunder (including, in each case, any similar capacity or role under relevant state or local law), as appointed pursuant to Section 9.4.
“Contract” means any written agreement, contract, lease, sublease, license, sublicense, obligation, promise or undertaking.
“control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract, credit arrangement or otherwise.
“Covered Audit Adjustment” means an adjustment to any partnership-related item (within the meaning of Section 6241(2) (B) of the Code) to the extent such adjustment results in an “imputed underpayment” as described in Section 6225(b) of the Code or any analogous provision of state or local Law.
“Covered Person” is defined in Section 6.2(a).
“Debt Securities” means any and all debt instruments or debt securities that are not convertible or exchangeable into Equity Securities of PubCo.
“Depreciation” means, for each Fiscal Year or other taxable period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other taxable period, except that (a) with respect to any such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes and which difference is being eliminated by use of the “remedial method” pursuant to Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or other taxable period shall be the amount of book basis recovered for such Fiscal Year or other taxable period under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2), and (b) with respect to any other such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes at the beginning of such Fiscal Year or other taxable period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or other taxable period bears to such beginning Adjusted Basis; provided, however, that if the Adjusted Basis for U.S. federal income tax purposes of an asset at the beginning of such Fiscal Year or other taxable period is zero, Depreciation with respect to such asset shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managing Member.
“DGCL” means the General Corporation Law of the State of Delaware, as amended from time to time (or any corresponding provisions of succeeding law).
“Discount” means any underwriters’ discounts or commissions and brokers’ fees or commissions.
“Equity Securities” means (a) with respect to a partnership, limited liability company or similar Person, any and all units, interests, rights to purchase, warrants, options or other equivalents of, or other ownership interests in, any such Person as well as debt or equity instruments convertible, exchangeable or exercisable into any such units, interests, rights or other ownership interests and (b) with respect to a corporation, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including all common stock and preferred stock, or warrants, options or other rights to acquire any of the foregoing, including any debt instrument convertible or exchangeable into any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Excess Tax Amount” is defined in Section 9.5(c).
“Exchange Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).
“Exchange Transaction” means an exchange of (i) Common Units and Class V Shares for Class A Shares pursuant to, and in accordance with, the Amended and Restated Exchange Agreement; or (ii) Common Units for Class A Shares pursuant to, and in accordance with, the BAG Contribution and Exchange Agreement.
“Fair Market Value” means the fair market value of any property as reasonably determined by the Managing Member after taking into account such factors as the Managing Member shall deem appropriate.
“Family Member” means a spouse, sibling or spouse of a sibling, lineal descendant (whether natural or adopted) or spouse of a lineal descendant, or any trust created for the benefit of any such individual or of which any of the foregoing is a beneficiary.
“Federal Bankruptcy Code” means Title 11 of the United States Code, as amended from time to time, and all rules and regulations promulgated thereunder.
“Fifth Amended and Restated LLC Agreement” has the meaning given to such term in the recitals to this Agreement.
“Fiscal Year” means the fiscal year of the Company, which shall end on December 31 of each calendar year unless, for U.S. federal income tax purposes, another fiscal year is required. The Company shall have the same fiscal year for U.S. federal income tax purposes and for accounting purposes.
“GAAP” means U.S. generally accepted accounting principles at the time.
“Governmental Entity” means any federal, national, supranational, state, provincial, local, foreign or other government, governmental, stock exchange, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.
“Gross Asset Value” means, with respect to any asset, the asset’s Adjusted Basis for U.S. federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Fair Market Value of such asset as of the date of such contribution;
(b) the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross Fair Market Values as of the following times: (i) the acquisition of an interest (or additional interest) in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution to the Company or in exchange for the performance of more than a de minimis amount of services to or for the benefit of the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b) (2)(ii)(g)(1), (iv) the acquisition of an interest in the Company by any new or existing Member upon the exercise of a noncompensatory option (including a Series A Preferred Conversion) in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(s); or (v) any other event to the extent determined by the Managing Member to be permitted and necessary or appropriate to properly reflect Gross Asset Values in accordance with the standards set forth in Treasury Regulations Section 1.704-1(b)(2)(iv)(q); provided, however, that adjustments pursuant to clauses (i), (ii) and (iv) above shall be made only if the Managing Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. If any noncompensatory options are outstanding upon the occurrence of an event described in this subsection (b)(i) through (b)(v), the Company shall adjust the Gross Asset Values of its properties in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2);
(c) the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross Fair Market Value of such asset on the date of such distribution;
(d) the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the Adjusted Basis of such assets pursuant to Section
734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subsection (f) in the definition of “Profits” or “Losses” below or Section 4.2(h); provided, however, that the Gross Asset Value of a Company asset shall not be adjusted pursuant to this subsection (d) to the extent the Managing Member determines that an adjustment pursuant to subsection (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and
(e) if the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsections (a), (b) or (d) of this definition of Gross Asset Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits, Losses, and other items allocated pursuant to Article IV.
“HHC” is defined in the preamble to this Agreement.
“Indebtedness” of a Person means (a) all obligations of such Person for borrowed money (including capitalized lease obligations, sale-leaseback transactions or other similar transactions, however evidenced), (b) any other obligations in respect of principal or interest of such Person that is evidenced by a note, bond, debenture, draft or similar instrument, and (c) lines of credit and any other agreements relating to the borrowing of money or extension of credit.
“Insurance Policy” means any treaty, policy, binder or contract of insurance or reinsurance, including any amendments or endorsements thereto, which may be evidenced by group or individual policy forms, certificates, binders or slips.
“Interest” means the entire interest of a Member in the Company, including the Units and all of such Member’s rights, powers and privileges under this Agreement and the Act.
“Investment Company Act” means the Investment Company Act of 1940, as the same may be amended from time to time (or any corresponding provisions of succeeding law).
“Law” means any statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law) of any Governmental Entity.
“Legal Action” is defined in Section 11.8.
“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.
“Liquidating Event” is defined in Section 10.1.
“Managing Member” means PubCo, in its capacity as sole managing member of the Company. The Managing Member shall be the “manager” of the Company for the purposes of the Act.
“Markel” is defined in the preamble to this Agreement.
“Member” means any Person that executes this Agreement as a Member, and any other Person admitted to the Company as an additional or substituted Member, in each case, that has not made a disposition of such Person’s entire Interest.
“Member Minimum Gain” has the meaning ascribed to “partner nonrecourse debt minimum gain” set forth in Treasury Regulations Section 1.704-2(i). It is further understood that the determination of Member Minimum Gain and the net increase or decrease in Member Minimum Gain shall be made in the same manner as required for such determination of Company Minimum Gain under Treasury Regulations Sections 1.704-2(d) and 1.704-2(g)(3).
“Member Nonrecourse Debt” has the meaning of “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse Deductions” has the meaning of “partner nonrecourse deductions” set forth in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
“National Securities Exchange” means an exchange registered with the Commission under the Exchange Act.
“New Business Opportunity” is defined in Section 7.4(d).
“New Business Proponent” is defined in Section 7.4(d).
“Nonrecourse Deductions” has the meaning assigned that term in Treasury Regulations Section 1.704-2(b).
“Nonrecourse Liability” is defined in Treasury Regulations Section 1.704-2(b)(3).
“Partnership Tax Audit Rules” means Sections 6221 through 6241 of the Code, together with any final or temporary Treasury Regulations, Revenue Rulings, and case law interpreting Sections 6221 through 6241 of the Code (and any analogous provision of state or local tax Law).
“Per Unit Capital Amount” means, as of any date of determination, the Capital Account, stated on a per Unit basis, underlying any class of Units held by a Member.
“Person” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.
“Plan Asset Regulations” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations as the same may be amended from time to time.
“Proceeding” is defined in Section 6.2(a).
“Profits” or “Losses” means, for each Fiscal Year or other taxable period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):
(a) any income or gain of the Company that is exempt from U.S. federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;
(b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss;
(c) if the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) or (c) of the definition of Gross Asset Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the Company asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the Company asset) from the disposition of such asset and shall, except to the extent allocated pursuant to Section 4.2, be taken into account for purposes of computing Profits or Losses;
(d) gain or loss resulting from any disposition of Company assets with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed with reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value;
(e) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation;
(f) to the extent an adjustment to the adjusted tax basis of any asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Account balances as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and
(g) any items of income, gain, loss or deduction that are specifically allocated pursuant to the provisions of Section 4.2 shall not be taken into account in computing Profits or Losses for any taxable year, but such items available to be specially allocated pursuant to Section 4.2 will be determined by applying rules analogous to those set forth in subsections (a) through (f) above.
“Property” means all real and personal property owned by the Company from time to time, including both tangible and intangible property.
“PubCo” is defined in the preamble to this Agreement.
“PubCo Approved Change of Control” means any Change of Control specified in clause (b) of the definition thereof that meets the following conditions: (i) such Change of Control was duly approved by the Board and the holders of the PubCo Shares prior to such Change of Control, (ii) such Change of Control results in an early termination of and acceleration of payments under the Tax Receivable Agreement, and (iii) the terms of such Change of Control provide for the consideration for the Units in such Change of Control to consist solely of (A) freely and immediately tradeable common equity securities of an issuer listed on a national securities exchange or (B) cash.
“PubCo Shares” means all shares of stock in PubCo, including the Class A Shares, the Class V Shares and the Series A Preferred Shares.
“PubCo Tax-Related Liabilities” means (a) any aggregate federal, state, local, and non-U.S. tax obligations (including any Company Level Taxes for which PubCo is liable hereunder) owed by PubCo and (b) any obligations under the Tax Receivable Agreement payable by PubCo.
“Public Offering” means an underwritten offering and sale of Equity Securities to the public pursuant to a registration statement, including a “bought” deal or “overnight” public offering.
“Qualified Entity” means, with respect to a Qualified Holder: (i) a Qualified Trust solely for the benefit of (A) such Qualified Holder, or (B) one or more Family Members of such Qualified Holder; (ii) any general partnership, limited partnership, limited liability company, corporation, public benefit corporation or other entity with respect to which Voting Control is held by or which is wholly owned, individually or collectively, by (A) such Qualified Holder, (B) one or more Family Members of such Qualified Holder or (C) any other Qualified Entity of such Qualified Holder; (iii) any Charitable Trust validly created by a Qualified Holder; (iv) a revocable living trust, which revocable living trust is itself both a Qualified Trust and a Qualified Holder, during the lifetime of the natural person grantor of such trust; and (v) any 501(c) Organization or Supporting Organization over which (A) such Qualified Holder, (B) one or more Family Members of such Qualified Holder or (C) any other Qualified Entity of such Qualified Holder, individually or collectively, control the appointment of a majority of all trustees, board members, or members of a similar governing body, as applicable.
“Qualified Holder” means (i) HHC, (ii) Markel, or (iii) a Qualified Transferee of the foregoing.
“Qualified Transfer” means any Transfer of Units: (i) by a Qualified Holder (or the estate of a deceased Qualified Holder) to (A) one or more Family Members of such Qualified Holder or (B) any Qualified Entity of such Qualified Holder; (ii) by a Qualified Entity of a Qualified Holder to (A) such Qualified Holder or one or more Family Members of such Qualified Holder or (B) any other Qualified Entity of such Qualified Holder; or (iii) by a Qualified Holder that is a natural person or revocable living trust to a 501(c) Organization or a Supporting Organization, as well as any Transfer by a 501(c) Organization to a Supporting Organization of which such 501(c) Organization (x) is a supported organization (within the meaning of Section 509(f)(3) of the Internal Revenue Code (or any successor provision thereto)), and (y) has the power to appoint a majority of the board of directors, in each case solely so long as such 501(c) Organization or such Supporting Organization, as applicable, irrevocably elects, no later than the time such share of Class V Shares is Transferred to it, that such share of Class V Shares shall automatically be converted into Class A Shares upon the death of such Qualified Holder or the natural person grantor of such Qualified Holder.
“Qualified Transferee” means a Transferee of Units received in a Transfer that constitutes a Qualified Transfer.
“Qualified Trust” means a bona fide trust where each trustee is (i) a Qualified Holder, (ii) a Family Member of a Qualified Holder or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies, accounting, legal or financial advisor, or bank trust departments.
“Reclassification Event” means any of the following: (a) any reclassification or recapitalization of PubCo Shares (other than as a result of a subdivision or combination or any transaction subject to Section 3.1(g)), (b) any merger, consolidation or other combination involving PubCo, or (c) any sale, conveyance, lease, or other disposal of all or substantially all the properties and assets of PubCo to any other Person, in each of clauses (a), (b) or (c), as a
result of which holders of PubCo Shares shall be entitled to receive cash, securities or other property for their PubCo Shares.
“Redemption” means any redemption of Units pursuant to this Agreement.
“Regulatory Allocations” is defined in Section 4.2(i).
“Restricted Business” means (a) the property and casualty insurance business in respect of personal or commercial classic, collectible (including modern collectible) and antique cars; and (b) the (i) automotive lifestyle business, (ii) automotive membership, automotive marketplace, automotive association, automotive foundation or automotive club services business, (iii) automotive roadside assistance services business, (iv) automotive media and automotive media content (including magazines) business, (v) business of providing automotive warranties, (vi) the automotive financing business, (vii) the automotive leasing or peer-to-peer rental platform business, and (viii) the activities described on Schedule 7.4(b), in each case of the above clauses (i) through (viii), in respect of personal or commercial classic, collectible (including modern collectible) and antique cars, it being acknowledged and agreed that the activities comprising clause (b) are to be narrowly construed to include such activities to the extent they relate primarily to personal or commercial classic, collectible (including modern collectible) and antique cars, and shall not apply to activities that relate primarily to a business, product, industry or service other than personal or commercial classic, collectible (including modern collectible) and antique cars; provided, that, nothing in this definition shall prohibit, preclude or restrict, or be construed to prohibit, preclude or restrict (A) Enthusiast Business (as defined in the Alliance Agreement) whether or not deemed Alliance Business (as defined in the Alliance Agreement), (B) providing insurance for any Person where the coverage of personal or commercial classic, collectible (including modern collectible) and antique cars is ancillary to the primary coverage for such Person or (C) providing reinsurance or similar protection in any form, other than reinsurance the primary purpose or effect of which is to provide coverage on Insurance Policies of the type marketed, produced, sold, underwritten or administered in connection with the Alliance Business (as defined in the Alliance Agreement).
“Restricted Period” means for any Member or any of its Affiliates, the period from the date of this Agreement until the date one (1) year after the first date on which such Member no longer owns, directly or indirectly, beneficially or of record, any Units; provided, that for Markel and its Affiliates, “Restricted Period” means the period from the date of this Agreement until the date one (1) year after the first date on which Markel and its Affiliates no longer hold at least fifty percent (50%) of the common shares of PubCo it owns as of the closing of the Business Combination (taking into account any securities issued with respect to such common shares, any share equivalents and any adjustments to such common shares, including pursuant to a stock dividend, stock split, reclassification, recapitalization or pursuant to an exchange (including a merger or consolidation)); provided, further, that the Restricted Period for any Member and any of its Affiliates shall terminate upon a Change of Control.
“Securities Act” means the Securities Act of 1933, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).
“Securities Purchase Agreement” means that certain securities purchase agreement, dated as of the date hereof, entered into by and among the Buyers (as defined therein) and PubCo, pursuant to which the Buyers have agreed, among other things, to purchase from PubCo, and PubCo has agreed, among other things, to sell to the Buyers, 8,483,561 Series A Preferred Shares, for an aggregate purchase price of $80.0 million.
“Securities Purchase Registration Rights Agreement” means the Registration Rights Agreement, by and among PubCo and the Buyers (as defined therein), entered into concurrently with the closing of the Securities Purchase Agreement.
“Series A Liquidation Value” has the meaning set forth in Section 10.2(b)(iii).
“Series A Preferred Contribution Amount” is equal to the Series A Purchase Price (as defined in the Certificate of Designations) multiplied by the number of shares of purchased preferred stock as determined under the Securities Purchase Agreement.
“Series A Preferred Conversion” has the meaning set forth in Section 4.5(c).
“Series A Preferred Shares” means, as applicable, (a) the Series A Preferred Stock, or (b) following any consolidation, merger, reclassification or other similar event involving PubCo, any shares or other securities of PubCo or any other Person or cash or other property that become payable in consideration for the Series A Preferred Shares or into which the Series A Preferred Shares is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event
“Series A Preferred Stock” means the shares of Series A Convertible Preferred Stock, par value $0.0001 per share, of PubCo.
“Series A Preferred Units” means a Unit designated as a “Series A Preferred Unit” and having the rights and obligations specified with respect to the Series A Preferred Units in this Agreement.
“Subsidiary” means, with respect to any specified Person, any other Person with respect to which such specified Person (a) has, directly or indirectly, the power, through the ownership of securities or otherwise, to elect a majority of directors or similar managing body or (b) beneficially owns, directly or indirectly, a majority of such Person’s Equity Securities.
“Supporting Organization” means an entity that is exempt from taxation under Section 501(c)(3) or Section 501(c)(4) and described in Section 509(a)(3) of the Internal Revenue Code (or any successor provision thereto).
“Tax Contribution Obligation” is defined in Section 9.5(c).
“Tax Offset” is defined in Section 9.5(c).
“Tax Receivable Agreement” means that certain tax receivable agreement, dated as of December 2, 2021, by and among PubCo, the Company, HHC, Markel and such other persons from time-to-time party thereto, as the same may be amended, supplemented or restated from time to time.
“Tax-Related Liabilities” means an amount, as determined in good faith by the Managing Member, equal to aggregate federal, state, local, and non-U.S. tax payable by direct or indirect holders of equity interests in the Company on the taxable income attributable to the Company or any of its direct or indirect Subsidiaries, assuming the applicability of the highest marginal U.S. federal, state, and local income tax rates.
“Trading Market” means any of the following markets or exchanges on which the Class A Shares is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Transfer” means, when used as a noun, any voluntary or involuntary, direct or indirect (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor, by operation of law or otherwise), transfer, sale, pledge or hypothecation (other than a bona fide pledge to secure indebtedness) or other disposition and, when used as a verb, voluntarily or involuntarily, directly or indirectly (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor or any Person that controls the Transferor, by operation of law or otherwise), to transfer, sell, pledge or hypothecate or otherwise dispose of; provided, however, that, notwithstanding anything in this Agreement to the contrary, the transfer of Equity Securities in Markel or any direct or indirect owner thereof shall not be deemed a Transfer for any purpose of this Agreement. The terms “Transferee,” “Transferor,” “Transferred,” and other forms of the word “Transfer” shall have the correlative meanings.
“Treasury Regulations” means pronouncements, as amended from time to time, or their successor pronouncements, which clarify, interpret and apply the provisions of the Code, and which are designated as “Treasury Regulations” by the United States Department of the Treasury.
“Uniform Commercial Code” means the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of Delaware.
“Units” means the Common Units, the Series A Preferred Units and any other class of Units issued or purchased pursuant to the terms of this Agreement and shall also include any Equity Security of the Company issued in respect of or in exchange for Units, whether by way of dividend or other distribution, split, recapitalization, merger, rollup transaction, consolidation, conversion or reorganization.
“Voting Control” with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise and, in any event and without limiting the generality of the foregoing, any Person owning a majority of the voting power of the voting securities of another Person shall be deemed to have voting control of that Person.
“Winding-Up Member” is defined in Section 10.2(a).
Section 1.2. Interpretive Provisions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) all accounting terms not otherwise defined herein have the meanings assigned under GAAP;
(b) all references to currency, monetary values and dollars set forth herein mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars;
(c) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;
(d) whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”;
(e) “or” is disjunctive and is not exclusive;
(f) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms;
(g) references to any Law shall include any successor legislation and all rules and regulations promulgated thereunder as in effect from time to time in accordance with the terms thereof and references to any Law shall be construed as including all statutory, legal, and regulatory provisions consolidating, amending or replacing such Law as amended from time to time;
(h) the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
(i) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified, and when counting days, the date of commencement will not be included as a full day for purposes of computing any applicable time periods (except as otherwise may be required under any applicable Law). If any action is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action may be deferred until the next Business Day.
ARTICLE II
ORGANIZATION OF THE LIMITED LIABILITY COMPANY
Section 2.1. Formation. The Company has been formed as a limited liability company subject to the provisions of the Act upon the terms, provisions and conditions set forth in this Agreement.
Section 2.2. Filing. The Company’s Certificate of Formation has been filed with the Secretary of State of the State of Delaware in accordance with the Act. The Members shall execute such further documents (including amendments to such Certificate of Formation) and take such further action as is appropriate to comply with the requirements of Law for the formation or operation of a limited liability company in Delaware and in all states and counties where the Company may conduct its business.
Section 2.3. Name. The name of the Company is “THE HAGERTY GROUP, LLC” and all business of the Company shall be conducted in such name or, in the discretion of the Managing Member, under any other name.
Section 2.4. Registered Office; Registered Agent. The location of the registered office of the Company and the name and address for service of process on the Company in the State of Delaware are as set forth in the Company’s Certificate of Formation, or such other office, qualified Person or address, as applicable, as the Managing Member may designate from time to time.
Section 2.5. Principal Place of Business. The principal place of business of the Company shall be located in such place as is determined by the Managing Member from time to time.
Section 2.6. Purpose; Powers. The nature of the business or purposes to be conducted or promoted by the Company is to engage in the Business and any other lawful act or activity for
which limited liability companies may be formed under the Act. The Company shall have the power and authority to take any and all actions and engage in any and all activities necessary, appropriate, desirable, advisable, ancillary or incidental to the accomplishment of the foregoing purpose.
Section 2.7. Term. The term of the Company commenced on the date of filing of the Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware in accordance with the Act and shall continue indefinitely. The Company may be dissolved and its affairs wound up only in accordance with Article X.
Section 2.8. Intent. It is the intent of the Members that the Company be operated in a manner consistent with its treatment as a “partnership” solely for U.S. federal (and applicable state and local) income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a “partnership” for any other purpose, including for purposes of Section 303 of the Federal Bankruptcy Code. Neither the Company nor any Member shall take any action inconsistent with the express intent of the parties hereto as set forth in this Section 2.8.
ARTICLE III
OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.1. Authorized Units; General Provisions with Respect to Units.
(a) Subject to the provisions of this Agreement, the Company shall be authorized to issue from time to time such number of Units and such other Equity Securities as the Managing Member shall determine in accordance with Section 3.3. Each authorized Unit may be issued pursuant to such agreements as the Managing Member shall approve, including pursuant to options and warrants. The Company may reissue any Units (but not Series A Preferred Units) that have been repurchased or acquired by the Company.
(b) Except to the extent explicitly provided otherwise herein (including Section 3.3), each outstanding Common Unit shall have identical rights and privileges in all respects and each outstanding Series A Preferred Unit shall have identical rights and privileges in all respects.
(c) Initially, none of the Units will be represented by certificates. If the Managing Member determines that it is in the interest of the Company to issue certificates representing the Units, certificates will be issued and the Units will be represented by those certificates, and this Agreement shall be amended as necessary or desirable to reflect the issuance of certificated Units for purposes of the Uniform Commercial Code. Nothing contained in this Section 3.1(c) shall be deemed to authorize or permit any Member to Transfer its Units except as otherwise permitted under this Agreement.
(d) The total number of Units issued and outstanding and held by each Member as of the date hereof is set forth in the books and records of the Company. The Company shall update such books and records from time to time to reflect any Transfers of Interests in accordance with this Agreement, the issuance of additional Equity Securities and, subject to Section 11.1(a), subdivisions or combinations of Units made in compliance with Section 3.1(g), in each case, in accordance with the terms of this Agreement.
(e) If, at any time after the date hereof, PubCo issues a Class A Share or any other Equity Security of PubCo (other than Class V Shares), other than in connection with an Exchange Transaction, (i) PubCo shall concurrently contribute to the Company the net proceeds (in cash or other property, as the case may be), if any, received by PubCo for such Class A Share or other Equity Security and (ii) the Company shall concurrently issue to PubCo, in accordance with the contributions made pursuant to clause (i), one Common Unit (if PubCo issues a Class A Share), or such other Equity Security of the Company (if PubCo issues Equity Securities other than Class A Shares) corresponding to the Equity Securities issued by PubCo, and with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo to be issued. If PubCo issues any Equity Security for cash to be used to fund the acquisition by PubCo of any Person or the assets of any Person, then PubCo shall not be required to transfer such cash proceeds to the Company but instead PubCo shall be required to contribute such Person or the assets and liabilities of such Person to the Company or any of its Subsidiaries. Notwithstanding the foregoing, this Section 3.1(e) shall not apply to the issuance and distribution to holders of PubCo shares of rights to purchase Equity Securities of PubCo under a “poison pill” or similar shareholders rights plan (and upon any redemption of Common Units for Class A Shares, such Class A Shares will be issued together with a corresponding right under such plan), or to the issuance under PubCo’s employee benefit plans of any warrants, options, other rights to acquire Equity Securities of PubCo or rights or property that may be converted into or settled in Equity Securities of PubCo, but shall in each of the foregoing cases apply to the issuance of Equity Securities of PubCo in connection with the exercise or settlement of such rights, warrants, options or other rights or property, which shall be undertaken so as to comply with the provisions of Treasury Regulations Section 1.1032-3 and deemed to occur for U.S. federal (and applicable state and local) income tax purposes as provided therein. The Company may not issue any additional Common Units to PubCo unless substantially simultaneously therewith PubCo issues or sells an equal number of newly issued Class A Shares to another Person, the Company may not issue any additional Series A Preferred Units to PubCo unless substantially simultaneously therewith PubCo issues or sells an equal number of newly issued Series A Preferred Shares to another Person, and the Company may not issue any other Equity Securities of the Company to PubCo unless substantially simultaneously PubCo issues or sells, to another Person, an equal number of newly issued shares of a new class or series of Equity Securities of PubCo or such Subsidiary with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of the Company. If at any time PubCo issues Debt Securities, PubCo shall transfer to the Company (in a manner to be determined by the Managing Member in its reasonable discretion) the proceeds received by PubCo in exchange for such Debt Securities in a manner that directly or indirectly burdens the Company with the repayment of the Debt Securities. If any Equity Security outstanding at PubCo is exercised or otherwise converted and, as a result, any Equity Securities of PubCo are issued, (1) the corresponding Equity Security outstanding at the Company shall be similarly exercised or otherwise converted, as applicable, and an equivalent number of Equity Securities of the Company shall be issued to PubCo as contemplated by the first sentence of this Section 3.1(e), and (2) PubCo shall concurrently contribute to the Company the net proceeds received by PubCo from any such exercise.
(f) PubCo may not redeem, repurchase or otherwise acquire (i) any Class A Shares (including upon forfeiture of any unvested Class A Shares) unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from PubCo an equal number of Common Units for the same price per security, (ii) any Series A Preferred Shares unless simultaneously the Company redeems, repurchases or otherwise acquires from PubCo an equal number of Series A Preferred Units for the same price per security, or (iii) any other Equity Securities of PubCo, unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from PubCo an equal number of Equity Securities of the Company of a corresponding class or series with substantially the same rights to dividends and distributions (including distributions upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo for the same price per security. The Company may not redeem, repurchase or otherwise acquire (x) any Common Units from PubCo unless substantially simultaneously PubCo redeems, repurchases or otherwise acquires an equal number of Class A Shares for the same price per security from holders thereof, (y) any Series A Preferred Units from PubCo unless substantially simultaneously PubCo redeems, repurchases or otherwise acquires an equal number of Series A Preferred Shares for the same price per security from holders thereof, or (z) any other Equity Securities of the Company from PubCo unless substantially simultaneously PubCo redeems, repurchases or otherwise acquires for the same price per security an equal number of Equity Securities of PubCo of a corresponding class or series with substantially the same rights to dividends and distributions (including distribution upon liquidation, but taking into account differences resulting from any tax or other liabilities borne by PubCo) and other economic rights as those of such Equity Securities of PubCo. Notwithstanding the foregoing, to the extent that any consideration payable by PubCo in connection with the redemption or repurchase of any Equity Securities of PubCo consists (in whole or in part) of Equity Securities, then the redemption or repurchase of the corresponding Equity Securities of the Company shall be effectuated in an equivalent manner.
(g) The Company shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) (i) of the outstanding Equity Securities of the Company unless accompanied by an identical subdivision or combination, as applicable, of the outstanding PubCo Shares, with corresponding changes made with respect to any other exchangeable or convertible securities or (ii) of the Series A Preferred Units that is not accompanied by an identical subdivision or combination of Series A Preferred Shares to maintain at all times the One-to-One Ratio, unless such action is necessary to maintain at all times a one-to-one ratio between the number of Series A Preferred Units owned by PubCo, directly or indirectly, and the number of outstanding of Series A Preferred Shares, as contemplated by the first sentence of Section 3.3(c). Unless in connection with any action taken pursuant to Section 3.1(j), PubCo shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) of the outstanding PubCo Shares unless accompanied by an identical subdivision or combination, as applicable, of the outstanding Common Units, with corresponding changes made with respect to any other exchangeable or convertible securities.
(h) PubCo shall at all times keep available, solely for the purpose of Exchange Transactions and any Series A Preferred Conversions, out of its authorized but unissued Class A Shares, such number of Class A Shares that shall be issuable upon the exchange pursuant to an Exchange Transaction of all outstanding Common Units (other than those Common Units held by PubCo) and upon all Series A Preferred Conversions. PubCo covenants that all Class A Shares that shall be issued in an Exchange Transaction or the Series A Preferred Conversions shall, upon issuance thereof, be validly issued, fully paid and non-assessable. In addition, for so long as the Class A Shares are listed on a National Securities Exchange, PubCo shall use its reasonable best efforts to cause all Class A Shares issued in an Exchange Transaction or in a Series A Preferred Conversion to be listed on such National Securities Exchange at the time of such issuance.
(i) Notwithstanding any other provision of this Agreement, the Company may redeem Units from PubCo for cash to fund any acquisition by PubCo of another Person; provided that promptly after such redemption and acquisition PubCo contributes or causes to be contributed, directly or indirectly, such Person or the assets and liabilities of such Person to the Company or any of its Subsidiaries in exchange for a number of Units equal to the number of Units so redeemed.
(j) Notwithstanding any other provision of this Agreement (including Section 3.1(e)), if PubCo acquires or holds any material amount of cash in excess of any monetary obligations it reasonably anticipates (including as a result of the receipt of distributions pursuant to Section 5.2 for any period in excess of the PubCo Tax-Related Liabilities for such period), PubCo and the Managing Member may use such excess cash amount in such other manner, and make such other adjustments to or take such other actions with respect to the capitalization of PubCo and the Company and to the one-to-one exchange ratio between Common Units and Class A Shares, as PubCo determines to be fair and equitable to the shareholders of PubCo and to the Members and to preserve the intended economic effect of this Section 3.1 and the other provisions hereof.
Section 3.2. Voting Rights. No Member has any voting right except with respect to those matters specifically reserved for a Member vote under the Act and for matters expressly requiring the approval of Members under this Agreement. Except as otherwise required by the Act, each Unit will entitle the holder thereof to one vote on all matters to be voted on by the Members as provided for in this Agreement. Except as otherwise expressly provided in this Agreement, the holders of Common Units having voting rights will vote together as a single class on all matters to be approved by the Members.
Section 3.3. Capital Contributions; Unit Ownership.
(a) Capital Contributions. Except as otherwise set forth in Section 3.1 with respect to the obligations of PubCo, no Member shall be required to make additional Capital Contributions.
(b) Issuance of Additional Interests. Except as otherwise expressly provided in this Agreement, the Managing Member shall have the right to authorize and cause the Company to issue on such terms (including price) as may be determined by the Managing Member (i) subject to the limitations of Section 3.1, Series A Preferred Units, additional Equity Securities in the Company (including creating preferred interests or other classes or series of interests having such rights, preferences and privileges as determined by the Managing Member, which rights, preferences and privileges may be senior to the Common Units), and (ii) obligations, evidences of
Indebtedness or other securities or interests convertible or exchangeable for Equity Securities in the Company; provided that, at any time following the date hereof, the Company shall not issue Equity Securities in the Company to any Person unless such Person shall have executed a counterpart to this Agreement and all other documents, agreements or instruments deemed necessary or desirable in the reasonable discretion of the Managing Member. Upon such issuance and execution, such Person shall be admitted as a Member of the Company. In that event, the Managing Member shall update the Company’s books and records to reflect such additional issuances. To the extent any Series A Preferred Units are issued under this Section 3.3(b), such series of Units shall be substantially economically equivalent to a series of preferred stock of PubCo; provided, that as long as there are any Members (other than PubCo and its Subsidiaries) no such new class or series of Units may be issued, in each case, except to the extent (and solely to the extent) the Company actually receives cash in an aggregate amount, or other property with a Fair Market Value in an aggregate amount, equal to the aggregate distributions that would be made in respect of such series of Units if the Company were liquidated immediately after the issuance of such series of Units. Subject to Section 11.1, the Managing Member is hereby authorized to amend this Agreement to set forth the designations, preferences, rights, powers and duties of such additional Equity Securities in the Company, or such other amendments that the Managing Member determines to be otherwise necessary or appropriate in connection with the creation, authorization or issuance of, any class or series of Equity Securities in the Company pursuant to this Section 3.3(b); provided that, notwithstanding the foregoing, the Managing Member shall have the right to amend this Agreement as set forth in this sentence without the approval of any other Person (including any Member) and notwithstanding any other provision of this Agreement (including Section 11.1) if such amendment is necessary, and then only to the extent necessary, in order to consummate any offering of PubCo Shares or other Equity Securities of PubCo provided that the designations, preferences, rights, powers and duties of any such additional Equity Securities of the Company as set forth in such amendment are substantially similar to those applicable to such PubCo Shares or other Equity Securities of PubCo.
(c) Maintenance of One-to-One Ratio. Except as otherwise determined by the Managing Member, the Company, the Managing Member and PubCo shall undertake all actions, including, without limitation, an issuance, reclassification, distribution, division or recapitalization, with respect to the Units, the Class A Shares, the Class V Shares, or the Series A Preferred Shares, as applicable, to maintain at all times (i) a one-to-one ratio between the number of Series A Preferred Units owned by PubCo, directly or indirectly, and the number of outstanding Series A Preferred Shares, (the “One-to-One Ratio”), disregarding, for purposes of maintaining the One-to-One Ratio, (A) treasury stock or (B) preferred stock or other debt or Equity Securities (including any corresponding rights) issued by the PubCo that are convertible into or exercisable or exchangeable for Class A Shares (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by PubCo to the equity capital of the Company); provided that, in each of the foregoing cases of clause (B), the issuance of Class A Shares in connection with the conversion, exercise or exchange, as applicable, of such preferred stock or other debt or Equity Securities, as applicable, shall not be disregarded for purposes of this Section 3.3(c). Except as otherwise determined by the Managing Member, in the event PubCo issues, transfers or delivers from treasury stock or repurchases or
redeems Class A Shares in a transaction not contemplated in this Agreement, the Managing Member, PubCo and the Company shall take all actions such that, after giving effect to all such issuances, transfers, deliveries, repurchases or redemptions, the number of outstanding Units owned, directly or indirectly, by PubCo will equal on a one-for-one basis the number of outstanding Class A Shares.
Section 3.4. Capital Accounts. A Capital Account shall be maintained for each Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2) (iv) and, to the extent consistent with such regulations, the other provisions of this Agreement. Each Member’s Capital Account shall be (a) increased by (i) allocations to such Member of Profits pursuant to Section 4.1 and any other items of income or gain allocated to such Member pursuant to Section 4.2, (ii) the amount of cash or the initial Gross Asset Value of any asset (net of any Liabilities assumed by the Company and any Liabilities to which the asset is subject) contributed to the Company by such Member, and (iii) any other increases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv), and (b) decreased by (i) allocations to such Member of Losses pursuant to Section 4.1 and any other items of deduction or loss allocated to such Member pursuant to the provisions of Section 4.2, (ii) the amount of any cash or the Gross Asset Value of any asset (net of any Liabilities assumed by the Member and any Liabilities to which the asset is subject) distributed to such Member, and (iii) any other decreases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv). If a Transfer of Units is made in accordance with this Agreement, the Capital Account of the Transferor that is attributable to the Transferred Units shall carry over to the Transferee Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(l).
Section 3.5. Other Matters.
(a) No Member shall be entitled to a return on or of its Capital Contributions or withdraw from the Company without the consent of the Managing Member.
(b) No Member shall receive any interest, salary, compensation, draw or reimbursement with respect to its Capital Contributions or its Capital Account, or for services rendered or expenses incurred on behalf of the Company or otherwise solely in its capacity as a Member, except as otherwise provided in Section 6.7 or as otherwise contemplated by this Agreement.
(c) The Liability of each Member shall be limited as set forth in the Act and other applicable Law and, except as expressly set forth in this Agreement or required by Law, no Member (or any of its Affiliates) shall be personally liable, whether to the Company, any of the other Members, the creditors of the Company, or any other third party, for any debt or Liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company.
(d) Except as otherwise required by the Act, a Member shall not be required to restore a deficit balance in such Member’s Capital Account, to lend any funds to the Company or, except as otherwise set forth herein, to make any additional contributions or payments to the Company.
(e) The Company shall not be obligated to repay any Capital Contributions of any Member.
Section 3.6. Redemption of Units. In connection with a PubCo Approved Change of Control, PubCo shall have the right, in its sole discretion, to require each Member (other than PubCo) to effect a Redemption of all of such Member’s Units (together with the corresponding
number of Class V Shares, as applicable) in exchange for a number of Class A Shares equal to the number of Units being so redeemed; provided, however, that if any Member owns more than 10% of the total number of outstanding Units at the time of a PubCo Approved Change of Control, PubCo shall use commercially reasonable efforts to consult and cooperate with such Member to structure such Redemption in a tax efficient manner mutually agreeable to such Member and PubCo. Any Redemption pursuant to this Section 3.6 shall be effective immediately prior to and conditioned upon the consummation of the PubCo Approved Change of Control (the “Change of Control Exchange Date”). From and after the Change of Control Exchange Date, (i) the Units and Class V Shares subject to such Redemption shall be deemed to be transferred to PubCo on the Change of Control Exchange Date and (ii) such Member shall cease to have any rights with respect to the Units and Class V Shares subject to such Redemption (other than the right to receive Class A Shares pursuant to such Redemption). PubCo shall provide written notice of an expected PubCo Approved Change of Control to all Members within the earlier of (x) 5 Business Days following the execution of the agreement with respect to such PubCo Approved Change of Control and (y) 10 Business Days before the proposed date upon which the contemplated PubCo Approved Change of Control is to be effected, indicating in such notice such information as may reasonably describe the PubCo Approved Change of Control transaction, subject to applicable Law, including the date of execution of such agreement or such proposed effective date, as applicable, the amount and types of consideration to be paid for Class A Shares in the PubCo Approved Change of Control, any election with respect to types of consideration that a holder of Class A Shares, as applicable, shall be entitled to make in connection with such PubCo Approved Change of Control, and the number of Units (and the corresponding Class V Shares) held by such Member that PubCo intends to require to be subject to such Redemption. Following delivery of such notice and on or prior to the Change of Control Exchange Date, the Members shall take all actions reasonably requested by PubCo to effect such Redemption, including taking any action and delivering any document required pursuant to the remainder of this Section 3.6 to effect a Redemption. Nothing contained in this Section 3.6 shall limit the right of any Member to vote for or participate in any proposed Change of Control of PubCo with respect to such Member’s Class V Shares.
ARTICLE IV
ALLOCATIONS OF PROFITS AND LOSSES
Section 4.1. Profits and Losses. After giving effect to the allocations under Section 4.2 and subject to Section 4.4, Profits and Losses (and, to the extent determined by the Managing Member to be necessary and appropriate to achieve the resulting Capital Account balances described below, any allocable items of income, gain, loss, deduction or credit includable in the computation of Profits and Losses) for each Fiscal Year or other taxable period shall be allocated among the Members during such Fiscal Year or other taxable period in a manner such that, after giving effect to the special allocations set forth in Section 4.2 and all distributions through the end of such Fiscal Year or other taxable period, the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal to (i) the amount such Member would receive pursuant to Section 10.2(b) if all assets of the Company on hand at the end of such Fiscal Year or other taxable period were sold for cash equal to their Gross Asset Values, all liabilities of the Company were satisfied in cash in accordance with their terms (limited with respect to each nonrecourse liability to the Gross Asset Value of the assets securing such liability), and all remaining or resulting cash was distributed, in accordance with Section 10.2(b), to the Members immediately after making such allocation, minus (ii) such Member’s share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets, and the amount any such Member is treated as obligated to contribute to the Company, computed immediately after the hypothetical sale of assets. For the avoidance of doubt, the Series A Preferred Units will be treated as a partnership interest in the Company that is “convertible equity” within the meaning of Treasury Regulation Section
1.721-2(g)(3). The initial Capital Account balance and Per Unit Capital Amount in respect of each Series A Preferred Unit shall be the Series A Preferred Contribution Amount, as such amount may be adjusted in accordance with the Securities Purchase Agreement.
Section 4.2. Special Allocations. The following allocations shall be made in the following order:
(a) Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Members on a pro rata basis, in accordance with the number of Units owned by each Member as of the last day of such Fiscal Year or other taxable period. The amount of Nonrecourse Deductions for a Fiscal Year or other taxable period shall equal the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that Fiscal Year or other taxable period over the aggregate amount of any distributions during that Fiscal Year or other taxable period of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain, determined in accordance with the provisions of Treasury Regulations Section 1.704-2(d).
(b) Any Member Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.7042(i). If more than one Member bears the economic risk of loss for such Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable to such Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the economic risk of loss. This Section 4.2(b) is intended to comply with the provisions of Treasury Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.
(c) Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in Company Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Company Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 4.2(c), each Member shall be specially allocated items of Company income and gain for such Fiscal Year or other taxable period in an amount equal to such Member’s share of the net decrease in Company Minimum Gain during such year (as determined pursuant to Treasury Regulations Section 1.704-2(g)(2)). This Section 4.2(c) is intended to constitute a minimum gain chargeback under Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(d) Notwithstanding any other provision of this Agreement except Section 4.2(c), if there is a net decrease in Member Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Member Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 4.2(d)), each Member shall be specially allocated items of Company income and gain in an amount equal to such Member’s share of the net decrease in Member Minimum Gain (as determined pursuant to Treasury Regulations Section 1.704-2(i)(4)). This Section 4.2(d) is intended to constitute a partner nonrecourse debt minimum gain chargeback under Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(e) Notwithstanding any provision hereof to the contrary except Section 4.2(a) and Section 4.2(b), no Losses or other items of loss or expense shall be allocated to any Member to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such Fiscal Year or other taxable period. All Losses and other items of loss and expense in excess of the limitation set forth in this Section 4.2(e) shall be allocated to the Members who do not have an Adjusted Capital Account Deficit in proportion to their relative positive Capital Accounts but only to the extent that such Losses and other items of loss and expense do not cause any such Member to have an Adjusted Capital Account Deficit.
(f) Notwithstanding any provision hereof to the contrary except Section 4.2(c) and Section 4.2(d), if any Member unexpectedly receives any adjustment, allocation or distribution described in paragraph (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro rata portion of each item of income, including gross income, and gain for the Fiscal Year or other taxable period) shall be specially allocated to such Member in an amount and manner sufficient to eliminate any Adjusted Capital Account Deficit of that Member as quickly as possible; provided that an allocation pursuant to this Section 4.2(f) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article IV have been tentatively made as if this Section 4.2(f) were not in this Agreement. This Section 4.2(f) is intended to constitute a qualified income offset under Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(g) If any Member has a deficit balance in its Capital Account at the end of any Fiscal Year or other taxable period that is in excess of the sum of (i) the amount that such Member is obligated to restore and (ii) the amount that the Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Sections 1.704-2(g) (1) and 1.704-2(i)(5), that Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 4.2(g) shall be made only if and to the extent that such Member would have a deficit balance in its Capital Account in excess of such sum after all other allocations provided for in this Article IV have been made as if Section 4.2(f) and this Section 4.2(g) were not in this Agreement.
(h) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to any Member in complete liquidation of such Member’s Interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such item of gain or loss shall be allocated to the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) if such Section applies or to the Member to whom such distribution was made if Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(i) The allocations set forth in Section 4.2(a) through Section 4.2(h) (the “Regulatory Allocations”) are intended to comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other
provision of this Article IV (other than the Regulatory Allocations), the Regulatory Allocations (and anticipated future Regulatory Allocations) shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocation of other items and the Regulatory Allocations to each Member should be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. This Section 4.2(i) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith.
(j) Items of income, gain, loss, expense or credit resulting from a Covered Audit Adjustment shall be allocated to the Members in accordance with the applicable provisions of the Partnership Tax Audit Rules, as reasonably determined by the Managing Member.
(k) Notwithstanding any other provision of Section 4.2, Section 4.3 and Section 4.4 (other than the Regulatory Allocations), prior to all other allocations:
(i) Items of Company gross income and gain (which, for the avoidance of doubt, shall not include any item of expense, loss or deduction) shall be allocated to the Series A Preferred Units until the aggregate amount of gross income and gain allocated to such Series A Preferred Units pursuant hereto for the applicable current Fiscal Year or other taxable period and all previous taxable periods is equal to the cumulative amount of the sum of (without duplication):
(A) all Cash Distributions and Unit Distributions made with respect to such Series A Preferred Unit pursuant to Section 5.1(a), and
(B) the aggregate economically accrued distributions on the Series A Preferred Units which shall, with respect to each outstanding Series A Preferred Unit, accrue on the Accrued Value at the Annual Rate on each Series A Preferred Unit, and shall be cumulative and accrue annually from and after the date hereof, but shall compound on an annual basis on each Annual Dividend Date.
(ii) if (A) the date on which a liquidating event occurs there is at least one outstanding Series A Preferred Unit and (B) after having made all other allocations provided for in this Section 4.2 for the Fiscal Year or other taxable period in which the liquidating event occurs, the Per Unit Capital Amount of each Series A Preferred Unit would not equal or exceed the Series A Liquidation Value, then items of income, gain, loss and deduction for such Fiscal Year or other taxable period shall instead be allocated among the Members in a manner determined appropriate by the Managing Member so as to cause, to the maximum extent possible, the Per Unit Capital Amount in respect of each Series A Preferred Unit to equal the Series A Liquidation Value (and no other allocation pursuant to this Agreement shall reverse the effect of such allocation). In the event that (x) the date on which a liquidating event occurs is on or before the date (not including any extension of time) prescribed by law for the filing of the Company’s federal income tax return for the Fiscal Year or other taxable period immediately prior to the Fiscal Year or other taxable period in which the liquidating event occurs and (y) the reallocation of items for the Fiscal Year or other taxable period in which the liquidating event occurs
as set forth above in this Section 4.2(k)(ii) fails to achieve the Per Unit Capital Amounts described above, then items of income, gain, loss and deduction for such Fiscal Year or other taxable period shall be allocated among all Members in a manner that will, to the maximum extent possible and after taking into account all other allocations made pursuant to this Section 4.2(k)(ii), cause the Per Unit Capital Amount in respect of each Series A Preferred Unit to equal the Series A Liquidation Value.
Section 4.3. Allocations for Tax Purposes in General.
(a) Except as otherwise provided in this Section 4.3, each item of income, gain, loss, deduction and credit of the Company for U.S. federal income tax purposes shall be allocated among the Members in the same manner as such item is allocated under Section 4.1 and Section 4.2.
(b) In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder (including the Treasury Regulations applying the principles of Section 704(c) of the Code to changes in Gross Asset Values), items of income, gain, loss and deduction with respect to any Company property having a Gross Asset Value that differs from such property’s adjusted U.S. federal income tax basis shall, solely for U.S. federal income tax purposes, be allocated among the Members to account for any such difference using such method or methods determined by the Managing Member to be appropriate and in accordance with the applicable Treasury Regulations; provided, that the Managing Member will use the “traditional method,” under Treasury Regulations Section 1.704-3(b) with respect to the assets owned by the Company immediately following the Business Combination.
(c) Any (i) recapture of depreciation or any other item of deduction shall be allocated, in accordance with Treasury Regulations Sections 1.1245-1(e) and 1.1254-5, to the Members who received the benefit of such deductions to the maximum extent permissible by Law, and (ii) recapture of grants or credits shall be allocated to the Members in accordance with applicable Law.
(d) Tax credits of the Company shall be allocated among the Members as provided in Treasury Regulation Sections 1.704-1(b)(4)(ii) and 1.704-1(b)(4)(viii).
(e) Allocations pursuant to this Section 4.3 are solely for purposes of U.S. federal, state and local taxes and shall not affect or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement.
(f) If, as a result of an exercise of a noncompensatory option (including with respect to the Series A Preferred Conversion) to acquire an interest in the Company, a Capital Account reallocation is required under Treasury Regulations Section 1.704-1(b)(2)(iv)(s)(3), the Company shall make corrective allocations pursuant to Treasury Regulations Section 1.704-1(b)(4)(x).
Section 4.4. Other Allocation Rules.
(a) The Members are aware of the income tax consequences of the allocations made by this Article IV and the economic impact of the allocations on the amounts receivable by them under this Agreement. The Members hereby agree to be bound
by the provisions of this Article IV in reporting their share of Company income and loss for income tax purposes.
(b) The provisions regarding the establishment and maintenance for each Member of a Capital Account as provided by Section 3.4 and the allocations set forth in Section 4.1, Section 4.2, and Section 4.3 are intended to comply with the Treasury Regulations and to reflect the intended economic entitlement of the Members. If the Managing Member determines that the application of the provisions in Section 3.4, Section 4.1, Section 4.2, or Section 4.3 would result in non-compliance with the Treasury Regulations or would be inconsistent with the intended economic entitlement of the Members, the Managing Member is authorized to make any appropriate adjustments to such provisions.
(c) All items of income, gain, loss, deduction and credit allocable to an interest in the Company that may have been Transferred shall be allocated between the Transferor and the Transferee in accordance with a method determined by the Managing Member and permissible under Section 706 of the Code and the Treasury Regulations thereunder.
(d) The Members’ proportionate share/s of the “excess nonrecourse liabilities” of the Company, within the meaning of Treasury Regulations Section 1.752-3(a)(3), shall be allocated to the Members on a pro rata basis, in accordance with the number of Units owned by each Member unless otherwise determined by the Managing Member.
Section 4.5. Rights of Series A Preferred Units.
(a) PubCo shall be entitled to receive liquidating distributions in respect of the Series A Preferred Units in the manner set forth in Section 10.2(b)(iii). PubCo shall be entitled to receive distributions other than liquidating distributions in respect of the Series A Preferred Units in the manner set forth in Section 5.1(a) and Section 5.2(a).
(b) Except as provided in the following sentence, the holders of the Series A Preferred Units shall not be entitled to vote on any matters requiring the approval or vote of the holders of Units, except as required by applicable law. Notwithstanding any other provision of this Agreement, in addition to all other requirements imposed by the Act, and all other voting rights granted under this Agreement, the affirmative vote of the holders of a majority of the outstanding Series A Preferred Units, voting separately as a class based upon one vote per Series A Preferred Unit, shall be necessary on any matter that (i) adversely affects any of the rights, preferences and privileges of the Series A Preferred Units or (ii) amends or modifies any of the terms of the Series A Preferred Units.
(c) Each time that a share of Series A Preferred Stock is converted into Class A Shares, an equal number of Series A Preferred Units shall automatically convert (without any further action of the Company or PubCo) into Common Units at the same conversion ratio as applied to the conversion of the Series A Preferred Shares into Class A Shares (the “Series A Preferred Conversion”).
(d) Immediately prior to the time that a share of Series A Preferred Stock is to be repurchased or redeemed by PubCo, the Company shall repurchase or redeem an equal number of Series A Preferred Units in exchange for the same consideration that is to be paid by PubCo in the repurchase or redemption of the Series A
Preferred Shares. For example, if 100,000 Series A Preferred Shares are to be repurchased by PubCo in exchange for $3,000,000 in cash and 400,000 Class A Shares, then 100,000 Series A Preferred Units shall be repurchased by the Company from PubCo in exchange for $3,000,000 in cash and 400,000 Common Units.
(e) Notwithstanding Section 4.5(c) and Section 4.5(d), no repurchase, redemption or conversion shall be effected to the extent such repurchase, redemption or conversion would render the Company insolvent or violate the Act or applicable Law. For purposes of the foregoing sentence, “insolvency” means the inability of the Company to meet its payment obligations when due. Notwithstanding Section 4.5(d), no repurchase or redemption of the Series A Preferred Units shall be required or effected if such redemption would cause the Series A Preferred Units to be treated as “disqualified stock,” “disqualified capital stock” or any equivalent term under any credit agreement, loan agreement, indenture or other credit facility to which the Company is a party at the time of the repurchase or redemption.
(f) It is intended that the conversion right applicable to the Series A Preferred Units will be treated as a noncompensatory option within the meaning of Regulations Section 1.721-2(f). Consistent with such intention, the Company shall comply with the allocation provisions set forth in Treasury Regulations Sections 1.704-1(b)(2) (iv)(s) and 1.704-1(b)(4)(x) (including making any required “corrective” allocations in accordance with those Regulations) and other applicable provisions in this Agreement.
ARTICLE V
DISTRIBUTIONS
Section 5.1. Distributions.
(a) Distributions on Series A Preferred Units. After making provision for distributions under Section 5.2 and subject to Section 5.1(e), distributions shall, with respect to each outstanding Series A Preferred Unit, accrue on the Accrued Value at the Annual Rate on each Series A Preferred Unit and shall be cumulative and accrue annually from and after the date hereof, but shall compound on an annual basis on each Annual Dividend Date (the “Accrued Distributions”), provided, however, that such distribution shall occur only to the extent that allocations are made to the Series A Preferred Units pursuant to Section 4.2(k)(i). Such distributions may be paid in cash (“Cash Distribution”), if the PubCo declares dividends payable with respect to the Series A Preferred Stock in cash, or in additional Series A Preferred Units (“Unit Distributions”), if the PubCo declares dividends payable with respect to the Series A Preferred Stock in additional Series A Preferred Shares, and shall be payable only to the extent that an equal amount of cash dividends or Series A Preferred Stock dividends are declared by the PubCo with respect to the Series A Preferred Stock. When so declared, such Cash Distribution or Unit Distribution shall be payable immediately prior to the time that PubCo pays the corresponding dividend with respect to the Series A Preferred Stock. Once a Cash Distribution or Unit Distribution has been made under this Section 5.1(a) in respect of an Accrued Distribution, the amount of Accrued Distributions shall be reduced by the amount of such Cash Distribution or Unit Distribution.
(b) Other Distributions. After making or providing for any Distribution under Section 5.1(a) and Section 5.2, to the extent permitted by applicable Law and hereunder, and except as otherwise provided in Section 10.2, distributions to Members may be declared by the Managing Member out of funds legally available therefor in such amounts and on such terms (including the payment dates of such distributions) as the Managing Member shall determine using such record date as the Managing Member may designate; any such distribution shall be made to the Members as of the close of business on such record date on a pro rata basis (provided that repurchases or redemptions made in accordance with Section 3.1(f), distributions made in accordance with Section 5.2(a), or payments made in accordance with Section 6.2 or Section 6.7 need not be on a pro rata basis), in accordance with the number of Units owned by each Member as of the close of business on such record date; provided, however, that the Managing Member shall have the obligation to make distributions as set forth in Section 5.2 and Section 10.2(b)(iii).
(c) Successors. For purposes of determining the amount of distributions, each Member shall be treated as having made the Capital Contributions and as having received the distributions made to or received by its predecessors in respect of any of such Member’s Units.
(d) Distributions In-Kind. Except as otherwise provided in this Agreement, any distributions may be made in cash or in kind, or partly in cash and partly in kind, as determined by the Managing Member. Except for repurchases or redemptions made in accordance with Section 3.1(f) or payments made in accordance with Section 6.2 or Section 6.7, in the event of any distribution of (i) property in kind or (ii) both cash and property in kind, each Member shall be distributed its proportionate share of any such cash so distributed and its proportionate share of any such property so distributed in kind (based on the Fair Market Value of such property). To the extent that the Company distributes property in-kind to the Members, the Company shall be treated as making a distribution equal to the Fair Market Value of such property for purposes of Section 5.1(a) or Section 5.1(b), and such property shall be treated as if it were sold for an amount equal to its Fair Market Value. Any resulting gain or loss shall be allocated to the Member’s Capital Accounts in accordance with Section 4.1 and Section 4.2.
(e) PubCo Exception. PubCo shall not be entitled to receive, with respect to any Series A Preferred Units that are converted pursuant to a Series A Preferred Conversion, any payment of distributions declared pursuant to Section 5.1(a) if such distribution follows the date on which such Series A Preferred Conversion occurs.
Section 5.2. Tax-Related Distributions. The Company shall, make distributions out of legally available funds (“Tax Distributions”) to:
(a) PubCo, at such times and in such amounts as the Managing Member reasonably determines is necessary to enable PubCo to timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities with respect to any items of gross income and gain allocated to it with respect to the Series A Preferred Units (the “Preferred Unit Related Taxes”); provided, that in no circumstances shall the amounts distributed pursuant to this Section 5.2(a) exceed PubCo’s actual U.S. federal, state and local and non-U.S. cash tax liabilities with respect to such taxable year; provided, further, that the amounts distributable pursuant to this Section 5.2(a) shall be reduced, in the reasonable discretion of the Managing
Member, to the extent the amount distributable to PubCo pursuant to Section 5.2(b) exceeds PubCo’s actual tax obligations (excluding Preferred Unit Related Taxes) and its obligations pursuant to the Tax Receivable Agreement for the relevant taxable year or quarter, as applicable. For the avoidance of doubt, any excess Tax Distributions pursuant to this Section 5.2(a) that a Member receives with respect to any Taxable Year shall reduce future Tax Distributions otherwise required to be made to such Member with respect to any subsequent Taxable Year, but shall not reduce Tax Distributions made to a Member to provide such Member with its Unit percentage interest of Tax Distributions made pursuant to Section 5.2(b); and
(b) all Members on a pro rata basis, in accordance with the number of Common Units owned by each Member, at such times (but no less frequently than quarterly and no later than five (5) days before the date specified in Section 6655(c)(2) of the Code) and in such amounts as the Managing Member reasonably determines is necessary (taking into account any distributions previously made pursuant to this Section 5.2(b) or reasonably expected to be made pursuant to Section 5.1(b), but in the case of distributions pursuant to Section 5.1(b) only to the extent made reasonably contemporaneously with such tax-related distribution), to enable PubCo to timely satisfy any PubCo Tax-Related Liabilities (other than Preferred Unit Related Taxes) and all Members to timely satisfy any Tax-Related Liabilities. The Managing Member’s determination pursuant to this Section 5.2(b) shall take into account, among other factors, (i) the availability (or unavailability) of a federal deduction for state and local taxes, (ii) the various components of the Member’s distributive share from the Company as taxable at appropriate tax rates depending on character of income, and (iii) any minimum taxes, alternative minimum taxes, taxes on investment income, tax surcharges, special income taxes on high income taxpayers, special taxes imposed on income of a special character, and other similar taxes.
(c) Any amounts distributed with respect to the Series A Preferred Units or the Common Units as a Tax Distribution shall be treated for all purposes under this Agreement as an advance against any distributions to which the holders of the Common Units would otherwise be entitled to receive under Section 5.1(b). For the avoidance of doubt, Tax Distributions made pursuant to Section 5.2(a) or Section 5.2(b) shall not be treated as an advance of or reduce distributions pursuant to Section 5.1(a) in respect of the Series A Preferred Units.
Section 5.3. Distribution Upon Withdrawal. No withdrawing Member shall be entitled to receive any distribution or the value of such Member’s Interest in the Company as a result of withdrawal from the Company prior to the liquidation of the Company, except as specifically provided in this Agreement.
ARTICLE VI
MANAGEMENT
Section 6.1. The Managing Member; Fiduciary Duties.
(a) PubCo shall be the sole Managing Member of the Company. Except as otherwise required by Law, (i) the Managing Member shall have full and complete charge of all affairs of the Company, (ii) the management and control of the Company’s business activities and operations shall rest exclusively with the Managing Member, and the Managing Member shall make all decisions regarding the
business, activities and operations of the Company (including the incurrence of costs and expenses) without the consent of any other Member, and (iii) the Members other than the Managing Member (in their capacity as such) shall not participate in the control, management, direction or operation of the activities or affairs of the Company and shall have no power to act for or bind the Company.
(b) Except as otherwise provided herein, in connection with the performance of its duties as the Managing Member of the Company, the Managing Member acknowledges that it will owe to the Members the same fiduciary duties as it would owe to the stockholders of a Delaware corporation under the DGCL if it were a member of the board of directors of such a corporation and the Members were stockholders of such corporation; provided, that all Members acknowledge and agree that the Managing Member shall owe no fiduciary or other duty to any Member where this Agreement provides that the Managing Member may act or otherwise proceed in its sole discretion. The Members further acknowledge that the Managing Member will take action through its board of directors, PubCo, and that the members of PubCo’s board of directors will owe comparable fiduciary duties to the stockholders of PubCo.
Section 6.2. Indemnification; Exculpation.
(a) The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable Law as it presently exists or may hereafter be amended (provided, that no such amendment shall limit a Covered Person’s rights to indemnification hereunder with respect to any actions or events occurring prior to such amendment), any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that such person (or a person for whom such person is the legal representative or a director, officer or employee) is or was a person entitled to indemnification under this Agreement, or is a Member, or acting as the Managing Member or Company Representative of the Company or, while being a person entitled to indemnification under this Agreement, a Member, or acting as the Managing Member or Company Representative of the Company, is or was serving at the request of the Company as a member, director, officer, trustee, employee or agent of another limited liability company or of a corporation, partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (each of the persons referred to above in this Section 6.2(a) being referred to as a “Covered Person”), whether the basis of such Proceeding is alleged action or failure of action in an official capacity as a member, director, officer, trustee, employee or agent, or in any other capacity while serving as a member, director, officer, trustee, employee or agent, against all costs, expenses (including reasonable attorneys’ fees), liability and loss incurred or suffered by such Covered Person in connection with such Proceeding, unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of such act or omission, and taking into account the acknowledgements and agreements set forth in this Agreement, such Covered Person breached the terms of this Agreement or any duties owed to the Company or the Members. The Company shall, to the fullest extent not prohibited by applicable Law as it presently exists or may hereafter be amended (provided, that no such amendment shall limit a Covered Person’s rights to indemnification hereunder with respect to any actions or events occurring prior to such amendment), pay the costs and expenses (including reasonable attorneys’ fees) incurred by a Covered Person in defending
any Proceeding in advance of its final disposition; provided, however, that to the extent required by applicable Law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined by final judicial decision from which there is no further right to appeal that the Covered Person is not entitled to be indemnified under this Section 6.2(a) or otherwise. The rights to indemnification and advancement of expenses under this Section 6.2(a) shall be contract rights and such rights shall continue as to a Covered Person who has ceased to be a member, director, officer, trustee, employee or agent and shall inure to the benefit of his heirs, executors and administrators. Notwithstanding the foregoing provisions of this Section 6.2(a), except for Proceedings to enforce rights to indemnification and advancement of expenses, the Company shall indemnify and advance expenses to a Covered Person in connection with a Proceeding (or part thereof) initiated by such Covered Person only if such Proceeding (or part thereof) was authorized by the Managing Member. If this Section 6.2(a) or any portion of this Section 6.2(a) shall be invalidated on any ground by a court of competent jurisdiction the Company shall nevertheless indemnify each Covered Person as to expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, including a grand jury proceeding or action or suit brought by or in the right of the Company, to the full extent permitted by any applicable portion of this Section 6.2(a) that shall not have been invalidated.
(b) Subject to other applicable provisions of this Section 6.2, to the fullest extent permitted by applicable Law, the Covered Persons shall not be liable to the Company, any Subsidiary, any director, any Member or any holder of any equity interest in any Subsidiary by virtue of being a Covered Person or for any acts or omissions in their capacity as a Covered Person or otherwise in connection with the Company, this Agreement or the business and affairs of the Company and its Subsidiaries unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which such Covered Person breached the terms of this Agreement or any duties owed to the Company or the Members.
Section 6.3. Maintenance of Insurance or Other Financial Arrangements. In compliance with applicable Law, the Company (with the approval of the Managing Member) may purchase and maintain insurance or make other financial arrangements on behalf of any Person who is or was a Member, employee or agent of the Company, or at the request of the Company is or was serving as a manager, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, for any Liability asserted against such Person and Liability and expenses incurred by such Person in such Person’s capacity as such, or arising out of such Person’s status as such, whether or not the Company has the authority to indemnify such Person against such Liability and expenses.
Section 6.4. Resignation and Replacement of Managing Member. PubCo (or its successor, as applicable) shall not, by any means, resign as, cease to be or be replaced as Managing Member except in compliance with this Section 6.4. The Members shall have no right to remove or replace the Managing Member. No resignation by PubCo (or its successor, as applicable) as Managing Member, and no replacement of PubCo (or its successor, as applicable) as Managing Member, shall be effective unless proper provision is made, in compliance with this Agreement, so that the obligations of PubCo, its successor (if applicable) and any new Managing Member and the rights of all Members under this Agreement and applicable Law remain in full force and effect. No appointment of a Person other than PubCo (or its successor, as applicable)
as Managing Member shall be effective unless PubCo (or its successor, as applicable) and the new Managing Member (as applicable) provide all other Members with contractual rights, directly enforceable by such other Members against PubCo (or its successor, as applicable) and the new Managing Member (as applicable), to cause (i) PubCo (or its successor, as applicable) to comply with all of PubCo’s or such member’s obligations under this Agreement other than those that must necessarily be taken in its capacity as Managing Member and (ii) the new Managing Member to comply with all of the Managing Member’s obligations under this Agreement.
Section 6.5. No Inconsistent Obligations. The Managing Member represents that it does not have any contracts, other agreements, duties or obligations that are inconsistent with its duties and obligations (whether or not in its capacity as Managing Member) under this Agreement and covenants that, except as permitted by Section 6.1, it will not enter into any contracts or other agreements or undertake or acquire any other duties or obligations that are inconsistent with such duties and obligations.
Section 6.6. Reclassification Events of PubCo. PubCo shall not consummate or agree to consummate any Reclassification Event unless the successor Person, if any, becomes obligated to comply with the obligations of PubCo (in whatever capacity) under this Agreement, the Amended and Restated Exchange Agreement, and the BAG Contribution and Exchange Agreement.
Section 6.7. Certain Costs and Expenses. The Company shall (i) pay, or cause to be paid, all costs, fees, operating expenses and other expenses of the Company and its Subsidiaries (including the costs, fees and expenses of attorneys, accountants or other professionals and the compensation of all personnel providing services to the Company and its Subsidiaries) incurred in pursuing and conducting, or otherwise related to, the activities of the Company and (ii) reimburse the Managing Member for any costs, fees or expenses incurred by it in connection with serving as the Managing Member. To the extent that the Managing Member determines that such expenses are related to the business and affairs of the Managing Member that are conducted through the Company or its Subsidiaries, the Managing Member may cause the Company to pay or bear all expenses of PubCo; provided that the Company shall not pay or bear any income tax obligations of PubCo or any obligations of PubCo pursuant to the Tax Receivable Agreement. If (i) Equity Securities of PubCo are sold to underwriters in any Public Offering at a price per share that is lower than the price per share for which such Equity Securities of PubCo are sold to the public in such Public Offering after taking into account any Discounts and (ii) the proceeds from such Public Offering are not used to fund an Exchange Transaction but are instead contributed to the Company, the Company shall reimburse PubCo for such Discount by treating such Discount as an additional Capital Contribution made by PubCo to the Company in respect of Equity Securities pursuant to Section 3.1(e), and increasing the Capital Account of PubCo by the amount of such Discount. Any payments made to or on behalf of PubCo pursuant to this Section 6.7 shall not be treated as a distribution pursuant to Section 5.1(b) but shall instead be treated as an expense of the Company.
ARTICLE VII
ROLE OF MEMBERS
Section 7.1. Rights or Powers.
(a) Other than the Managing Member, the Members, acting in their capacity as Members, shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way. Notwithstanding the foregoing, the Members have all the rights and powers specifically set forth in this Agreement and, to the extent not
inconsistent with this Agreement, in the Act. A Member, any Affiliate thereof or an employee, stockholder, agent, director or officer of a member or any Affiliate thereof, may also be an officer, manager, director, or employee or be retained as an agent of the Company. The existence of these relationships and acting in such capacities will not result in the Member (other than the Managing Member) being deemed to be participating in the control of the business of the Company or otherwise affect the limited liability of the Member. Except as specifically provided herein, a Member (other than the Managing Member) shall not, in its capacity as a Member, take part in the operation, management or control of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company.
(b) The Company shall promptly (but in any event within 3 Business Days) notify the Members in writing if, to the Company’s knowledge, for any reason, it would be an “investment company” within the meaning of the Investment Company Act, but for the exceptions provided in Section 3(c)(1) or 3(c)(7) thereunder.
Section 7.2. Voting.
(a) Meetings of the Members may be called upon the written request of the Managing Member or Members holding at least fifty percent (50%) of the outstanding Common Units. Such request shall state the location of the meeting and the nature of the business to be transacted at the meeting. Written notice of any such meeting shall be given to all Members not less than two (2) Business Days and not more than thirty (30) days prior to the date of such meeting. Members may vote in person, by proxy or by telephone at any meeting of the Members and may waive advance notice of such meeting. Whenever the vote or consent of Members is permitted or required under this Agreement, such vote or consent may be given at a meeting of the Members or may be given in accordance with the procedure prescribed in Section 7.2(d). Except as otherwise expressly provided in this Agreement, the affirmative vote of the Members holding a majority of the outstanding Common Units shall constitute the act of the Members.
(b) Each Member may authorize any Person or Persons to act for it by proxy on all matters in which such Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by such Member or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it.
(c) Each meeting of Members shall be conducted by the Managing Member or such individual Person as the Managing Member deems appropriate.
(d) Any action required or permitted to be taken by the Members may be taken without a meeting if the requisite Members whose approval is necessary consent thereto in writing. Prompt written notice of any action taken without a meeting shall be provided to each Member who did not consent thereto in writing.
Section 7.3. Various Capacities. The Members acknowledge and agree that the Members or their Affiliates will from time-to-time act in various capacities, including as a Member and as the Company Representative.
Section 7.4. Restrictive Covenants.
(a) Neither HHC nor its Affiliates shall, directly or indirectly by or through any Affiliate or agent, whether as principal, agent, owner, investor, lender, shareholder, member, partner, manager, director, officer, employee, consultant, or in any other capacity, during the applicable Restricted Period, engage or participate in the Business anywhere in the world.
(b) Neither Markel nor its Affiliates shall, directly or indirectly through any principal, partner, manager, director, officer, contractor, or employee thereof acting on behalf of or for the benefit of Markel or its Affiliates, during the applicable Restricted Period, engage or participate in the Restricted Business anywhere in the world.
(c) Notwithstanding anything to the contrary in Section 7.4(b), nothing in this Agreement shall preclude, prohibit, or restrict Markel or its Affiliates from directly or indirectly engaging, in any manner in any of the following (with each such subpart of this Section 7.4(c) having independent significance regardless of any overlap of the subject matter thereof):
(i) acquiring less than an aggregate of five percent (5%) of any class of stock of a Person engaged, directly or indirectly, in the Restricted Business if such stock is publicly traded and listed on any stock exchange;
(ii) acquiring, merging or combining with, or investing in, any Person or business that engages, directly or indirectly, in the Restricted Business, so long as the gross revenues of such Person or business derived from the Restricted Business for the most recent fiscal year ended prior to the date of such acquisition were equal to or less than twenty percent (20%) of the total consolidated gross revenues of such Person or business for such Fiscal Year; provided, that, subject to the requirements of Law, Markel and its Affiliates shall, as promptly as reasonably practicable following such acquisition, merger, combination or investment, (x) cause such acquired Person or business to cease engaging in the Restricted Business or (y) sign a definitive agreement to divest, and subsequently divest, the relevant portion of such acquired Person or business conducting the Restricted Business to an unaffiliated third party; provided, that with respect to any such acquisition, merger or combination occurring prior to expiration or termination of the Alliance Agreement, the requirements set forth in Section 5.12(b)(i)(B) of the Alliance Agreement shall apply with respect to any Insurance Policies written by such acquired Person, or in connection with such acquired business, that would be included in the Alliance Business (as defined in the Alliance Agreement);
(iii) marketing, producing, selling, underwriting or administering any Insurance Policies other than any policy, binder or contract of insurance of the type comprising the Restricted Business (provided that, for purposes of this Section 7.4(c)(iii), reference to any policy, binder or contract of insurance shall not include reinsurance of any form, other than reinsurance the primary purpose or effect of which is to provide coverage on Insurance Policies of the type marketed, produced, sold, underwritten or administered in connection with the Alliance Business (as defined in the Alliance Agreement));
(iv) marketing, producing, selling, underwriting or administering Insurance Policies in connection with the general marine insurance coverage
business as conducted by Markel American Insurance Company and Markel Service, Incorporated as of March 9, 2012;
(v) underwriting or administering any Insurance Policies that are produced by Hagerty Insurance Agency, LLC, Hagerty Classic Marine Insurance Agency, LLC or any of their Affiliates;
(vi) marketing, producing, selling, underwriting or administering reinsurance (or other similar protection offered to insurance or reinsurance companies or other entities in the business of providing primary risk protection), regardless of whether the subject matter of such reinsurance (or other similar protection) relates to the Restricted Business except for reinsurance the primary purpose or effect of which is to provide coverage on Insurance Policies of the type marketed, produced, sold, underwritten or administered in connection with the Alliance Business (as defined in the Alliance Agreement);
(vii) developing or selling products that would constitute part of the Restricted Business to the extent Markel or any of its Affiliates is reasonably required to develop or sell such products in order to comply with requirements under applicable Law; or
(viii) entering into and consummating an agreement with any Person with respect to a merger, share exchange or other business combination transaction immediately following which the beneficial owners of the voting capital stock of Markel or such Affiliate immediately prior to the consummation of such transaction do not beneficially own more than fifty percent (50%) of the combined voting power of the outstanding voting capital stock entitled to vote generally in the election of directors (or Persons performing a similar function) of the entity resulting from such transaction.
(d) In the event that, during his or her or its Restricted Period, any Member other than PubCo, including the equityholders or Affiliates of any Member other than PubCo (in such case, a “New Business Proponent”), determines that she or he or it would like to pursue an opportunity that otherwise constitutes the Business (in respect of HHC and its equityholders and Affiliates) or the Restricted Business (in respect of Markel and its Affiliates) (a “New Business Opportunity”), the New Business Proponent shall notify the Board in writing of such intention and provide the Board with sufficient detail regarding the New Business Opportunity for the Board to assess whether the Company and its Subsidiaries would like to pursue such opportunity rather than allowing the New Business Proponent to pursue it. If the Board determines that the Company or one of its Subsidiaries will in good faith pursue the New Business Opportunity and within three (3) years following the date the New Business Opportunity has been presented to the Board takes actions in good faith, subject to commercial limitations, to implement such New Business Opportunity, the New Business Proponent shall not pursue it and the New Business Opportunity shall be deemed to constitute the Business or Restricted Business, as applicable. If a majority of the Board determine that the Company and its Subsidiaries will not pursue the New Business Opportunity, the New Business Proponent may pursue it and the New Business Opportunity shall be deemed to not constitute the Business or Restricted Business, as applicable; provided, however, that the New Business Proponent shall continue to be bound by all of his or her or its other duties and obligations to the Company and its
Subsidiaries, including all duties as a director of PubCo, Member, officer or employee in accordance with the terms of this Agreement.
ARTICLE VIII
TRANSFERS OF INTERESTS
Section 8.1. Restrictions on Transfer.
(a) Except as provided in this Article VIII, no Member shall Transfer all or any portion of its Interest without the Managing Member’s prior written consent, which consent shall be granted or withheld in the Managing Member’s sole discretion. If all or any portion of a Member’s Interests are Transferred in violation of this Section 8.1(a), involuntarily, by operation of law or otherwise, then without limiting any other rights and remedies available to the other parties under this Agreement or otherwise, the Transferee of such Interest (or portion thereof) shall not be admitted to the Company as a Member or be entitled to any rights as a Member hereunder, and the Transferor will continue to be bound by all obligations hereunder. Any attempted or purported Transfer of all or a portion of a Member’s Interests in violation of this Section 8.1(a) shall be null and void and of no force or effect whatsoever. The restrictions on Transfer contained in this Article VIII shall not apply to the Transfer of any capital stock of PubCo; except that in no circumstance may Class V Shares be Transferred unless a corresponding number of Common Units are Transferred to the same Person and in no circumstance may Common Units may be Transferred unless a corresponding number of Class V Shares are also Transferred to the same Person.
(b) In addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of Equity Securities in the Company by any Member be made (i) to any Person who lacks the legal right, power or capacity to own Equity Securities in the Company; (ii) if the Managing Member reasonably determines such Transfer (A) would be considered to be effected on or through an “established securities market” or a “secondary market or the substantial equivalent thereof,” as such terms are used in Treasury Regulations Section 1.7704-1, (B) would result in the Company having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1)(ii) (determined taking into account the rules of Treasury Regulations Section 1.7704-1(h)(3)), or (C) would cause the Company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code or a successor provision or otherwise become taxable as a corporation under the Code; (iii) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3 (14) of ERISA) or a “disqualified person” (as defined in Section 4975(e) (2) of the Code); (iv) if such Transfer would, in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to the Plan Asset Regulations or otherwise cause the Company to be subject to regulation under ERISA; (v) if such Transfer requires the registration of any Equity Securities issued upon any exchange of any Equity Securities, pursuant to any applicable U.S. federal or state securities Laws; or (vi) if such Transfer subjects the Company to regulation under the Investment Company Act or the Investment Advisors Act of 1940, each as amended (or any succeeding law). Any attempted or purported Transfer of all or a portion of a Member’s Interests in violation of this Section 8.1(b) shall be null and void and of no force or effect whatsoever.
(c) Notwithstanding the provisions in Section 8.1(a), but subject to the other provisions in this Article VIII, Members (other than PubCo) may Transfer all or a portion of their Equity Securities in the Company to any Qualified Transferee without the consent of any other Member or Person.
(d) Notwithstanding anything to the contrary in this Section 8.1, each of HHC and Markel may Transfer Common Units in Exchange Transactions pursuant to, and in accordance with, the Amended and Restated Exchange Agreement.
(e) Notwithstanding anything to the contrary in this Section 8.1, each of the BAG Members may Transfer Common Units in Exchange Transactions pursuant to, and in accordance with, the BAG Contribution and Exchange Agreement.
(f) A Member making a Transfer permitted by this Agreement shall, unless otherwise determined by the Managing Member, (i) at least ten (10) Business Days before such Transfer, have delivered to the Company and the Transferee an affidavit of non-foreign status with respect to such Transferor that satisfies the requirements of Section 1446(f) (2) of the Code or other documentation establishing a valid exemption from withholding pursuant to Section 1446(f) of the Code or (ii) contemporaneously with such Transfer, properly withhold and remit to the Internal Revenue Service the amount of tax required to be withheld upon the Transfer by Section 1446(f) of the Code (and provide evidence to the Company of such withholding and remittance promptly thereafter).
Section 8.2. Notice of Transfer. Each Member shall, no later than 3 Business Days following any Transfer of Equity Securities in the Company, give written notice to the Company of such Transfer. Each such notice shall describe the manner and circumstances of the Transfer.
Section 8.3. Transferee Members. A Transferee of Equity Securities in the Company pursuant to this Article VIII shall have the right to become a Member only if (a) the requirements of this Article VIII are met, (b) such Transferee executes an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement and assuming all of the Transferor’s then existing and future Liabilities arising under or relating to this Agreement, (c) such Transferee represents that the Transfer was made in accordance with all applicable securities Laws and such other customary representations as determined by the Managing Member, (d) the Transferor or Transferee shall have reimbursed the Company for all reasonable expenses (including attorneys’ fees and expenses) of any Transfer or proposed Transfer of all or a portion of a Member’s Interest, whether or not consummated, and (e) if such Transferee or his or her spouse is a resident of a community property jurisdiction, then such Transferee’s spouse shall also execute an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement to the extent of his or her community property or quasi-community property interest, if any, in such Member’s Interest. Unless agreed to in writing by the Managing Member, the admission of a Member shall not result in the release of the Transferor from any Liability that the Transferor may have to each remaining Member or to the Company under this Agreement or any other Contract between the Managing Member, the Company or any of its Subsidiaries, on the one hand, and such Transferor or any of its Affiliates, on the other hand. Written notice of the admission of a Member shall be sent promptly by the Company to each remaining Member.
Section 8.4. Legend. Each certificate representing a Unit, if any, will be stamped or otherwise imprinted with a legend in substantially the following form:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND THEIR OFFER AND SALE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
THE TRANSFER AND VOTING OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE LIMITED LIABILITY COMPANY AGREEMENT OF THE HAGERTY GROUP, LLC AMONG THE MEMBERS LISTED THEREIN, AS IT MAY BE AMENDED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES WILL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER OF SUCH SECURITIES.”
ARTICLE IX
ACCOUNTING; CERTAIN TAX MATTERS
Section 9.1. Books of Account. The Company shall, and shall cause each Subsidiary of the Company to, maintain true books and records of account in which full and correct entries shall be made of all its business transactions pursuant to a system of accounting established and administered in accordance with GAAP, and shall set aside on its books all such proper accruals and reserves as shall be required under GAAP.
Section 9.2. Tax Elections.
(a) The Company and any eligible Subsidiary of the Company (i) shall make an election (or continue a previously made election) pursuant to Section 754 of the Code (and any similar provisions of applicable U.S. state or local law) for the taxable year of the Company that includes the date hereof and shall not thereafter revoke such election and (ii) shall use commercially reasonable efforts to ensure that any entity in which the Company holds a direct or indirect interest that is treated as a partnership for U.S. federal income tax purposes that does not meet the definition of “Subsidiary” herein, will have in effect an election pursuant to Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law). In addition, the Company shall make the following elections on the appropriate forms or tax returns, if permitted under the Code or applicable Law:
(i) to adopt the calendar year as the Company’s Fiscal Year;
(ii) to adopt the accrual method of accounting for U.S. federal income tax purposes;
(iii) to elect to amortize the organizational expenses of the Company as permitted by Section 709(b) of the Code;
(iv) except where the Managing Member elects to apply Section 9.5(e), to make an election under Section 6226(a) of the Code, commonly known as the “push out” election, or any analogous election under state or local tax law, if applicable; and
(v) except as otherwise provided herein, any other election the Managing Member deems appropriate.
(b) Upon request of the Managing Member, each Member shall cooperate in good faith with the Company in connection with the Company’s efforts to make any election pursuant to this Section 9.2.
Section 9.3. Tax Returns; Information. The Managing Member shall arrange for the preparation and timely filing of all income and other tax and informational returns of the Company. The Managing Member shall furnish to each Member a copy of each approved return and statement, together with any schedules (including Internal Revenue Service Schedule K-1) or other information that a Member may require in connection with such Member’s own tax affairs as soon as practicable. The Company shall also (a) provide each Member with an estimate of its share of the Company’s taxable income for each Fiscal Year by December 31 of such Fiscal Year, including an estimate of state and local apportionment information, (b) cause an estimated Internal Revenue Service Schedule K-1 or any successor form to be prepared and delivered to the Members within ninety (90) days after the end of each Fiscal Year, including any appropriate state and local apportionment information, and (c) deliver or cause to be delivered to the Members a final Internal Revenue Service Schedule K-1, including any appropriate state and local apportionment information, as soon as practicable, but in any event, at least forty-five (45) days prior the due date for such return (including any extensions). Each Member agrees to (a) take all actions reasonably requested by the Company or the Company Representative to comply with the Partnership Tax Audit Rules, including where applicable, filing amended returns as provided in Sections 6225 or 6226 of the Code and providing confirmation thereof to the Company Representative and (b) furnish to the Company (i) all reasonably requested certificates or statements relating to the tax matters of the Company (including an affidavit of non-foreign status pursuant to Section 1446(f)(2) of the Code), and (ii) all pertinent information in its possession relating to the Company’s operations that is reasonably necessary to enable the Company’s tax returns to be prepared and timely filed.
Section 9.4. Company Representative. The Managing Member is specially authorized and appointed to act as the Company Representative and in any similar capacity under state or local Law. The Company Representative shall designate a “designated individual” in accordance with Treasury Regulations Section 301.6223-1(b)(3). The Company and the Members (including any Member designated as the Company Representative prior to the date hereof) shall cooperate fully with each other and shall use reasonable best efforts to cause the Managing Member (or any other Person subsequently designated) to become the Company Representative with respect to any taxable period of the Company with respect to which the statute of limitations has not yet expired, including (as applicable) by filing certifications pursuant to Treasury Regulations Section 301.6231(a)(7)-1(d). In acting as Company Representative, the Managing Member shall act, to the maximum extent possible, to cause income, gain, loss, deduction, and credit of the Company, and adjustments thereto, to be allocated or borne by the Members in the same manner as such items or adjustments would have been borne if the Company could have effectively made an election under Section 6221(b) of the Code (commonly known as the “election out”) or similar state or local provision with respect to the taxable period at issue. The Company Representative may retain, at the Company’s expense, such outside counsel, accountants and other professional consultants as it may reasonably deem necessary in the course of fulfilling its obligations as Company Representative.
Section 9.5. Withholding Tax Payments and Obligations.
(a) Withholding Tax Payments. Each of the Company and its Subsidiaries may withhold from distributions, allocations or portions thereof if it is required to do so by any applicable Law, and each Member hereby authorizes the Company and its Subsidiaries to withhold or pay on behalf of or with respect to such Member, any amount of U.S. federal, state or local or non-U.S. taxes that the Managing Member determines that the Company or any of its Subsidiaries is required to
withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement.
(b) Allocation of Tax Payments. To the extent that any tax is paid by (or withheld from amounts payable to) the Company or any of its Subsidiaries and the Managing Member determines that such tax (including any Company Level Tax) specifically relates to one or more particular Members, such tax shall be treated as an amount of tax withheld or paid with respect to such Member pursuant to this Section 9.5.
(c) Tax Contribution and Indemnity Obligation. Any amounts withheld or paid with respect to a Member pursuant to Section 9.5(a) or Section 9.5(b) (other than the payment of Company Level Taxes) shall be offset against any distributions to which such Member is entitled concurrently with such withholding or payment (a “Tax Offset”); provided that the amount of any distribution subject to a Tax Offset shall be treated as having been distributed to such Member pursuant to Section 5.1 or Section 10.2(b)(iii) at the time such Tax Offset is made. To the extent that (i) the amount of such Tax Offset exceeds the distributions to which such Member is entitled concurrently with such withholding or payment (an “Excess Tax Amount”), or (ii) there is a payment of Company Level Taxes relating to a Member, the amount of such (A) Excess Tax Amount or (B) Company Level Taxes, as applicable, shall, upon notification to such Member by the Managing Member, give rise to an obligation of such Member to make a capital contribution to the Company (a “Tax Contribution Obligation”), which Tax Contribution Obligation shall be immediately due and payable. If a Member defaults with respect to its Tax Contribution Obligation, the Company shall be entitled to offset the amount of a Member’s Tax Contribution Obligation against distributions to which such Member would otherwise be subsequently entitled until the full amount of such Tax Contribution Obligation has been contributed to the Company or has been recovered through offset against distributions and, any such offset shall be treated as distributed to such Member pursuant to Section 5.1 or Section 10.2(b), as applicable, at the time such offset is made for purposes of this Agreement. To the extent the Managing Member determines it is appropriate for purposes of properly maintaining Capital Accounts, (x) any payment by a Member with respect to such Member’s Tax Contribution Obligation shall increase such Member’s Capital Account, but shall not reduce the amount (if any) that a Member is otherwise obligated to contribute to the Company, and (y) any recovery of such Tax Contribution Obligation through an offset against distributions to such Member shall not reduce such Member’s Capital Account by the amount of such offset. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member’s Units to secure such Member’s obligation to pay the Company any amounts required to be paid pursuant to this Section 9.5. Each Member shall take such actions as the Company may reasonably request in order to perfect or enforce the security interest created hereunder. Each Member hereby agrees to indemnify and hold harmless the Company, the other Members, the Company Representative and the Managing Member from and against any liability (including any liability for Company Level Taxes) with respect to income attributable to or distributions or other payments to such Member.
(d) Continued Obligations of Former Members. Any Person who ceases to be a Member shall be deemed to be a Member solely for purposes of this Section 9.5, and the obligations of a Member pursuant to this Section 9.5 shall survive until 30 days after the closing of the applicable statute of limitations on assessment with
respect to the taxes withheld or paid by the Company or a Subsidiary that relate to the period during which such Person was actually a Member. If the Managing Member determines in its sole discretion that seeking indemnification for Company Level Taxes from a former Member is not practicable, or that seeking such indemnification failed, then, in either case, the Managing Member may (i) recover any liability for Company Level Taxes from the substituted Member that acquired directly or indirectly the applicable interest in the Company from such former Member or (ii) treat such liability for Company Level Taxes as a Company expense.
(e) Managing Member Discretion Regarding Recovery of Taxes. Notwithstanding the foregoing, the Managing Member may choose not to recover an amount of Company Level Taxes or other taxes withheld or paid with respect to a Member under this Section 9.5 to the extent that there are no distributions to which such Member is entitled that may be offset by such amounts if the Managing Member determines, in its reasonable discretion, that such a decision would be in the best interests of the Members (e.g., where the cost of recovering the amount of taxes withheld or paid with respect to such Member is not justified in light of the amount that may be recovered from such Member).
ARTICLE X
DISSOLUTION AND TERMINATION
Section 10.1. Liquidating Events. The Company shall dissolve and commence winding up and liquidating upon the first to occur of the following (each, a “Liquidating Event”):
(a) the sale of all or substantially all of the assets of the Company; and
(b) the determination of the Managing Member to dissolve, wind up, and liquidate the Company.
The Members hereby agree that the Company shall not dissolve prior to the occurrence of a Liquidating Event and that no Member shall seek a dissolution of the Company, under Section 18802 of the Act or otherwise, other than based on the matters set forth in subsections (a) and (b) above. If it is determined by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of a Liquidating Event, the Members hereby agree to continue the business of the Company without a winding up or liquidation. In the event of a dissolution pursuant to Section 10.1(b), the relative economic rights of each class of Units immediately prior to such dissolution shall be preserved to the greatest extent practicable with respect to distributions made to Members pursuant to Section 10.2 in connection with such dissolution, taking into consideration tax and other legal constraints that may adversely affect one or more parties to such dissolution and subject to compliance with applicable Laws and regulations, unless, with respect to any class of Units, holders of a majority of the Units of such class consent in writing to a treatment other than as described above.
Section 10.2. Procedure.
(a) In the event of the dissolution of the Company for any reason, the Managing Member or such other Person as is designated by the Managing Member (“Winding-Up Member”) shall commence to wind up the affairs of the Company and, subject to Section 10.3(a), such Winding-Up Member shall have full right and unlimited discretion to determine in good faith the time, manner and terms of any sale or sales of the Property or other assets pursuant to such liquidation,
having due regard to the activity and condition of the relevant market and general financial and economic conditions. The Members shall continue to share profits, losses and distributions during the period of liquidation in the same manner and proportion as though the Company had not dissolved. The Company shall engage in no further business except as may be necessary, in the reasonable discretion of the Managing Member or the Winding-Up Member, as applicable, to preserve the value of the Company’s assets during the period of dissolution and liquidation.
(b) Following the payment of all expenses of liquidation and the allocation of all Profits and Losses as provided in Article IV, the proceeds of the liquidation and any other funds of the Company shall be distributed in the following order of priority:
(i) first, to the payment and discharge of all of the Company’s debts and Liabilities to creditors (whether third parties or Members), in the order of priority as provided by Law, except any obligations to the Members in respect of their Capital Accounts;
(ii) second, to set up such cash reserves which the Managing Member reasonably deems necessary for contingent or unforeseen Liabilities or future payments described in Section 10.2(b)(i) (which reserves when they become unnecessary shall be distributed in accordance with the provisions of subsection (iii) or subsection (iv) below, as the case may be);
(iii) third, to the Series A Preferred Units an amount equal to the greater of (A) the Accrued Value per Series A Preferred Unit and (B) the amount that such Member would have been entitled to receive if all of such Member’s Series A Preferred Units were converted into Common Units (at the Conversion Rate (as defined in the Certificate of Designations) then in effect) immediately prior to such liquidation, winding up or dissolution of the Company (regardless of whether the Series A Preferred Unit is then convertible pursuant to the terms hereof) (“Series A Liquidation Value”); and
(iv) fourth, the balance to the Members, pro rata in accordance with the number of Common Units owned by each Member.
(c) Except as provided in Section 10.3(a), no Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company.
(d) Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and the Managing Member or the Winding-Up Member, as the case may be, shall have the authority to execute and record a certificate of cancellation of the Company, as well as any and all other documents required to effectuate the dissolution and termination of the Company.
Section 10.3. Rights of Members.
(a) Each Member irrevocably waives any right that it may have to maintain an action for partition with respect to the property of the Company.
(b) Except as otherwise provided in this Agreement, (i) each Member shall look solely to the assets of the Company for the return of its Capital Contributions and
(ii) no Member shall have priority over any other Member as to the return of its Capital Contributions, distributions or allocations.
Section 10.4. Notices of Dissolution. If a Liquidating Event occurs or an event occurs that would, but for the provisions of Section 10.1, result in a dissolution of the Company, the Company shall, within 30 days thereafter, (a) provide written notice thereof to each of the Members and to all other parties with whom the Company regularly conducts business (as determined in the discretion of the Managing Member), and (b) comply, in a timely manner, with all filing and notice requirements under the Act or any other applicable Law.
Section 10.5. Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets in order to minimize any losses that might otherwise result from such winding up.
Section 10.6. No Deficit Restoration. No Member shall be personally liable for a deficit Capital Account balance of that Member, it being expressly understood that the distribution of liquidation proceeds shall be made solely from existing Company assets.
ARTICLE XI
GENERAL
Section 11.1. Amendments; Waivers.
(a) The terms and provisions of this Agreement may only be waived, modified or amended (including by means of merger, consolidation or other business combination to which the Company is a party) with the approval of (y) the Managing Member and (z) if at such time the Members (other than PubCo) beneficially own, in the aggregate, more than 10% of the then-outstanding Common Units, the holders of greater than 50% of the outstanding Common Units held by Members other than PubCo; provided that no waiver, modification or amendment shall be effective until at least 5 Business Days after written notice is provided to the Members that the requisite consent has been obtained for such waiver, modification or amendment, and any Member, including any Member not providing written consent, shall have the right to undertake an Exchange Transaction prior to the effectiveness of such waiver, modification or amendment; provided further, that no amendment to this Agreement may:
(i) modify the limited liability of any Member, or increase the liabilities or obligations of any Member, in each case, without the consent of each such affected Member; or
(ii) materially alter or change any rights, preferences or privileges of any Interests in a manner that is different or prejudicial (or would have a different or prejudicial effect) relative to any other Interests, without the approval of a majority in interest of the Members holding the Interests affected in such a different or prejudicial manner.
(b) Notwithstanding the provisions of Section 11.1(a), the Managing Member, acting alone, may amend this Agreement or update the books and records of the Company (i) to reflect the admission of new Members, Transfers of Interests, the issuance of additional Equity Securities, as provided by the terms of this Agreement, and, subject to Section 11.1(a), subdivisions or combinations of Units made in compliance with Section 3.1(g), (ii) to the minimum extent necessary to
comply with or administer in an equitable manner the Partnership Tax Audit Rules in any manner determined by the Managing Member, and (iii) as necessary to avoid the Company being classified as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code.
(c) No waiver of any provision or default under, nor consent to any exception to, the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.
Section 11.2. Further Assurances. Each party hereto agrees that it will from time to time, upon the reasonable request of another party, execute such documents and instruments and take such further action as may be required to accomplish the purposes of this Agreement.
Section 11.3. Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon the parties and their respective successors and assigns, but shall inure to the benefit of and be enforceable by the successors and assigns of any Member only to the extent that they are permitted successors and assigns pursuant to the terms hereof. No party hereto may assign its rights hereunder except as herein expressly permitted.
Section 11.4. Certain Representations by Members. Each Member (or, if such Member is disregarded for U.S. federal income tax purposes, such Member’s regarded owner for such purposes), by executing this Agreement and becoming a Member, whether by making a Capital Contribution, by admission in connection with a permitted Transfer, or otherwise, represents and warrants to the Company and the Managing Member, as of the date of its admission as a Member, that such Member is either (a) not a partnership, grantor trust, or a Subchapter S corporation for U.S. federal income tax purposes (e.g., an individual or a Subchapter C corporation), or (b) is a partnership, grantor trust, or a Subchapter S corporation for U.S. federal income tax purposes, but (i) permitting the Company to satisfy the 100-partner limitation set forth in Treasury Regulations Section 1.7704-1(h)(1)(ii) is not a principal purpose of any beneficial owner of such Member in investing in the Company through such Member and (ii) such Member was formed for business purposes prior to or in connection with the investment by such Member in the Company or for estate planning purposes.
Section 11.5. Entire Agreement. This Agreement, together with all Exhibits and Schedules hereto and all other agreements referenced therein and herein, including the Alliance Agreement, the Business Combination Agreement, the Tax Receivable Agreement, the Amended and Restated Exchange Agreement, the Business Combination Registration Rights Agreement, the BAG Contribution and Exchange Agreement, the Securities Purchase Agreement and the Securities Purchase Registration Rights Agreement constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and thereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof or thereof except as specifically set forth herein and therein.
Section 11.6. Rights of Members Independent. The rights available to the Members under this Agreement and at Law shall be deemed to be several and not dependent on each other and each such right accordingly shall be construed as complete in itself and not by reference to any other such right. Any one or more or any combination of such rights may be exercised by a Member or the Company from time to time and no such exercise shall exhaust the rights or preclude another Member from exercising any one or more of such rights or combination thereof from time to time thereafter or simultaneously.
Section 11.7. Governing Law. This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and performed in such State and without regard to conflicts of law doctrines, except to the extent that certain matters are preempted by federal Law or are governed as a matter of controlling Law by the Law of the jurisdiction of organization of the respective parties.
Section 11.8. Jurisdiction and Venue. The parties hereto hereby agree and consent to be subject to the jurisdiction of any federal court of the District of Delaware or the Delaware Court of Chancery over any action, suit or proceeding (a “Legal Action”) arising out of or in connection with this Agreement. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Action. Each of the parties hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such Legal Action by the mailing of copies thereof by registered mail, postage prepaid, to such party at its address set forth in this Agreement, such service of process to be effective upon acknowledgment of receipt of such registered mail. Nothing in this Section 11.8 shall affect the right of any party hereto to serve legal process in any other manner permitted by law.
Section 11.9. Headings. The descriptive headings of the Articles, sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement.
Section 11.10. Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.
Section 11.11. Notices. Any notice or other communication hereunder must be given in writing and (a) delivered in person or transmitted electronically, or (b) mailed by certified or registered mail, postage prepaid, receipt requested as follows:
If to the Company or the Managing Member, addressed to it at:
P.O. Box 1303
Traverse City, MI 49685-1303
Attention: Patrick McClymont, Chief Financial Officer
E-mail: pmcclymont@hagerty.com
With copies (which shall not constitute notice) to:
P.O. Box 1303
Traverse City, MI 49685-1303
Attention: Diana Chafey, Chief Legal Officer
E-mail: dchafey@hagerty.com
or to such other address or to such other Person as either party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication or electronically, when transmitted to the applicable number or electronic mail address so specified in (or pursuant to) this Section 11.11 and an appropriate answerback is received or, if transmitted after 4:00 p.m. local time on a Business Day in the jurisdiction to
which such notice is sent or at any time on a day that is not a Business Day in the jurisdiction to which such notice is sent, then on the immediately following Business Day, (ii) if given by mail, on the first Business Day in the jurisdiction to which such notice is sent following the date 3 days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, on the Business Day when actually received at such address or, if not received on a Business Day, on the Business Day immediately following such actual receipt.
Section 11.12. Representation By Counsel; Interpretation. The parties acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.
Section 11.13. Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement, to the extent permitted by Law shall remain in full force and effect; provided that the essential terms and conditions of this Agreement for all parties remain valid, binding and enforceable.
Section 11.14. Expenses. Except as otherwise provided in this Agreement, each party shall bear its own expenses in connection with the transactions contemplated by this Agreement.
Section 11.15. Waiver of Jury Trial. EACH OF THE COMPANY, THE MEMBERS, THE MANAGING MEMBER AND ANY INDEMNITEES SEEKING REMEDIES HEREUNDER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
Section 11.16. No Third Party Beneficiaries. Except as expressly provided in Section 6.2 and Section 10.2(b), nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under this Agreement or otherwise create any third party beneficiary hereto.
[Signatures on Next Page]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first above written.
COMPANY:
THE HAGERTY GROUP, LLC
By: Hagerty, Inc.
Its: Managing Member
By: /s/ McKeel Hagerty
Name: McKeel O. Hagerty
Title: Chief Executive Officer
Signature Page to
Sixth Amended and Restated Limited Liability Company Agreement of
THE HAGERTY GROUP, LLC
MEMBERS:
HAGERTY, INC.
By: /s/ McKeel Hagerty
Name: McKeel O. Hagerty
Title: Chief Executive Officer
HAGERTY HOLDING CORP.
By: /s/ McKeel Hagerty
Name: McKeel O. Hagerty
Title: Chief Executive Officer
MARKEL GROUP INC.
By: /s/ Jeremy A. Noble
Name: Jeremy A. Noble
Title: President, Insurance
QUADRIFOGLIO HOLDINGS LLC
By: /s/ Kenneth Ahn
Name: Kenneth H. Ahn
Title: Managing Member
DINOSAUR COLLECTIBLES LLC
By: /s/ Andrew Ruprecht
Name: Andrew Ruprecht
Title: Manager
WILLIAM (ALEXANDER) WEAVER
By: /s/ William A. Weaver
Name: William Alexander Weaver
Signature Page to
Sixth Amended and Restated Limited Liability Company Agreement of
THE HAGERTY GROUP, LLC
WILLIAM RUPRECHT REVOCABLE TRUST 2013
By: /s/ William Ruprecht
Name: William Ruprecht
Title: Trustee
VOLLGAS HOLDINGS LLC
By: /s/ A. Squindo
Name: Alain Squindo
Title: Manager
CJ7 HOLDINGS, LLC
By: /s/ M.J. Mortorano
Name: Michael J. Mortorano
Title: Manager
IAN S. KELLEHER
By: /s/ Ian Kelleher
Name: Ian Kelleher
DAVID SWIG
By: /s/ David Swig
Name: David Swig
DONNIE GOULD RESTORATIONS, INC.
By: /s/ Donald L. Gould
Name: Donnie Gould
Title: President
Signature Page to
Sixth Amended and Restated Limited Liability Company Agreement of
THE HAGERTY GROUP, LLC
CR RAMSEY POTTS
By: /s/ Ramsey Potts
Name: CR Ramsey Potts
Signature Page to
Sixth Amended and Restated Limited Liability Company Agreement of
THE HAGERTY GROUP, LLC
EXHIBIT A
| | | | | | | | |
| Member | Number of Common Units
Owned | Number of Series A
Preferred Units Owned |
| Hagerty Holding Corp. | 176,033,906 | |
| Markel Group Inc. | 75,000,000 | |
| Hagerty, Inc. | 84,479,065 | 8,483,561 |
| Quadrifoglio Holdings LLC | 2,044,272 | |
| Dinosaur Collectibles LLC | 526,833 | |
| William (Alexander) Weaver | 417,762 | |
| William Ruprecht Revocable Trust | 118,539 | |
| UTD 9/28/2000 | | |
| Vollgas Holdings LLC | 362,201 | |
| CJ7 Holdings, LLC | 314,794 | |
| Ian S. Kelleher | 217,210 | |
| David Swig | 187,027 | |
| Donnie Gould Restorations, Inc. | 176,279 | |
| CR Ramsey Potts | 100,341 | |
| Total | 339,978,229 | 8,483,561 |
EXHIBIT B
Amended and Restated Exchange Agreement
AMENDED AND RESTATED EXCHANGE AGREEMENT
AMENDED AND RESTATED EXCHANGE AGREEMENT (this “Agreement”), originally dated as of December 2, 2021 and amended and restated as of March 23, 2022 (the “Effective Date”), by and among Hagerty, Inc., a Delaware corporation (the “Corporation”), The Hagerty Group, LLC, a Delaware limited liability company (together with any successor thereto, “OpCo”), Hagerty Holding Corp., a Delaware close corporation (“HHC”), Markel Corporation, a Virginia corporation (“Markel”), and each of HHC’s and Markel’s Qualified Transferees (as defined below) as such Qualified Transferees may become holders of Units (as defined herein).
WHEREAS, on December 2, 2021, the parties hereto entered into an Exchange Agreement (the “Original Agreement”) to provide for the exchange of Paired Interests (as defined herein) for shares of Class A Common Stock (as defined herein), on the terms and subject to the conditions set forth therein; and
WHEREAS, as of the Effective Date, the parties wish to amend and restate the Original Agreement in its entirety, as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
SECTION 1.1 Definitions
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time (or any corresponding provisions of succeeding law).
“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.
“Appraiser FMV” means the fair market value of a share of Class A Common Stock as determined by an independent appraiser mutually agreed upon by the Corporation and the relevant Exchanging Member, whose determination shall be final and binding for those purposes for which Appraiser FMV is used in this Agreement. Appraiser FMV shall be the fair market value determined without regard to any discounts for minority interest, illiquidity or other discounts. The cost of any independent appraisal in connection with the determination of Appraiser FMV in accordance with this Agreement shall be borne by OpCo.
“Board” means has the meaning given to such term in the OpCo LLC Agreement.
“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York and Traverse City, Michigan are authorized or required by Law to close.
“Cash Exchange Notice” has the meaning set forth in Section 2.1(c) of this Agreement.
“Cash Exchange Payment” means with respect to a particular Exchange for which the Corporation has elected a Cash Exchange Payment in accordance with Section 2.1(c), the net
proceeds from the sale by the Corporation of shares of Class A Common Stock sold in connection with the related Cash Exchange Payment.
“Change of Control” has the meaning given to such term in the Tax Receivable Agreement; provided, that, for the avoidance of doubt, any event that constitutes both a Corporation Offer and a Change of Control of the Corporation shall be considered a Corporation Offer for purposes of this Agreement.
“Class A 5-Day VWAP” means the arithmetic average of the VWAP for each of the five (5) consecutive Trading Days ending on the Trading Day immediately prior to the Exchange Notice Date or the Exchange Date, as applicable, in accordance with Section 2.1(d).
“Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of the Corporation.
“Class V Common Stock” means the Class V common stock, par value $0.0001 per share, of the Corporation.
“Code” means the Internal Revenue Code of 1986, as amended.
“Corporation” has the meaning set forth in the preamble of this Agreement.
“Corporation Offer” has the meaning set forth in Section 2.7(a) of this Agreement.
“Direct Exchange” has the meaning set forth in Section 2.6 of this Agreement.
“Direct Exchange Election Notice” has the meaning set forth in Section 2.6 of this Agreement.
“Effective Date” has the meaning set forth in the preamble of this Agreement.
“Equity Securities” means (a) with respect to a partnership, limited liability company or similar Person, any and all units, interests, rights to purchase, warrants, options or other equivalents of, or other ownership interests in, any such Person as well as debt or equity instruments convertible, exchangeable or exercisable into any such units, interests, rights or other ownership interests and (b) with respect to a corporation, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including all common stock and preferred stock, or warrants, options or other rights to acquire any of the foregoing, including any debt instrument convertible or exchangeable into any of the foregoing.
“Exchange” has the meaning set forth in Section 2.1(a) of this Agreement.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exchange Blackout Period” means (a) any “black out” or similar period under the Corporation’s policies covering trading in the Corporation’s securities to which the applicable Exchanging Member is subject (or will be subject at such time as it owns Class A Common Stock), which period restricts the ability of such Exchanging Member to immediately resell shares of Class A Common Stock to be delivered to such Exchanging Member in connection with a Stock Exchange Payment and (b) the period of time commencing on (i) the date of the declaration of a dividend by the Corporation and ending on the first day following (ii) the record date determined by the board of directors of the Corporation with respect to such dividend declared pursuant to clause (i), which period of time shall be no longer than ten (10) Business
Days; provided, that in no event shall an Exchange Blackout Period which respect to clause (b) of the definition hereof occur more than four (4) times per calendar year.
“Exchange Date” means, in the case of any Unrestricted Exchange, the date that is five (5) Business Days after the date the Exchange Notice is given pursuant to Section 2.1(b), unless the Exchanging Member submits a written request to extend such date and the Corporation in its sole discretion agrees in writing to such extension, and in any other case, the Quarterly Exchange Date; provided, that if the Exchange Date would otherwise fall within any Exchange Blackout Period, then the Exchange Date shall occur on the next Business Day following the end of such Exchange Blackout Period.
“Exchange Notice Date” means, with respect to an Exchange, the date the applicable Exchange Notice is delivered in accordance with Section 2.1(b).
“Exchange Rate” means, at any time, the number of shares of Class A Common Stock for which an Exchanged Unit is entitled to be exchanged at such time. On the date of this Agreement, the Exchange Rate shall be one-for-one, subject to adjustment pursuant to Section 2.4 hereof.
“Exchanged Units” means any Units to be Exchanged for the Cash Exchange Payment or Stock Exchange Payment, as applicable, on the applicable Exchange Date.
“Exchanging Member” means, with respect to any Exchange, the Unitholder exchanging Units pursuant to Section 2.1(a) of this Agreement.
“Exchange Notice” has the meaning set forth in Section 2.1(b) of this Agreement.
“Governmental Entity” means any federal, national, supranational, state, provincial, local, foreign or other government, governmental, stock exchange, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.
“HHC” has the meaning set forth in the preamble of this Agreement.
“HSR Act” has the meaning set forth in Section 2.1(b) of this Agreement.
“Interest” means the entire interest of a Unitholder in OpCo, including the Units and all of such Unitholder’s rights, powers and privileges under the OpCo LLC Agreement and the Act.
“Law” means any statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law) of any Governmental Entity.
“Legal Action” has the meaning set forth in Section 3.8(a) of this Agreement.
“Lock-Up Agreement” means that certain Lock-Up Agreement among the Corporation, HHC, Markel and the other parties thereto, dated as of December 2, 2021.
“Managing Member” has the meaning given to such term in the OpCo LLC Agreement.
“Markel” has the meaning set forth in the preamble of this Agreement.
“National Securities Exchange” means a securities exchange that has registered with the SEC under Section 6 of the Exchange Act.
“OpCo” has the meaning set forth in the preamble of this Agreement.
“OpCo LLC Agreement” means the Fourth Amended and Restated Limited Liability Company Agreement of OpCo, dated as December 2, 2021, as such agreement may be amended from time to time.
“Original Agreement” has the meaning set forth in the recitals to this Agreement.
“Paired Interest” means one Unit and one share of Class V Common Stock.
“Partnership Tax Audit Rules” means Sections 6221 through 6241 of the Code, together with any final or temporary Treasury Regulations, Revenue Rulings, and case law interpreting Sections 6221 through 6241 of the Code (and any analogous provision of state or local tax Law).
“Permitted Exchange Event” means any of the following events, which has or is occurring, or is otherwise satisfied, as of the Exchange Date:
(a) The Exchange is part of one or more Exchanges by a Unitholder and any related persons (within the meaning of Section 267(b) or 707(b)(1) of the Code) that is part of a “block transfer” within the meaning of Treasury Regulations Section 1.77041(e)(2) (for this purpose, treating the Managing Member as a “general partner” within the meaning of Treasury Regulations Section 1.7704-1(k)(1));
(b) The Exchange is in connection with a Corporation Offer or Change of Control; provided, that any such Exchange pursuant to this clause (b) shall be effective immediately prior to the consummation of the closing of the Corporation Offer or Change of Control date (and, for the avoidance of doubt, shall not be effective if such Corporation Offer is not consummated or Change of Control does not occur); or
(c) The Exchange is permitted by the Managing Member (whose permission shall not be unreasonably withheld, conditioned or delayed), in connection with circumstances not otherwise set forth herein, if the Managing Member determines in good faith that the Exchange would not pose a material risk that OpCo would be treated as a “publicly traded partnership” under Section 7704 of the Code (or any successor or similar provision) as a result of or in connection with such Exchange.
“Person” means any individual, estate, corporation, partnership, limited partnership, limited liability company, limited company, joint venture, trust, unincorporated or governmental organization or any agency or political subdivision thereof.
“Private Placement Safe Harbor” means the “private placement” safe harbor set forth in Treasury Regulations Section 1.77041(h)(1).
“Qualified Transferee” has the meaning given to such term in the OpCo LLC Agreement.
“Quarterly Exchange Date” means, either (a) for each fiscal quarter, the first (1st) Business Day occurring after the sixtieth (60th) day after the expiration of the applicable Quarterly Exchange Notice Period or (b) such other date as the Corporation shall determine in its sole discretion.
“Quarterly Exchange Notice Period” means, for each fiscal quarter, the period commencing on the third (3rd) Business Day after the day on which the Corporation releases its earnings for the prior fiscal period, beginning with the first such date that falls on or after the waiver or expiration of any contractual lock-up period relating to the shares of the Corporation that may be applicable to a Unitholder (or such other date within such quarter as the Corporation shall determine in its sole discretion) and ending five (5) Business Days thereafter.
Notwithstanding the foregoing, the Corporation may change the definition of Quarterly Exchange Notice Period with respect to any Quarterly Exchange Notice Period scheduled to occur in a calendar quarter subsequent to the then-current calendar quarter by providing notice to the Unitholders no less than ten (10) Business Days from the date written notice of such change is sent to each Unitholder.
“Redemption” has the meaning set forth in Section 2.1(a) of this Agreement.
“Restricted Retraction Notice” has the meaning set forth in Section 2.1(d) of this Agreement.
“Secondary Offering” has the meaning set forth in Section 2.1(e) of this Agreement.
“Securities Act” has the meaning set forth in Section 2.1(c) of this Agreement.
“Stock Exchange Payment” means a number of shares of Class A Common Stock equal to the product of the number of Exchanged Units multiplied by the Exchange Rate.
“Tax Receivable Agreement” means that certain Tax Receivable Agreement, dated as of December 2, 2021, by and among the Corporation and the other parties thereto, as such agreement may be amended from time to time.
“Trading Day” means a day on which the New York Stock Exchange or such other principal United States securities exchange on which the Class A Common Stock are listed or admitted to trading and is open for the transaction of business (unless such trading shall have been suspended for the entire day).
“Treasury Regulations” means pronouncements, as amended from time to time, or their successor pronouncements, which clarify, interpret and apply the provisions of the Code, and which are designated as “Treasury Regulations” by the United States Department of the Treasury.
“Unit” has the meaning set forth in the OpCo LLC Agreement.
“Unitholder” means each holder of one or more Units that may from time to time be a party to this Agreement.
“Unrestricted Exchanges” means any Exchange that is in connection with a Permitted Exchange Event or that occurs during a period in which OpCo meets the requirements of the Private Placement Safe Harbor.
“VWAP” means the daily per share volume-weighted average price of shares of Class A Common Stock on the New York Stock Exchange or such other principal United States securities exchange on which shares of Class A Common Stock are listed, quoted or admitted to trading, as displayed under the heading “Bloomberg VWAP” on the Bloomberg page designated for shares of Class A Common Stock (or its equivalent successor if such page is not available) in respect of the period from the open of trading on such Trading Day until the close of trading on such Trading Day (or if such volume-weighted average price is unavailable, (a) the per share volume- weighted average price of a share of Class A Common Stock on such Trading Day (determined without regard to afterhours trading or any other trading outside the regular trading session or trading hours), or (b) if such determination is not feasible, the market price per share of Class A Common Stock, in either case as determined by a nationally recognized independent investment banking firm retained in good faith for this purpose by the Managing Member).
ARTICLE II
SECTION 2.1 Exchange Procedure
(a) From and after the expiration of the Lock-Up Period (as defined in the Lock-Up Agreement) and subject to the terms of the OpCo LLC Agreement, each Unitholder (other than the Corporation) shall be entitled, upon the terms and subject to the conditions hereof, to surrender Paired Interests to OpCo in exchange for the delivery of the Stock Exchange Payment or, at the election of the Corporation, the Cash Exchange Payment, as applicable, (such exchange, a “Redemption” and, together with a Direct Exchange (as defined below), an “Exchange”); provided, that (absent a waiver by the Managing Member) any such Exchange is for a minimum of the lesser of (i) 100,000 Units (which minimum shall be equitably adjusted in accordance with any adjustments to the Exchange Rate) and (ii) all of the Units held by such Unitholder.
(b) A Unitholder shall exercise its right to make an Exchange as set forth in Section 2.1(a) above by delivering to OpCo, with a copy to the Corporation, a written election of exchange in respect of the Paired Interests to be exchanged substantially in the form of Exhibit A hereto (an “Exchange Notice”) in accordance with this Section 2.1(b). A Unitholder may deliver an Exchange Notice with respect to an Unrestricted Exchange at any time, and, in any other case, during the Quarterly Exchange Notice Period preceding the desired Exchange Date. An Exchange Notice with respect to an Unrestricted Exchange may specify that the Exchange is to be contingent (including as to timing) upon the consummation of a purchase by another Person (whether in a tender or exchange offer, an underwritten offering or otherwise) of the Class A Common Stock into which the Exchanged Units are exchangeable, or contingent (including as to timing) upon the closing of an announced merger, consolidation or other transaction or event in which such Class A Common Stock would be exchanged or converted or become exchangeable for or convertible into cash or other securities or property. Notwithstanding anything to the contrary contained in this Agreement, if, in connection with an Exchange in accordance with this Section 2.1, a filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), then the Exchange Date with respect to all Exchanged Units which would be exchanged into shares of Class A Common Stock resulting from such Exchange shall be delayed until the earlier of (i) such time as the required filing under the HSR Act has been made and the waiting period applicable to such Exchange under the HSR Act shall have expired or been terminated or (ii) such filing is no longer required, at which time such Exchange shall automatically occur without any further action by the holders of any such Exchanged Units. Each of the Unitholders and the Corporation shall to promptly take all actions required to make such filing under the HSR Act and the filing fee for such filing shall be paid by OpCo.
(c) Within three (3) Business Days of the giving of an Exchange Notice, the Corporation, on behalf of OpCo, may elect to settle all or a portion of the Exchange in cash in an amount equal to the Cash Exchange Payment (in lieu of Class A Common Stock) by giving written notice of such election to the Exchanging Member within such three (3) Business Day period (such notice, the “Cash Exchange Notice”). The Cash Exchange Notice shall set forth the portion of the Exchanged Units which will be exchanged for cash in lieu of Class A Common Stock. Any portion of the Exchange not settled for a Cash Exchange Payment shall be settled for a Stock Exchange Payment. The Corporation shall, on the relevant Exchange Date, consummate a private sale or public offering of a number of shares of Class A Common Stock equal to the number of Exchanged Units with respect to which the Cash Exchange Payment has been elected by the Corporation.
(d) The Exchanging Member may elect to retract its Exchange Notice with respect to an Unrestricted Exchange by giving written notice of such election to OpCo, with a copy to the Corporation, no later than (1) Business Day prior to the Exchange Date. Subject to
the last two (2) sentences of this Section 2.1(d), if, in the case of an Exchange that is not an Unrestricted Exchange, the Class A 5-Day VWAP (determined treating the final date of such period as the Exchange Date) decreases by more than ten percent (10%) from the Class A 5-Day VWAP (determined treating the final date of such period as the date of delivery of an Exchange Notice), the Exchanging Member may elect to retract its Exchange Notice by giving written notice of such election (a “Restricted Retraction Notice”) to OpCo, with a copy to the Corporation, no later than three (3) Business Days prior to the Exchange Date. The giving of a Restricted Retraction Notice pursuant to this Section 2.1(d) shall terminate all of the Exchanging Member’s, the Corporation’s and OpCo’s rights and obligations under this Article II arising from such retracted Exchange Notice (but not, for the avoidance of doubt, from any Exchange Notice not retracted or that may be delivered in the future). An Exchanging Member may deliver a Restricted Retraction Notice only once in every twelve (12)-month period (and any additional Restricted Retraction Notice delivered by such Exchanging Member within such twelve (12)-month period shall be deemed null and void ab initio and ineffective with respect to the revocation of the Exchange specified therein).
(e) Notwithstanding anything to the contrary in this Agreement, if the Corporation closes an underwritten distribution of the shares of Class A Common Stock and the Unitholders (other than, or in addition to, the Corporation) were entitled to resell shares of Class A Common Stock in connection therewith (by the exercise by such Unitholders of Exchange rights or otherwise) (a “Secondary Offering”), then, the immediately succeeding Quarterly Exchange Date shall be automatically cancelled and of no force or effect (and no Unitholder shall be entitled to exercise its Exchange right or deliver a Quarterly Exchange Date Notice with respect to an Exchange that is not an Unrestricted Exchange in respect of such Quarterly Exchange Date). Notwithstanding anything to the contrary in this Agreement (i) for so long as OpCo does not meet the requirements of the Private Placement Safe Harbor, any Secondary Offering (other than that pursuant to which all Exchanges are Unrestricted Exchanges) shall only be undertaken if, during the applicable taxable year, the total number of Quarterly Exchange Dates and prior Secondary Offerings (other than any pursuant to which all Exchanges are Unrestricted Exchanges) on which Exchanges occur is three (3) or fewer and (ii) OpCo and the Corporation shall not be deemed to have failed to comply with their respective obligations under the Corporation’s Amended and Restated Registration Rights Agreement, dated August 17, 2021, as amended from time to time, if a Secondary Offering cannot be undertaken due to the restriction set forth in the preceding clause (i).
SECTION 2.2 Exchange Payment
(a) The Exchange shall be consummated on the Exchange Date.
(b) On the Exchange Date (to be effective immediately prior to the close of business on the Exchange Date), in the case of a Redemption, (i) the Corporation shall contribute to OpCo, for delivery to the Exchanging Member (A) the Stock Exchange Payment with respect to any Exchanged Units not subject to a Cash Exchange Notice and (B) the Cash Exchange Payment with respect to any Exchanged Units subject to a Cash Exchange Notice, (ii) the Exchanging Member shall transfer and surrender the Exchanged Units to OpCo and simultaneously surrender the corresponding number of shares of Class V Common Stock to the Corporation, free and clear of all liens and encumbrances, (iii) OpCo shall issue to the Corporation a number of Units equal to the number of Exchanged Units surrendered pursuant to clause (ii) and (iv) the Corporation shall cancel the exchanged shares of Class V Common Stock, and (v) OpCo shall (A) cancel the redeemed Exchanged Units and (B) transfer to the Exchanging Member the Cash Exchange Payment and/or the Stock Exchange Payment, as applicable.
(c) On the Exchange Date (to be effective immediately prior to the close of business on the Exchange Date), in the case of a Direct Exchange, (i) the Corporation shall
deliver to the Exchanging Member, (A) the Stock Exchange Payment with respect to any Exchanged Units not subject to a Cash Exchange Notice and (B) the Cash Exchange Payment with respect to any Exchanged Units subject to a Cash Exchange Notice, (ii) the Exchanging Member shall transfer to the Corporation the Exchanged Units and the corresponding shares of Class V Common Stock (it being understood that the Corporation shall cancel the surrendered shares of Class V Common Stock), free and clear of all liens and encumbrances, and (iii) solely to the extent necessary in connection with a Direct Exchange, the Corporation shall undertake all actions, including an issuance, reclassification, distribution, division or recapitalization, with respect to the shares of Class A Common Stock to maintain a one-to-one ratio between the number of Units owned by the Corporation, directly or indirectly, and the number of outstanding shares of Class A Common Stock, any Stock Exchange Payment, and any other action taken in connection with this Section 2.2.
(d) Upon the Exchange of all of a Unitholder’s Units, such Unitholder shall cease to be a Member (as such term is defined in the OpCo LLC Agreement) of OpCo.
SECTION 2.3 Expenses and Restrictions.
(a) Except as expressly set forth in this Agreement, OpCo and each Exchanging Member shall bear its own expenses in connection with the consummation of any Exchange, whether or not any such Exchange is ultimately consummated, except that OpCo shall bear any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, any Exchange; provided, however, that if any shares of Class A Common Stock are to be delivered in a name other than that of the Unitholder that requested the Exchange, then such Unitholder and/or the Person in whose name such shares are to be delivered shall pay to OpCo the amount of any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, such Exchange or shall establish to the reasonable satisfaction of OpCo that such tax has been paid or is not payable.
(b) Notwithstanding anything to the contrary herein, the Corporation or OpCo shall use commercially reasonable efforts to restrict issuances of Units in an amount sufficient for OpCo to be eligible for the Private Placement Safe Harbor, and, to the extent that the Corporation or OpCo determine that OpCo does not meet the requirements of the Private Placement Safe Harbor at any point in any taxable year, the Corporation or OpCo may impose such restrictions on Exchanges during such taxable year as the Corporation or OpCo may determine to be necessary or advisable so that OpCo is not treated as a “publicly traded partnership” under Section 7704 of the Code; provided, that restrictions imposed pursuant to this Section 2.3(b) shall not apply to any Unrestricted Exchange. Notwithstanding anything to the contrary herein, no Exchange shall be permitted (and, if attempted, shall be void ab initio) if, in the good faith determination of the Corporation or of OpCo, such an Exchange would pose a material risk that OpCo would be a “publicly traded partnership” under Section 7704 of the Code.
(c) For the avoidance of doubt, and notwithstanding anything to the contrary herein, (i) a Unitholder shall not be entitled to effect an Exchange to the extent the Corporation determines in good faith that such Exchange (A) would be prohibited by law or regulation (including, without limitation, the unavailability of any requisite registration statement filed under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or any exemption from the registration requirements thereunder) or (B) would not be permitted under any other agreements with the Corporation or its subsidiaries to which such Unitholder may be party (including, without limitation, the OpCo LLC Agreement) or any written policies of the Corporation related to unlawful or inappropriate trading applicable to its directors, officers or other personnel and (ii) the Corporation is under no obligation to elect to settle any Exchange, or any portion thereof, in cash.
(d) The Corporation may adopt reasonable procedures for the implementation of the exchange provisions set forth in this Article II, including, without limitation, procedures for the giving of notice of an election of exchange.
SECTION 2.4 Adjustment. The Exchange Rate shall be adjusted accordingly if there is: (a) any subdivision (by any unit split, unit distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse unit split, reclassification, reorganization, recapitalization or otherwise) of the Units that is not accompanied by an identical subdivision or combination of the Class A Common Stock or (b) any subdivision (by any stock split, stock dividend or distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse stock split, reclassification, reorganization, recapitalization or otherwise) of the Class A Common Stock that is not accompanied by an identical subdivision or combination of the Units. If there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock are converted or changed into another security, securities or other property, then upon any subsequent Exchange, an Exchanging Member shall be entitled to receive the amount of such security, securities or other property that such Exchanging Member would have received if such Exchange had occurred immediately prior to the effective time of such reclassification, reorganization, recapitalization or other similar transaction, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. Except as may be required in the immediately preceding sentence, no adjustments in respect of distributions shall be made upon the exchange of any Unit.
SECTION 2.5 Class A Common Stock to be Issued.
(a) The Corporation shall at all times reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon an Exchange, such number of shares of Class A Common Stock as may be deliverable upon any such Exchange; provided, that nothing contained herein shall be construed to preclude OpCo from satisfying its obligations in respect of the Exchange of the Exchanged Units by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation or are held by OpCo or any of their subsidiaries or by delivery of purchased shares of Class A Common Stock (which may or may not be held in the treasury of the Corporation or held by any subsidiary thereof), or by delivery of the Cash Exchange Payment. The Corporation and OpCo shall at all times ensure that all Class A Common Stock issued upon an Exchange will, upon issuance, be validly issued, fully paid and non-assessable.
(b) The Corporation and OpCo shall at all times ensure that the execution and delivery of this Agreement by each of the Corporation and OpCo and the consummation by each of the Corporation and OpCo of the transactions contemplated hereby (including without limitation, the issuance of the Class A Common Stock) have been duly authorized by all necessary corporate or limited liability company action, as the case may be, on the part of the Corporation and OpCo, including, but not limited to, all actions necessary to ensure that the acquisition of shares of Class A Common Stock pursuant to the transactions contemplated hereby, to the fullest extent of the Corporation’s board of directors’ power and authority and to the extent permitted by law, shall not be subject to any “moratorium,” “control share acquisition,” “business combination,” “fair price” or other form of anti-takeover laws and regulations of any jurisdiction that may purport to be applicable to this Agreement or the transactions contemplated hereby.
(c) The Corporation and OpCo shall, to the extent that a registration statement under the Securities Act is effective and available for shares of Class A Common Stock to be delivered with respect to any Exchange, deliver shares that have been registered under the Securities Act in respect of such Exchange. In the event that any Exchange in accordance with this Agreement is to be effected at a time when any required registration has not become effective or otherwise is unavailable, upon the request and with the reasonable cooperation of the Unitholder requesting such Exchange, the Corporation and OpCo shall use commercially reasonable efforts to promptly facilitate such Exchange pursuant to any reasonably available exemption from such registration requirements. The Corporation and OpCo shall use commercially reasonable efforts to list the Class A Common Stock required to be delivered upon exchange prior to such delivery upon each national securities exchange or inter-dealer quotation system upon which the outstanding Class A Common Stock may be listed or traded at the time of such delivery.
SECTION 2.6 Direct Exchange. Notwithstanding anything to the contrary in this Article II, the Corporation may, in its sole and absolute discretion, elect to effect on the Exchange Date the Exchange of Exchanged Units for the Cash Exchange Payment and/or the Stock Exchange Payment, as the case may be (and subject to the terms of Section 2.2(b) and (c)), through a direct exchange of such Exchanged Units and with such consideration between the Exchanging Member and the Corporation (a “Direct Exchange”). Upon such Direct Exchange pursuant to this Section 2.6, the Corporation shall acquire the Exchanged Units and shall be treated for all purposes of this Agreement as the owner of such Units; provided, that, any such election by the Corporation shall not relieve OpCo of its obligation arising with respect to such applicable Exchange Notice. The Corporation may, at any time prior to an Exchange Date, deliver written notice (an “Direct Exchange Election Notice”) to OpCo and the Exchanging Member setting forth its election to exercise its right to consummate a Direct Exchange; provided, that such election does not prejudice the ability of the parties to consummate an Exchange or Direct Exchange on the Exchange Date. A Direct Exchange Election Notice may be revoked by the Corporation at any time; provided, that any such revocation does not prejudice the ability of the parties to consummate an Exchange or Direct Exchange on the Exchange Date. The right to consummate a Direct Exchange in all events shall be exercisable for all the Exchanged Units that would otherwise have been subject to an Exchange. Except as otherwise provided in this Section 2.6, a Direct Exchange shall be consummated pursuant to the same timeframe and in the same manner as the relevant Exchange would have been consummated had the Corporation not delivered a Direct Exchange Election Notice.
SECTION 2.7. Corporation Offer or Change of Control.
(a) In the event that a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to Class A Common Stock (a “Corporation Offer”) is proposed by the Corporation or is proposed to the Corporation or its stockholders and approved by the Board or is otherwise effected or to be effected with the consent or approval of the Board or the Corporation will undergo a Change of Control, the Unitholders shall be permitted to deliver an Exchange Notice (which Exchange Notice shall be effective immediately prior to the consummation of such Corporation Offer or Change of Control (and, for the avoidance of doubt, shall be contingent upon such Corporation Offer or Change of Control and not be effective if such Corporation Offer or Change of Control is not consummated)). In the case of a Corporation Offer proposed by the Corporation, the Corporation will use its reasonable best efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit the Unitholders to participate in such Corporation Offer to the same extent or on an economically equivalent basis as the holders of shares of Class A Common Stock without discrimination.
(b) The Corporation shall send written notice to OpCo and the Unitholders at least thirty (30) days prior to the closing of the transactions contemplated by the Corporation Offer or the Change of Control date notifying them of their rights pursuant to this Section 2.7, and setting forth, in the case of a Corporation Offer, (i) a copy of the written proposal or agreement pursuant to which the Corporation Offer will be effected, (ii) the consideration payable in connection therewith, (iii) the terms and conditions of transfer and payment and (iv) the date and location of and procedures for selling Units, or in the case of a Change of Control, (A) a description of the event constituting the Change of Control, (B) the date of the Change of Control, and (C) a copy of any written proposals or agreement relating thereto. In the event that the information set forth in such notice changes from that set forth in the initial notice, a subsequent notice shall be delivered by the Corporation no less than seven (7) days prior to the closing of the Corporation Offer or date of the Change of Control.
ARTICLE III
SECTION 3.1 Additional Unitholders. To the extent a Unitholder validly transfers any or all of such holder’s Units to a Qualified Transferee in accordance with, and not in contravention of, the Corporation’s certificate of incorporation, the OpCo LLC Agreement or any other agreement or agreements with OpCo or the Corporation or any of its subsidiaries to which a transferring Unitholder may be party, then such Qualified Transferee shall have the right to execute and deliver a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such Qualified Transferee shall become a Unitholder hereunder. To the extent OpCo issues Units in the future, OpCo shall be entitled, in its sole discretion, to make any holder of such Units a Unitholder hereunder through such holder’s execution and delivery of a joinder to this Agreement, substantially in the form of Exhibit B hereto.
SECTION 3.2 Addresses and Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be as specified in a notice given in accordance with this Section 3.2):
(a) If to the Corporation, to:
P.O. Box 1303
Traverse City, MI 49685-1303
Attention: Barbara Matthews, General Counsel
E-mail: bmatthews@hagerty.com
(b) If to OpCo, to:
P.O. Box 1303
Traverse City, MI 49685-1303
Attention: Barbara Matthews, General Counsel
E-mail: bmatthews@hagerty.com
(c) If to any Unitholder, to the address or other contact information set forth in the records of OpCo from time to time.
SECTION 3.3 Further Action. Each party hereto agrees that it will from time to time, upon the reasonable request of another party, execute such documents and instruments and take such further action as may be required to accomplish the purposes of this Agreement.
SECTION 3.4 Binding Effect. All of the terms and provisions of this Agreement shall be binding upon the parties and their respective successors and assigns, but shall inure to the benefit of and be enforceable by the successors and assigns of any Unitholder only to the extent that they are permitted successors and assigns pursuant to the terms hereof. No party hereto may assign its rights or obligations hereunder except as herein expressly permitted.
SECTION 3.5 Severability. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement, to the extent permitted by Law shall remain in full force and effect; provided, that the essential terms and conditions of this Agreement for all parties remain valid, binding and enforceable.
SECTION 3.6 Amendment.
(a) The terms and provisions of this Agreement may only be waived, modified or amended (including by means of merger, consolidation or other business combination to which OpCo is a party) with the approval of (y) the Managing Member and (z) if at such time the Unitholders (other than the Corporation) beneficially own, in the aggregate, more than ten percent (10%) of the then-outstanding Units, the holders of greater than fifty percent (50%) of the outstanding Units held by Unitholders other than the Corporation; provided, that no waiver, modification or amendment shall be effective until at least five (5) Business Days after written notice is provided to the Unitholders that the requisite consent has been obtained for such waiver, modification or amendment, and any Unitholder, including any Unitholder not providing written consent, shall have the right to undertake an Exchange prior to the effectiveness of such waiver, modification or amendment; provided, further, that no amendment to this Agreement may materially alter or change any rights, preferences or privileges of any Unitholder (including the ability to Exchange Paired Interests pursuant to this Agreement)in a manner that is different or prejudicial (or would have a different or prejudicial effect) relative to any other Interests, without the approval of a majority in interest of the Unitholders holding the Interests affected in such a different or prejudicial manner.
(b) Notwithstanding the provisions of Section 3.6(a), the Managing Member, acting alone, may amend this Agreement or update the books and records of OpCo (i) to reflect the admission of new Unitholders, transfers of Interests, the issuance of additional Equity Securities, as provided by the terms of this Agreement, and, subject to Section 3.6(a), subdivisions or combinations of Units made in compliance with Section 3.1(g) of the OpCo LLC Agreement, (ii) to the minimum extent necessary to comply with or administer in an equitable manner the Partnership Tax Audit Rules in any manner determined by the Managing Member, and (iii) as necessary to avoid OpCo being classified as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code.
SECTION 3.7 Waiver. No waiver of any provision or default under, nor consent to any exception to, the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.
SECTION 3.8 Submission to Jurisdiction; Waiver of Jury Trial.
(a) The parties hereto hereby agree and consent to be subject to the jurisdiction of any federal court of the District of Delaware or the Delaware Court of Chancery over any action, suit or proceeding (a “Legal Action”) arising out of or in connection with this Agreement. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Action. Each of the parties hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such Legal Action by the
mailing of copies thereof by registered mail, postage prepaid, to such party at its address set forth in this Agreement, such service of process to be effective upon acknowledgment of receipt of such registered mail. Nothing in this Section 3.8 shall affect the right of any party hereto to serve legal process in any other manner permitted by law.
(b) To the extent that any party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself, or to such party’s property, each such party hereby irrevocably waives such immunity in respect of such party’s obligations with respect to this Agreement.
(c) EACH PARTY ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY AGREEING TO THE CHOICE OF DELAWARE LAW TO GOVERN THIS AGREEMENT AND TO THE JURISDICTION OF DELAWARE COURTS IN CONNECTION WITH PROCEEDINGS BROUGHT HEREUNDER. THE PARTIES INTEND THIS TO BE AN EFFECTIVE CHOICE OF DELAWARE LAW AND AN EFFECTIVE CONSENT TO JURISDICTION AND SERVICE OF PROCESS UNDER 6 DEL. C. § 2708.
(d) EACH OF THE CORPORATION, HHC, MARKEL AND ANY INDEMNITEES SEEKING REMEDIES HEREUNDER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
SECTION 3.9 Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.
SECTION 3.10 Tax Treatment. This Agreement shall be treated as part of the partnership agreement of OpCo as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations promulgated thereunder. As required by the Code and the Treasury Regulations, the parties shall report any Exchange consummated hereunder as a taxable sale of the Exchanged Units by a Unitholder to the Corporation in exchange for (a) the payment by the Corporation of the Stock Exchange Payment, the Cash Exchange Payment, or other applicable consideration to the Exchanging Member, and (b) corresponding payments under the Tax Receivable Agreement, and no party shall take a contrary position on any income tax return, amendment thereof or communication with a taxing authority unless an alternate position that is permitted under the Code and Treasury Regulations is requested by the Exchanging Member and the Corporation consents in writing, such consent not to be unreasonably withheld, conditioned, or delayed. Further, in connection with any Exchange consummated hereunder, OpCo and/or the Corporation shall provide the Exchanging Member with all reasonably necessary information to enable the Exchanging Member to file its income tax returns for the taxable year that includes the Exchange, including information with respect to Code Section 751 assets (including relevant information regarding “unrealized receivables” or “inventory items”) and Section 743(b) basis adjustments as soon as practicable and in all events within sixty (60) days following the close of such taxable year (and use commercially reasonable efforts to provide estimates of such information within ninety (90) days of the applicable Exchanges). Within thirty (30) days following the Exchange Date, the Corporation shall deliver a
Section 743 notification to OpCo in accordance with Treasury Regulations Section 1.743-1(k)(2).
SECTION 3.11 Withholding. The Corporation and OpCo shall be entitled to deduct and withhold from any payments made to a Unitholder pursuant to any Exchange consummated under this Agreement all taxes that each of the Corporation and OpCo is required to deduct and withhold with respect to such payments under the Code (and any other provision of applicable law, including, without limitation, under Section 1445 and Section 1446(f) of the Code). In connection with any Exchange, the Exchanging Member shall, to the extent it is legally entitled to deliver such form, deliver to the Corporation or OpCo, as applicable, a certificate, dated as of the Exchange Date, in a form reasonably acceptable to the Corporation certifying as to such Exchanging Member’s taxpayer identification number and that such Exchanging Member is a not a foreign person for purposes of Section 1445 and Section 1446(f) of the Code (which certificate may be an Internal Revenue Service Form W-9 if then sufficient for such purposes under applicable law) (such certificate, a “Non-Foreign Person Certificate”). If an Exchanging Member is unable to provide a Non-Foreign Person Certificate the Corporation or OpCo, as applicable, shall be permitted to withhold on the amount realized by such Exchanging Member in respect of such Exchange as provided in Section 1446(f) of the Code and Regulations thereunder; provided that the Corporation and OpCo shall reasonably cooperate with the Exchanging Member to reduce or eliminate such withholding to the extent permitted by law. The Corporation or OpCo, as applicable, may at their sole discretion reduce the Class A Common Stock issued to a Unitholder in an Exchange in an amount that corresponds to the amount of the required withholding described in the immediately preceding sentence and all such amounts shall be treated as having been paid to such Unitholder.
SECTION 3.12 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that such parties shall be entitled to specific performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity.
SECTION 3.13 Independent Nature of Unitholders’ Rights and Obligations. The obligations of each Unitholder hereunder are several and not joint with the obligations of any other Unitholder, and no Unitholder shall be responsible in any way for the performance of the obligations of any other Unitholder hereunder. The decision of each Unitholder to enter into this Agreement has been made by such Unitholder independently of any other Unitholder. Nothing contained herein, and no action taken by any Unitholder pursuant hereto, shall be deemed to constitute the Unitholders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Unitholders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. The Corporation acknowledges that the Unitholders are not acting in concert or as a group, and the Corporation will not assert any such claim, with respect to such obligations or the transactions contemplated hereby.
SECTION 3.14 Applicable Law. This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and performed in such state and without regard to conflicts of law doctrines, except to the extent that certain matters are preempted by federal Law or are governed as a matter of controlling Law by the Law of the jurisdiction of organization of the respective parties.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, all as of the Effective Date.
Hagerty, Inc.
By: /s/ McKeel Hagerty
Name: McKeel Hagerty
Title: Chief Executive Officer
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, all as of the Effective Date.
The Hagerty Group, LLC
By: /s/ McKeel Hagerty
Name: McKeel Hagerty
Title: Chief Executive Officer
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, all as of the Effective Date.
Hagerty Holding Corp.
By: /s/ McKeel Hagerty
Name: McKeel Hagerty
Title: Chief Executive Officer
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, all as of the Effective Date.
Markel Corporation
By: /s/ Richard R. Whitt
Name: Richard R. Whitt, III
Title: Co-Chief Executive Officer
EXHIBIT A
EXCHANGE NOTICE
Hagerty, Inc.
Attn: General Counsel
P.O. Box 1303
Traverse City, MI 49685-1303
Reference is hereby made to the Exchange Agreement, originally dated as of December 2, 2021 and amended and restated as of March 23, 2022 (as amended from time to time, the “Exchange Agreement”), by and among The Hagerty Group, LLC, a Delaware limited liability company (together with any successor thereto, “OpCo”), Hagerty, Inc., a Delaware corporation (“Corporation”) and managing member of OpCo, and the Unitholders from time to time party thereto (each, a “Holder”). Capitalized terms used but not defined herein shall have the meanings given to them in the Exchange Agreement.
The undersigned Holder hereby transfers the number of Units plus shares of Class V Common Stock set forth below (together, the “Paired Interests”) in Exchange for shares of Class A Common Stock to be issued in its name as set forth below, or the Cash Exchange Payment, as applicable, as set forth in the Exchange Agreement.
Legal Name of Holder:
Address:
Number of Paired Interests to be Exchanged:
Brokerage Account Details:
The undersigned hereby represents and warrants that (a) the undersigned has full legal capacity to execute and deliver this Exchange Notice and to perform the undersigned’s obligations hereunder; (b) this Exchange Notice has been duly executed and delivered by the undersigned and is the legal, valid and binding obligation of the undersigned enforceable against it in accordance with the terms thereof or hereof, as the case may be, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and the availability of equitable remedies; (c) the Paired Interests subject to this Exchange Notice are being transferred to the Corporation or OpCo, as applicable, free and clear of any pledge, lien, security interest, encumbrance, equities or claim; and (d) no consent, approval, authorization, order, registration or qualification of any third party or with any court or governmental agency or body having jurisdiction over the undersigned or the Paired Interests subject to this Exchange Notice is required to be obtained by the undersigned for the transfer of such Paired Interests to the Corporation or OpCo, as applicable.
The undersigned hereby irrevocably constitutes and appoints any officer of the Corporation or of OpCo as the attorney of the undersigned, with full power of substitution and resubstitution in the premises, to do any and all things and to take any and all actions that may be necessary to transfer to the Corporation or OpCo, as applicable, the Paired Interests subject to this Exchange Notice and to deliver to the undersigned the Stock Exchange Payment or Cash Exchange Payment, as applicable, to be delivered in exchange therefor.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Exchange Notice to be executed and delivered by the undersigned or by its duly authorized attorney.
Name:
Dated:
EXHIBIT B
JOINDER
This Joinder Agreement (“Joinder Agreement”) is a joinder to the Exchange Agreement, originally dated as of December 2, 2021 and amended and restated as of March 23, 2022 (as amended from time to time, the “Exchange Agreement”), among Hagerty, Inc., a Delaware corporation (together with any successor thereto, the “Corporation”), The Hagerty Group, LLC, a Delaware limited liability company, and each of the Unitholders from time to time party thereto. Capitalized terms used but not defined in this Joinder Agreement shall have their meanings given to them in the Exchange Agreement. This Joinder Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware. In the event of any conflict between this Joinder Agreement and the Exchange Agreement, the terms of this Joinder Agreement shall control.
The undersigned hereby joins and enters into the Exchange Agreement having acquired Units in The Hagerty Group, LLC. By signing and returning this Joinder Agreement to the Corporation, the undersigned accepts and agrees to be bound by and subject to all of the terms and conditions of and agreements of a Unitholder contained in the Exchange Agreement, with all attendant rights, duties and obligations of a Unitholder thereunder. The parties to the Exchange Agreement shall treat the execution and delivery hereof by the undersigned as the execution and delivery of the Exchange Agreement by the undersigned and, upon receipt of this Joinder Agreement by the Corporation and by The Hagerty Group, LLC, the signature of the undersigned set forth below shall constitute a counterpart signature to the signature page of the Exchange Agreement.
Name:
Address for Notices:
Attention:
With copies to:
Schedule 7.4(b)
Restricted Business
Developing valuation products and databases
Vehicle Identification Number Decoder
Collector vehicle auctions (physical or virtual)
Development of collector vehicle storage facilities and insurance of storage facilities where the primary purpose is storage of collector vehicles
Collector vehicle automotive events
Collector vehicle seminars
Collector vehicle enthusiast activities
Motorsports registration platform
v3.23.4
Cover
|
Dec. 18, 2023 |
| Entity Information [Line Items] |
|
| Document Type |
8-K
|
| Document Period End Date |
Dec. 18, 2023
|
| Entity Registrant Name |
HAGERTY, INC.
|
| Entity Incorporation, State or Country Code |
DE
|
| Entity File Number |
001-40244
|
| Entity Address, Address Line One |
121 Drivers Edge
|
| Entity Address, City or Town |
Traverse City
|
| Entity Address, State or Province |
MI
|
| Entity Address, Postal Zip Code |
49684
|
| City Area Code |
(800)
|
| Local Phone Number |
922-4050
|
| Written Communications |
false
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| Soliciting Material |
false
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| Pre-commencement Tender Offer |
false
|
| Pre-commencement Issuer Tender Offer |
false
|
| Entity Emerging Growth Company |
true
|
| Entity Ex Transition Period |
false
|
| Entity Central Index Key |
0001840776
|
| Amendment Flag |
false
|
| Entity Tax Identification Number |
86-1213144
|
| Common Class A |
|
| Entity Information [Line Items] |
|
| Title of 12(b) Security |
Class A common stock, par value $0.0001 per share
|
| Trading Symbol |
HGTY
|
| Security Exchange Name |
NYSE
|
| HGTY:WarrantsEachWholeWarrantExercisePriceof11.50PerShareMember |
|
| Entity Information [Line Items] |
|
| Title of 12(b) Security |
Warrants, each whole warrant exercisable for one shareof Class A common stock, each at an exercise price of$11.50 per share
|
| Trading Symbol |
HGTY.WS
|
| Security Exchange Name |
NYSE
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|
| X |
- DefinitionFor the EDGAR submission types of Form 8-K: the date of the report, the date of the earliest event reported; for the EDGAR submission types of Form N-1A: the filing date; for all other submission types: the end of the reporting or transition period. The format of the date is YYYY-MM-DD.
| Name: |
dei_DocumentPeriodEndDate |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:dateItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word 'Other'.
| Name: |
dei_DocumentType |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:submissionTypeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionAddress Line 1 such as Attn, Building Name, Street Name
| Name: |
dei_EntityAddressAddressLine1 |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- Definition
+ References
+ Details
| Name: |
dei_EntityAddressCityOrTown |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCode for the postal or zip code
| Name: |
dei_EntityAddressPostalZipCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the state or province.
| Name: |
dei_EntityAddressStateOrProvince |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:stateOrProvinceItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionA unique 10-digit SEC-issued value to identify entities that have filed disclosures with the SEC. It is commonly abbreviated as CIK. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityCentralIndexKey |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:centralIndexKeyItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionIndicate if registrant meets the emerging growth company criteria. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityEmergingGrowthCompany |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCommission file number. The field allows up to 17 characters. The prefix may contain 1-3 digits, the sequence number may contain 1-8 digits, the optional suffix may contain 1-4 characters, and the fields are separated with a hyphen.
| Name: |
dei_EntityFileNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:fileNumberItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTwo-character EDGAR code representing the state or country of incorporation.
| Name: |
dei_EntityIncorporationStateCountryCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarStateCountryItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe exact name of the entity filing the report as specified in its charter, which is required by forms filed with the SEC. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityRegistrantName |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe Tax Identification Number (TIN), also known as an Employer Identification Number (EIN), is a unique 9-digit value assigned by the IRS. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityTaxIdentificationNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:employerIdItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionLocal phone number for entity.
| Name: |
dei_LocalPhoneNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 13e
-Subsection 4c
| Name: |
dei_PreCommencementIssuerTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 14d
-Subsection 2b
| Name: |
dei_PreCommencementTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTitle of a 12(b) registered security. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b
| Name: |
dei_Security12bTitle |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:securityTitleItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the Exchange on which a security is registered. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection d1-1
| Name: |
dei_SecurityExchangeName |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarExchangeCodeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as soliciting material pursuant to Rule 14a-12 under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Section 14a
-Number 240
-Subsection 12
| Name: |
dei_SolicitingMaterial |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTrading symbol of an instrument as listed on an exchange.
| Name: |
dei_TradingSymbol |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:tradingSymbolItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as written communications pursuant to Rule 425 under the Securities Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Securities Act
-Number 230
-Section 425
| Name: |
dei_WrittenCommunications |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=us-gaap_CommonClassAMember |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=hgty_HGTYWarrantsEachWholeWarrantExercisePriceof1150PerShareMemberMember |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
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