<PAGE> 1
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
Date of Report (Date of earliest event reported): December 30, 1999
Alleghany Corporation
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------------------------------------------
(State or other jurisdiction of incorporation)
1-9371 51-0283071
------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
375 Park Avenue, Suite 3201
New York, New York 10152
--------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 752-1356
--------------
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Item 5. Other Events.
On December 30, 1999, Alleghany Corporation, a Delaware corporation
("Alleghany"), and Swiss Re America Holding Corporation, a Delaware corporation
("Swiss Re"), entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement"). Pursuant to the Stock Purchase Agreement and subject to the terms
and conditions set forth therein, Alleghany will sell one of its subsidiaries,
Underwriters Re Group, Inc., to Swiss Re. The Stock Purchase Agreement is
attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following exhibits accompany this Report:
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
-------------- -------------------
<S> <C>
99.1 Stock Purchase Agreement,
dated as of December 30,
1999 (the "Stock Purchase
Agreement"), by and
between Alleghany
Corporation and Swiss Re
America Holding
Corporation.
</TABLE>
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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.
ALLEGHANY CORPORATION
Date: December 30, 1999 By: /s/ Peter R. Sismondo
------------------------
Name: Peter R. Sismondo
Title: Vice President
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Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
99.1 Stock Purchase Agreement, dated as of December 30, 1999
(the "Stock Purchase Agreement"), by and between
Alleghany Corporation and Swiss Re America Holding
Corporation.
</TABLE>
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EXHIBIT 99.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
between
SWISS RE AMERICA HOLDING CORPORATION
and
ALLEGHANY CORPORATION
dated as of December 30, 1999
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I. DEFINITIONS .................................................................................1
1.1. Definitions..................................................................................1
ARTICLE II. PURCHASE AND SALE OF THE SHARES............................................................11
2.1. Purchase and Sale of the Shares.............................................................11
2.2. The Closing.................................................................................12
2.3. Deliveries at the Closing...................................................................12
2.4. Purchase Price Adjustment...................................................................13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER..............................................15
3.1. Organization and Qualification of the Seller................................................15
3.2. Authorization, Validity and Enforceability..................................................15
3.3. No Conflicts................................................................................16
3.4. Consents and Approvals......................................................................16
3.5. Organization and Qualification of the Company and the Continuing Subsidiaries...............16
3.6. Capitalization of Company...................................................................17
3.7. Capitalization of Subsidiaries..............................................................17
3.8. Title to Shares.............................................................................18
3.9. Corporate Minutes...........................................................................18
3.10. Financial Statements.......................................................................18
3.11. Liabilities................................................................................19
3.12. Absence of Changes.........................................................................20
3.13. Legal Proceedings..........................................................................22
3.14. Compliance with Laws; Permits..............................................................23
3.15. Insurance Permits; Regulatory Matters......................................................23
3.16. Policy Forms and Rates.....................................................................24
3.17. Agents and Producers; Fronting.............................................................24
3.18. Reserves...................................................................................25
3.19. Reinsurance and Retrocession Agreements....................................................26
3.20. Contracts..................................................................................27
3.21. Property and Assets........................................................................28
3.22. Intellectual Property; Year 2000...........................................................28
3.23. Investments................................................................................30
3.24. Employee Benefit Plans.....................................................................30
3.25. Employee Relations.........................................................................32
3.26. Officers, Directors and Key Employees......................................................33
3.27. Insurance Policies.........................................................................33
3.28. Tax Matters................................................................................33
3.29. Bank Accounts..............................................................................35
3.30. Transactions with Affiliates...............................................................35
3.31. Intercompany Accounts......................................................................35
3.32. No Brokers.................................................................................36
</TABLE>
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<TABLE>
<S> <C> <C>
3.33. Environmental Matters......................................................................36
3.34. Certain Matters Related to Accra Holdings..................................................36
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................................37
4.1. Organization of the Purchaser...............................................................37
4.2. Authorization, Validity and Enforceability..................................................37
4.3. No Conflicts................................................................................37
4.4. Consents and Approvals......................................................................38
4.5. Investment Intent...........................................................................38
4.6. Financing...................................................................................38
4.7. No Brokers..................................................................................38
ARTICLE V. COVENANTS ................................................................................38
5.1. Conduct of Business.........................................................................38
5.2. Access to Information; Consultation; Confidentiality........................................40
5.3. Cooperation and Reasonable Best Efforts.....................................................41
5.4. Consents and Approvals......................................................................41
5.5. Notification of Certain Matters.............................................................41
5.6. Press Releases..............................................................................42
5.7. [Intentionally omitted].....................................................................42
5.8. Interim Financial Statements and Investment Reports.........................................42
5.9. Tax Matters.................................................................................43
5.10. [Intentionally omitted]....................................................................45
5.11. Insurance Coverage.........................................................................45
5.12. Intercompany Accounts; Affiliate Agreements................................................45
5.13. Corporate Records..........................................................................46
5.14. Instruments................................................................................46
5.15. No-Hire Covenant...........................................................................46
5.16. Covenant Not To Compete....................................................................46
5.17. Reinsurance and Retrocession Agreements....................................................47
5.18. Distribution of Underwriters U.K. Shares...................................................48
5.19. BN Sale....................................................................................48
5.20. Options....................................................................................48
5.21. Stay Bonuses; Severance; Other Plans.......................................................48
5.22. Indemnification of Brokerage...............................................................50
5.23. Transitional Assistance....................................................................50
5.24. Certain Matters............................................................................50
ARTICLE VI. CONDITIONS TO THE OBLIGATION OF THE PURCHASER
TO CLOSE..................................................................................50
6.1. Representations, Warranties and Covenants...................................................50
6.2. Consents....................................................................................51
6.3. No Proceedings..............................................................................51
6.4. HSR Act.....................................................................................51
6.5. Opinions of Counsel to the Seller...........................................................52
</TABLE>
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<TABLE>
<S> <C> <C>
6.6. Certificates................................................................................52
6.7. Resignation of Directors....................................................................52
6.8. Transfer Taxes..............................................................................52
6.9. No Material Adverse Change..................................................................52
6.10. Employment Agreements......................................................................52
6.11. Retrocession Agreements....................................................................52
ARTICLE VII. CONDITIONS TO THE OBLIGATIONS OF THE SELLER TO CLOSE......................................52
7.1. Representations, Warranties and Covenants...................................................52
7.2. Consents....................................................................................53
7.3. No Proceedings..............................................................................53
7.4. HSR Act.....................................................................................53
7.5. Opinion of Counsel to the Purchaser.........................................................53
7.6. Certificates................................................................................53
ARTICLE VIII. INDEMNIFICATION..........................................................................53
8.1. Survival....................................................................................53
8.2. Indemnification of the Purchaser............................................................54
8.3. Indemnification Provisions for Benefit of the Seller........................................57
8.4. Matters Involving Third Parties Other Than Tax Claims.......................................57
8.5. Matters Involving Tax Claims................................................................58
8.6. Matters Not Involving Third-Party Claims....................................................59
8.7. Collateral Source Recoveries................................................................59
8.8. Purchase Price Adjustment...................................................................59
8.9. Exclusive Remedy............................................................................59
ARTICLE IX. TERMINATION................................................................................59
9.1. Termination of Agreement....................................................................59
9.2. Effect of Termination.......................................................................60
ARTICLE X. MISCELLANEOUS...............................................................................61
10.1. Notices....................................................................................61
10.2. Fees and Expenses..........................................................................62
10.3. Entire Agreement; Waivers and Amendments...................................................62
10.4. Assignment; Binding Effect.................................................................62
10.5. Severability...............................................................................62
10.6. No Third-Party Beneficiaries...............................................................62
10.7. Governing Law..............................................................................62
10.8. Consent to Jurisdiction....................................................................63
10.9. Waiver of Jury Trial.......................................................................63
10.10. Interpretation............................................................................63
10.11. Captions..................................................................................63
10.12. Counterparts..............................................................................63
10.13. Extension; Waiver.........................................................................63
</TABLE>
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EXHIBIT EXHIBIT NAME
A Form of New Retro
B Form of Opinion of Counsel to the Seller
C Form of Opinion of Counsel to the Purchaser
SCHEDULE
NUMBER SCHEDULE NAME
3.3 No Conflicts
3.4 Consents and Approvals
3.5 Organization and Qualification
3.6 Capitalization of Company
3.7 Capitalization of Subsidiaries
3.11 Liabilities
3.12 Absence of Changes
3.13 Legal Proceedings
3.14 Compliance with Laws; Permits
3.15 Insurance Permits; Regulatory Matters
3.17 Agents and Producers; Fronting
3.18 Actuarial Reports
3.19 Reinsurance and Retrocession Agreements
3.20 Contracts
3.21 Property and Assets
3.22 Intellectual Property
3.23 Investments
3.24 Employee Benefit Plans
3.25 Employee Relations
3.26 Officers, Directors and Key Employees
3.27 Insurance Policies
3.28 Tax Matters
3.29 Bank Accounts
3.30 Transactions with Affiliates
3.31 Intercompany Accounts
3.33 Environmental Matters
3.34 Accra Matters
4.3 Purchaser Conflicts
4.4 Purchaser Consents and Approvals
5.1 Conduct of Business
5.4 Consents and Approvals
5.9 Tax Matters
5.12 Intercompany Accounts; Affiliate Agreements
5.15 No-Hire List
iv
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SCHEDULE
NUMBER SCHEDULE NAME
5.17 Reinsurance and Retrocession Agreements
5.21 Stay Bonuses
6.2 Consents
6.10 Employment Agreements
v
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is
made and entered into as of December 30, 1999 by and between Swiss Re America
Holding Corporation, a Delaware corporation (the "Purchaser"), and Alleghany
Corporation, a Delaware corporation (the "Seller").
RECITALS
WHEREAS, the Seller owns 15,886,120 shares (the
"Shares") of the common stock, par value $.01 per share, of Underwriters Re
Group, Inc., a Delaware corporation (the "Company"), which Shares constitute all
of the outstanding capital stock of the Company; and
WHEREAS, the Purchaser wishes to purchase from the
Seller, and the Seller wishes to sell to the Purchaser, the Shares, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and
the representations, warranties, covenants and agreements contained herein, and
for other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definitions. The following terms when used in this
Agreement (including the Schedules and Exhibits hereto) shall have the following
meanings:
"Accra Audited Financial Statements" means the audited GAAP
Consolidated Balance Sheets of Accra Holdings and Underwriters Reinsurance
Company (Barbados) Inc., as of September 30, 1999 and 1998, and the related
Consolidated Statements of Operations, Consolidated Statements of Stockholder's
Equity and Consolidated Statements of Cash Flows for the years then ended,
including in each case the related notes and the auditor's report thereon.
"Accra Holdings" means Accra Holdings Corp., a Barbados
company registered under the Exempt Insurance Act of Barbados.
"Actuarial Analyses" has the meaning set forth in Section
3.18(b).
"Additional Annual Financial Statements" means the
unaudited GAAP consolidating balance sheets of the Company and its consolidated
Subsidiaries, as of December 31, 1998 and 1997, and the related consolidating
statements of operations for the years then ended.
<PAGE> 8
"Additional Interim Financial Statements" means the
unaudited GAAP consolidating balance sheets of the Company and its consolidated
Subsidiaries, as of September 30, 1999 and 1998 and June 30, 1999 and 1998, and
the related consolidating statements of operations for the periods then ended.
"Adjusted Closing Stockholder's Equity" has the meaning set
forth in Section 2.4(a).
"Adverse Consequences" has the meaning set forth in Section
8.2(a).
"Affiliate" means with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person will be deemed to control a Person if
such Person possesses, directly or indirectly, 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.
"Affiliate Agreements" means the agreements set forth on
Schedule 3.30 hereto.
"Agency Subsidiaries" means the Continuing Subsidiaries of
the Company that are identified as such on Schedule 3.5 hereto.
"Agreement" has the meaning set forth in the first
paragraph of this Agreement.
"Applicable Insurance Code(s)" means all insurance laws
that the Company and its Subsidiaries are subject to, including, but not limited
to, the insurance laws of Barbados, Bermuda and Canada and those of the States
of California, Nebraska, New Hampshire and Texas. In all cases, "Applicable
Insurance Code(s)" shall include the rules and regulations promulgated under any
of the foregoing.
"Applicable Insurance Department(s)" means all insurance
regulatory agencies that the Company and its Subsidiaries are subject to the
supervision of, including, but not limited to, those of Barbados, Bermuda and
Canada and those of the States of California, Nebraska, New Hampshire and Texas.
"Applicable Rate" means a rate of interest equal to 8 1/2%
per annum.
"Audited Financial Statements" means the audited GAAP
Consolidated Balance Sheets of the Company and its Subsidiaries as of December
31, 1998 and 1997 and the related Consolidated Statements of Operations,
Consolidated Statements of Stockholder's Equity and Consolidated Statements of
Cash Flows for the years then ended, including in each case the related notes
and the auditor's report thereon.
"Auto Treaty" has the meaning set forth in Section 8.2(a).
"Base Financial Statements" means collectively the December
31, 1998 Audited Financial Statements and the June 30, 1999 and September 30,
1999 Interim Financial Statements.
"Benefit Plans" has the meaning set forth in Section
5.21(e).
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"BN Amount" means the amount, if any, by which (x)
$184,603,050 exceeds (y) the net after-tax proceeds of the BN Sale.
"BN Sale" has the meaning set forth in Section 5.19.
"BN Stock" means the shares of common stock of Burlington
Northern Santa Fe Corporation owned by the Company and the Continuing
Subsidiaries as of the date hereof.
"Broker" has the meaning set forth in Section 3.17(a).
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in New York City are required or
authorized by law to be closed.
"Center E&S Business" means the primary insurance policies
underwritten by The Center E&S Insurance Agency, Inc., a Georgia corporation,
and issued by Commercial Underwriters Insurance Company, a California
corporation.
"Closing" has the meaning set forth in Section 2.2.
"Closing Balance Sheet" has the meaning set forth in
Section 2.4(a).
"Closing Date" has the meaning set forth in Section 2.2.
"Closing Stockholder's Equity" means total assets less
total liabilities of the Company and the Continuing Subsidiaries as set forth on
the Final Closing Balance Sheet.
"Code" means the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder.
"Company" has the meaning set forth in the first Recital of
this Agreement.
"Company Insurance Policies" has the meaning set forth in
Section 3.27.
"Company Options" has the meaning set forth in Section
5.20(a).
"Competing Business" has the meaning set forth in Section
5.16(a).
"Confidentiality Agreement" means the Confidentiality
Agreement between Swiss Re America Corporation and the Company dated June 24,
1999.
"Consents" has the meaning set forth in Section 3.4.
"Continuing Domestic Subsidiaries" means the Continuing
Subsidiaries excluding URC Representatives Ltd., URC Management Inc., URC
International Inc. and Venton Underwriters (Bermuda) Ltd.
"Continuing Subsidiaries" means the Subsidiaries of the
Company other than the Subsidiaries of the Company constituting Underwriters
U.K.
3
<PAGE> 10
"Contracts" means all written contracts, agreements,
undertakings, indentures, notes, debentures, bonds, loans, instruments, leases,
mortgages, commitments or binding arrangements.
"Credit Agreement" means the $350 million Credit Agreement,
dated as of November 1, 1999, by and among the Company, Underwriters Reinsurance
Company, a New Hampshire corporation, and Venton Underwriting Limited, a Bermuda
exempted limited liability company, as Borrowers; Venton Underwriting Limited,
Talbot Underwriting Limited, an English company, Underwriters Re Capital Ltd, an
English company, Underwriters Reinsurance Company and certain wholly-owned
subsidiaries of Underwriters Reinsurance Company, as Account Parties; the
Company and Underwriters Reinsurance Company as Guarantors; the Banks listed
therein; Mellon Bank, N.A., a national banking association, as Issuing Bank, as
Administrative Agent for the Banks and for the Issuing Bank, and as a
Co-Arranger; Dresdner Bank AG, New York Branch and Grand Cayman Branch, branches
of a German banking corporation, as Documentation Agent; Dresdner Kleinwort
Benson North America LLC, a Delaware limited liability company, as Co-Arranger;
and First Union National Bank, a national banking association, as Syndication
Agent; providing for up to $75 million of borrowings on a revolving credit basis
(the "Revolving Credit Facility") and for issuance of up to $275 million of
letters of credit (the "Letter of Credit Facility"), as the Credit Agreement may
be amended, modified, or supplemented from time to time, together with any
successor or replacement credit agreement.
"Differential" has the meaning set forth in Section 2.1(a).
"Employee" means each current full-time or part-time
employee of the Company or any of its Continuing Subsidiaries, including any
such employee who is on disability or leave of absence.
"Employment Agreements" has the meaning set forth in
Section 6.10.
"Environmental Claims" means any written notice, claim,
action, suit, complaint or proceeding by any Person, other than any notice,
claim, action, suit, complaint or proceeding arising out of, or based upon, an
Insurance Contract, alleging liability or potential liability (including without
limitation liability or potential liability for emergency actions, investigatory
costs, removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines or penalties) arising out of, relating
to, based on or resulting from (i) the handling, transportation, disposal,
presence, discharge, emission, Release or, to the knowledge of the Seller,
threatened Release of any Hazardous Materials at any location, whether or not
owned, leased or operated by the Company or any of the Subsidiaries, or (ii) the
alleged violation of any Environmental Law or Permits issued thereunder by the
Company or any of the Subsidiaries.
"Environmental Laws" means all applicable federal, state,
local and foreign statutes, rules, regulations, ordinances, orders and decrees
relating in any manner to Hazardous Materials, the contamination, pollution or
protection of the environment or the protection of human health and welfare as
now in effect, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Solid Waste Disposal Act, the
Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act,
the Toxic
4
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Substances Control Act, the Emergency Planning and Community-Right-to-Know Act,
and the Occupation Safety and Health Act.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and the regulations promulgated thereunder.
"Estimated Adjusted Closing Stockholder's Equity" has the
meaning set forth in Section 2.1(c).
"Estimated Purchase Price" has the meaning set forth in
Section 2.1(c).
"Final Closing Balance Sheet" means the Closing Balance
Sheet as agreed to (or deemed to be agreed to) by the Seller and the Purchaser,
as provided in Section 2.4(c), or, in the event that the Seller and the
Purchaser are not able to agree, the Closing Balance Sheet as revised to reflect
the Neutral Auditor's determination of the Unresolved Changes, as provided in
Section 2.4(d).
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Governmental Entity" means any federal, state, local or
foreign government, political subdivision, legislature, court, agency,
department, bureau, commission or other governmental or regulatory authority,
body or instrumentality, including any insurance or securities regulatory
authority.
"Hazardous Materials" means all hazardous or toxic
substances, wastes, materials or chemicals, petroleum (including crude oil or
any fraction thereof) and petroleum products, asbestos and asbestos-containing
materials, pollutants or contaminants, which are listed, identified, or
regulated by any Environmental Law.
"Home Insurance Department" means, in the case of each
Insurance Subsidiary, the Insurance Department of the state where it is
domiciled.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"Indemnified Party" and "Indemnifying Party" have the
respective meanings set forth in Section 8.4.
"Insurance Approvals" means the Purchaser Insurance
Approvals and the Seller Insurance Approvals.
"Insurance Contracts" means all Contracts, treaties,
policies or other written arrangements to which any of the Insurance
Subsidiaries is a party or by or to which any of them is bound or subject
providing for insurance, ceding or assumptions of reinsurance, excess insurance
or retrocessions, including, without limitation, all insurance policies,
reinsurance policies, and retrocession agreements, in each case as such
Contract, treaty, policy or other
5
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written arrangement may have been amended, modified or supplemented, other than
the Company Insurance Policies.
"Insurance Permit" means any Permit in any jurisdiction to
issue, underwrite, assume, place, sell or otherwise transact the business of
insurance or reinsurance.
"Insurance Subsidiaries" means the Continuing Subsidiaries
of the Company that are actively engaged in the business of issuing contracts
indemnifying against loss, liability or damage from contingent or unknown events
or are otherwise licensed to conduct the business of insurance or reinsurance
and are identified as such on Schedule 3.5 hereto.
"Intellectual Property Rights" has the meaning set forth in
Section 3.22(b).
"Interim Financial Statements" means the unaudited GAAP
Consolidated Balance Sheets of the Company and its Subsidiaries as of September
30, 1999 and 1998 and June 30, 1999 and 1998 and the unaudited Consolidated
Statements of Operations, Consolidated Statements of Stockholder's Equity and
Consolidated Statements of Cash Flows for the periods then ended.
"Investment Broker" has the meaning set forth in Section
3.32.
"Investment Guidelines" has the meaning set forth in
Section 3.23.
"Investment Portfolio" has the meaning set forth in Section
5.8(b).
"Investments" has the meaning set forth in Section 3.23.
"IRS" means the Internal Revenue Service.
"KPMG" means KPMG LLP, certified public accountants.
"Latest Balance Sheet" means the balance sheet as of
December 31, 1998 included in the Audited Financial Statements.
"Leased Real Property" has the meaning set forth in Section
3.21.
"Liability" and "Liabilities" have the meanings set forth
in Section 3.11.
"Lien" means any lien, pledge, mortgage, security interest,
charge, adverse claim or other encumbrance of any kind.
"London Life" means London Life and Casualty Reinsurance
Corporation.
"Material Adverse Effect" means any material adverse effect
on the business, operations, financial condition or results of operations of the
Company and the Continuing Subsidiaries, taken as a whole, other than effects
caused by (i) changes in general economic or securities market conditions, (ii)
changes in interest rate levels, (iii) the identity of the Purchaser
6
<PAGE> 13
as the buyer of the Company, (iv) the announcement of the purchase of the
Company by the Purchaser or (v) the conduct of the Purchaser prior to the
Closing.
"Material Contract" means any Contract required to be set
forth as Schedule 3.20.
"Material Insurance Permit" has the meaning set forth in
Section 3.15.
"Material Permit" has the meaning set forth in Section
3.14.
"Millennium Functionality" has the meaning set forth in
Section 3.22(c).
"Neutral Auditors" has the meaning set forth in Section
2.4(d).
"New Retro" means the reinsurance agreement between London
Life (or a comparable reinsurer acceptable to the Purchaser) and the Company
substantially in the form attached hereto as Exhibit A and the related actions
described on Exhibit A.
"Outbound Reinsurance Contract" has the meaning set forth
in Section 3.19(a).
"Parachute Payment" has the meaning set forth in
Section 5.21(d).
"Parachute Payment Shortfall" has the meaning set forth in
Section 5.21(d).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means all licenses, certificates of authority,
permits, orders, consents, approvals, registrations, authorizations,
qualifications and filings under any applicable federal, state, local or foreign
laws or with any Governmental Entities.
"Permitted Liens" means (i) Liens for water and sewer
charges and taxes not yet due and payable or being contested in good faith (and,
in each case, for which adequate accruals or reserves have been established by
the Company and will be reflected on the Closing Balance Sheet, as the case may
be) and (ii) mechanics', carriers', workers', repairers', materialmen's,
warehousemen's and other similar liens arising or incurred in the ordinary
course of business with respect to a Liability that is not yet due or delinquent
and that is not material in amount.
"Person" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, Governmental Entity or other entity
or organization.
"Plan" means any "employee benefit plan" (as such term is
defined in section 3(3) of ERISA), and any other retirement, pension,
profit-sharing, thrift, savings, target benefit, employee stock ownership, cash
or deferred, deferred or incentive compensation, bonus, stay bonus, stock
option, employee stock purchase, phantom stock, stock appreciation, change in
control, medical, dental, vision, psychiatric counseling, vacation, sick pay,
disability or fringe benefit plan, program or arrangement in which any current
or former officer or employee of the
7
<PAGE> 14
Company or any of the Continuing Subsidiaries has participated, or as to which
the Company or any of the Continuing Subsidiaries has any present or contingent
liability with respect to.
"Pre-Closing Payments" has the meaning set forth in Section
5.21(d).
"Pre-Closing Tax Period" means any taxable period ending on
or before the Closing Date and the portion of any Straddle Period for which the
Seller is responsible as set forth in Section 8.2(b).
"Pre-Closing Taxes" has the meaning set forth in Section
8.2(b).
"Post-Closing 280G Payments" has the meaning set forth in
Section 5.21(d).
"Post-Closing Tax Period" means any taxable period
beginning after the Closing Date and the portion of any Straddle Period for
which the Seller is not responsible as set forth in Section 8.2(b).
"Predecessor Credit Agreement" means the Amended and
Restated Credit Agreement, dated as of December 31, 1998, among the Company, the
Lenders named therein and The First National Bank of Chicago, as Agent and in
its individual capacity as a Lender, providing for up to $43 million of
borrowings on a revolving credit basis.
"Predecessor Letter of Credit Agreement" means the Letter
of Credit Facility and Reimbursement Agreement, dated as of October 23, 1998, by
and among Venton Underwriting Group Limited, an English company, Venton
Underwriting Limited, Talbot Underwriting Limited, the Company, Underwriters
Reinsurance Company, the Banks (as defined therein), Mellon Bank, N.A., as
Issuing Bank, as Administrative Agent and as a Co-Arranger, Dresdner Bank AG,
New York and Grand Cayman Branches, as Documentation Agent, and Dresdner
Kleinwort Benson North America LLC, as Co-Arranger; as amended by the First
Amendment thereto, dated as of November 25, 1998, and the Second Amendment
thereto, dated as of December 8, 1998, providing for the issuance of up to $225
million of letters of credit.
"Property" means any real, personal or mixed property,
whether tangible or intangible.
"Proposed Contracts" has the meaning set forth in Section
3.20(b).
"Purchase Price" has the meaning set forth in Section
2.1(a).
"Purchaser" has the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Indemnitees" has the meaning set forth in
Section 8.2(a).
"Purchaser Insurance Approvals" means all Consents required
to be obtained, made or given by the Purchaser pursuant to the Applicable
Insurance Codes.
"Purchaser's Fee" has the meaning set forth in Section 4.7.
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"PwC" means PricewaterhouseCoopers LLP.
"Reinsurance Contracts" means all Contracts, treaties,
facultative certificates or other written arrangements to which any of the
Insurance Subsidiaries is a party or by or to which any of them is bound or
subject providing for ceding or assumption of reinsurance, or retrocessions, in
each case as such Contract, treaty, facultative certificate or other written
arrangement may have been amended, modified or supplemented.
"Release" has the meaning set forth in 42 U.S.C. Section
9601(22).
"Representatives" has the meaning set forth in Section
5.2(a).
"Required Closing" has the meaning set forth in Section
2.1(d).
"Reserve Study" means the Company's September 30, 1999
reserve study.
"Reserves" means the reserves held by the Insurance
Subsidiaries for loss, loss adjustment expenses, incurred but not reported
losses and loss adjustment expenses and unearned premiums.
"Resolution Period" has the meaning set forth in Section
2.4(c).
"SAP" means the statutory accounting practices prescribed
or permitted by the Home Insurance Department of each of the Insurance
Subsidiaries.
"Securities Act" means the Securities Act of 1933, as
amended.
"Seller" has the meaning set forth in the first paragraph
of this Agreement.
"Seller Indemnitees" has the meaning set forth in Section
8.3.
"Seller Insurance Approvals" means all Consents required to
be obtained, made or given by the Seller, the Company or its Subsidiaries
pursuant to the Applicable Insurance Codes.
"Seller Options" has the meaning set forth in Section
5.20(b).
"Seller's Fee" has the meaning set forth in Section 3.32.
"September 30 A&E Reserve Amount" has the meaning set forth
in Section 2.4(a).
"Shares" has the meaning set forth in the first Recital of
this Agreement.
"Statutory Statements" means the Annual Statements of each
of the Insurance Subsidiaries (other than Agency Subsidiaries), as filed with
its Home Insurance Department, for the years ended December 31, 1998 and 1997
and the individual Quarterly Statement of the Condition and Affairs of each of
the Insurance Subsidiaries (other than Agency Subsidiaries), as
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<PAGE> 16
filed with its Home Insurance Department, for the quarterly periods ended
September 30, June 30 and March 31, 1999, in each case including all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith.
"Stockholder's Equity" means total assets less total
liabilities of the Company and its consolidated Continuing Subsidiaries.
"Straddle Period" has the meaning set forth in Section
8.2(b).
"Subsidiary" and "Subsidiaries" means, with respect to any
Person, any corporation, partnership, limited liability company, joint venture
or other entity in which such Person (i) owns, directly or indirectly, 50% or
more of the outstanding voting securities, equity interests, profits interest or
capital interest, (ii) is entitled to elect at least a majority of the board of
directors or similar governing body, or (iii) in the case of a limited
partnership or limited liability company, is a general partner or managing
member, respectively.
"Surplus Contribution" has the meaning set forth in Section
2.1(b).
"Target Stockholder's Equity" means $440.7 million.
"Tax" and "Taxes" mean all income, profits, gains, gross
receipts, net worth, premium, value added, ad valorem, sales, use, excise,
stamp, transfer, franchise, withholding, payroll, employment, occupation,
workers' compensation, disability, severance, unemployment insurance, social
security and property taxes, and all other taxes, levies, fees, imposts, duties
and charges of any kind whatsoever, together with any interest, penalties and
additions thereto imposed by any Governmental Entity ("Taxing Authority"),
including all amounts imposed as a result of being a member of an affiliated or
combined group.
"Tax Claim" has the meaning set forth in Section 8.2(a).
"Tax Return" means all returns, reports, elections,
estimates, declarations, information statements and other forms and documents
(including all schedules, exhibits, and other attachments thereto) relating to,
and required to be filed or maintained in connection with the calculation,
determination, assessment or collection of, any Taxes (including estimated
Taxes).
"Taxable Period" means any taxable year or any other period
that is treated as a taxable year (including any taxable period ending on the
Closing Date or beginning on the day following the Closing Date) with respect to
which any Tax may be imposed under any statute, rule, or regulation.
"Third-Party Claim" has the meaning set forth in Section
8.4.
"Third-Party Intellectual Property Rights" has the meaning
set forth in Section 3.22(b).
"Transfer Taxes" has the meaning set forth in Section 6.8.
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<PAGE> 17
"Treasury Regulations" means the final, temporary and
proposed income tax regulations promulgated under the Code by the U.S. Treasury
Department, as amended from time to time.
"Underwriters U.K." means Underwriters Holdings LLC, a
Delaware limited liability company, and its Subsidiaries.
"Underwriters U.K. Carrying Value" means the carrying value
of Underwriters U.K., determined in accordance with GAAP consistently applied,
as of the date of the Underwriters U.K. Dividend.
"Underwriters U.K. Dividend" has the meaning set forth in
Section 5.18.
"Unresolved Changes" has the meaning set forth in Section
2.4(d).
"Venton Employees" has the meaning set forth in Section
5.21(a).
"WARN Act" means the Worker Adjustment and Retraining
Notification Act of 1988.
ARTICLE II.
PURCHASE AND SALE OF THE SHARES
2.1. Purchase and Sale of the Shares. (a) Upon the terms
and subject to the conditions set forth in this Agreement, the Purchaser agrees
to purchase from the Seller, and the Seller agrees to sell, assign, transfer and
deliver to the Purchaser, the Shares, free and clear of all Liens for a purchase
price (the "Purchase Price") equal to the sum of (x) $725 million and (y) except
as otherwise provided in Section 2.1(d), the amount of the Differential. The
"Differential" is the amount (whether a positive number or a negative number)
equal to Adjusted Closing Stockholder's Equity less Target Stockholder's Equity.
The Purchase Price shall be paid in cash.
(b) In the event that, as a condition to receiving
regulatory approval for the Underwriters U.K. Dividend, any Applicable Insurance
Department requires a cash capital contribution to the Company and the
Continuing Subsidiaries to be made by the Seller, or in the event that the
Seller is advised by counsel in connection with the Underwriters U.K. Dividend
that a cash capital contribution is legally required (in either event, the
"Surplus Contribution"), the Seller shall make such Surplus Contribution prior
to the Closing in an amount not in excess of the Underwriters U.K. Carrying
Value.
(c) Not less than ten (10) Business Days prior to the date
the Seller reasonably believes will be the Closing Date, the Seller shall
deliver to the Purchaser a statement signed by its chief financial officer
setting forth (i) its reasonable, good faith estimate of Stockholder's Equity as
of the Closing Date after giving effect to the New Retro in accordance with
Exhibit A and the BN Sale, calculated in accordance with GAAP consistently
applied with the Base
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Financial Statements as supplemented by the Reserve Study, (ii) a reconciliation
of Stockholder's Equity as of the Closing Date to the consolidated balance sheet
of the Company and its Continuing Subsidiaries for the quarter immediately
preceding the Closing Date and (iii) a schedule of such estimated Stockholder's
Equity as of the Closing Date calculated as provided in the preceding clause (i)
adjusted to exclude the amount of any Surplus Contribution (as adjusted,
"Estimated Adjusted Closing Stockholder's Equity"). At the Closing, subject to
Section 2.1(d), the Purchaser shall pay the Seller an amount in cash (the
"Estimated Purchase Price") equal to (x) $725 million, less (y) the amount, if
any, by which (i) Target Stockholder's Equity exceeds (ii) Estimated Adjusted
Closing Stockholder's Equity, plus (z) the amount of the Surplus Contribution
actually made prior to the Closing.
(d) If the Estimated Purchase Price computed pursuant to
Section 2.1(c) above is less than an amount equal to (x) $675 million plus (y)
the Surplus Contribution actually made prior to the Closing less (z) the BN
Amount, the Seller may elect to terminate this Agreement by delivering written
notice to the Purchaser together with the statement of Estimated Adjusted
Closing Stockholder's Equity. If the Seller so chooses to terminate this
Agreement, the Purchaser, in its sole discretion, may nevertheless require the
Seller to consummate the transactions contemplated hereby (a "Required Closing")
by delivering written notice to the Seller to such effect within seven (7)
Business Days after receipt of the Seller's written notice electing to terminate
this Agreement; provided, however, that in the event of a Required Closing, the
Estimated Purchase Price shall be equal to (x) $675 million plus (y) the Surplus
Contribution actually made prior to the Closing less (z) the BN Amount; and
provided further, that in the event of a Required Closing, the Purchase Price
shall be deemed equal to the Estimated Purchase Price as determined by this
sentence.
2.2. The Closing. Subject to the satisfaction or waiver of
all of the conditions to closing set forth in Articles VI and VII, the closing
(the "Closing") of the purchase and sale of the Shares hereunder shall take
place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York at 10:00 a.m., New York City time, on the last Business Day of the
month in which all of the conditions set forth in Articles VI and VII (other
than those conditions that are contemplated to be satisfied by the respective
parties at the Closing itself) have been satisfied or waived, or at such other
time or place as may be mutually agreed upon by the parties hereto. The date on
which the Closing occurs is referred to herein as the "Closing Date."
2.3. Deliveries at the Closing. At the Closing:
(a) the Seller shall deliver to the Purchaser (i)
certificates representing the Shares free and clear of all Liens, duly endorsed
in blank for transfer or accompanied by stock powers duly endorsed in blank and
with all appropriate stock transfer tax stamps affixed and (ii) all other
documents and instruments required hereunder to be delivered by the Seller to
the Purchaser at the Closing, including those set forth in Section 5.12; and
(b) the Purchaser shall (i) pay to the Seller the Estimated
Purchase Price by wire transfer of immediately available funds to an account or
accounts designated by the Seller in
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<PAGE> 19
a written notice delivered to the Purchaser not later than two (2) Business Days
prior to the Closing Date, and (ii) deliver to the Seller all other documents
and instruments required hereunder to be delivered by the Purchaser to the
Seller at the Closing.
2.4. Purchase Price Adjustment. (a) Except in the event of
a Required Closing (in which case the Purchase Price shall be deemed equal to
the Estimated Purchase Price for all purposes of this Agreement, and therefore
the provisions of this Section 2.4 shall not apply), as soon as practicable, but
in no event later than sixty (60) days following the Closing Date, the Seller
shall prepare and deliver to the Purchaser (i) a consolidated balance sheet of
the Company and the Continuing Subsidiaries as of the Closing Date which shall
be audited by KPMG (the "Closing Balance Sheet"), (ii) a calculation of Closing
Stockholder's Equity and (iii) a calculation of Adjusted Closing Stockholder's
Equity ("Adjusted Closing Stockholder's Equity") which shall be equal to Closing
Stockholder's Equity adjusted (x) to exclude the amount of any Surplus
Contribution reflected on the Closing Balance Sheet, (y) to add an amount (but
not less than zero) equal to (I) the sum of (A) the amount of A&E Reserves
carried on the Closing Balance Sheet plus (B) any loss and expense paid on A&E
claims during the period from September 30, 1999 through the Closing Date, less
(II) $74,300,000 (the amount of A&E Reserves carried on the balance sheet
included in the September 30, 1999 Interim Financial Statements (the "September
30 A&E Reserve Amount")), and (z) to add the amount of any reduction in Closing
Stockholder's Equity attributable to, or in respect of, accounting for the New
Retro (attached as Exhibit A hereto) other than in accordance with Exhibit A
(the Closing Balance Sheet, Closing Stockholder's Equity and Adjusted Closing
Stockholder's Equity being collectively referred to herein as the "Closing
Financial Data"). The Closing Balance Sheet shall be prepared in accordance with
GAAP consistently applied with the Base Financial Statements as supplemented by
the Reserve Study; provided, however, that whether or not required by GAAP, the
Closing Balance Sheet will not give effect to the Employment Agreements. The
Closing Balance Sheet shall be audited by KPMG, and the fees and expenses of
KPMG incurred in connection with such audit shall be borne by the Seller.
(b) During the preparation of the Closing Balance Sheet,
and the period of any review or dispute contemplated by this Section 2.4, the
Purchaser shall (i) provide the Seller and the Seller's authorized
Representatives with reasonable access to all relevant books, records,
workpapers and Employees, (ii) cooperate with the Seller and the Seller's
authorized Representatives, including the provision of all information necessary
or useful in the preparation of the Closing Balance Sheet, and (iii) be entitled
to freely observe and review the audit, including KPMG's workpapers, with full
access to KPMG during the entirety of said audit (including during the planning
stage).
(c) After receipt of the Closing Financial Data, the
Purchaser shall have forty-five (45) days to review the Closing Financial Data,
together with the workpapers used in the preparation thereof. Unless the
Purchaser delivers written notice to the Seller on or prior to the 45th day
after the Purchaser's receipt of the Closing Financial Data stating that the
Purchaser objects to the Closing Balance Sheet, the calculation of Closing
Stockholder's Equity or the calculation of Adjusted Closing Stockholder's
Equity, and specifying the nature of such objections and the reasons therefor
and the calculation of such Closing Financial Data, the Purchaser shall be
deemed to have accepted and agreed to the Closing Financial Data and the
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<PAGE> 20
Closing Balance Sheet shall become the Final Closing Balance Sheet, and the
Final Closing Balance Sheet and the calculation of Adjusted Closing
Stockholder's Equity shall be final, binding and conclusive for purposes of
determining the Purchase Price. The Purchaser may object to the Closing Balance
Sheet or the calculation of Closing Stockholder's Equity only (x) to the extent
that such Closing Balance Sheet or Closing Stockholder's Equity was not prepared
in accordance with GAAP consistently applied with the Base Financial Statements
or (y) with regard to Reserves, as stated in the last sentence of this Section
2.4(c). If the Purchaser so notifies the Seller of its objections to the Closing
Financial Data, the parties shall, within twenty (20) days (or such longer
period as the parties may agree) following such notice (the "Resolution
Period"), attempt to resolve their differences arising from such objections, and
any resolution by them as to any disputed amounts or methods, principles,
practices or policies employed in the preparation thereof shall be final,
binding and conclusive. The Company will continue to establish and book reserves
through the Closing Date in a manner consistent with the Reserve Study;
provided, that total A&E Reserves at the Closing will be not less than (x) the
September 30 A&E Reserve Amount less (y) the amount of any loss and expense paid
on A&E claims during the period from September 30, 1999 through the Closing
Date. PwC has reviewed the methods, principles, practices and policies the
Company has applied in establishing the historical reserves. The Seller agrees
that the amount of carried Reserves relating to the Center E&S Business as of
the Closing Date must be confirmed by PwC. The Purchaser and the Seller
acknowledge that there is a difference of actuarial view regarding the Reserves
for the Center E&S Business which is being settled through the New Retro. Except
as to the matters addressed by the preceding sentence, the Purchaser has
accepted the methods, principles, practices and policies the Company has applied
in establishing historical reserves and the Purchaser acknowledges and agrees
that it may raise objections to the Reserve amounts set forth on the Closing
Balance Sheet only to the extent that the methods, principles, practices or
policies used in establishing such amounts were inconsistent with the past
practice of the Company as reflected in the Base Financial Statements as
supplemented by the Reserve Study.
(d) Except as provided in Section 2.4(c) above with regard
to the amount of carried Reserves relating to the Center E&S Business, any
objections regarding the Closing Financial Data remaining in dispute at the
conclusion of the Resolution Period ("Unresolved Changes") shall be submitted to
Arthur Andersen or to such other certified public accounting firm of national
reputation as the Purchaser and the Seller shall agree (but not KPMG or PwC)
(the "Neutral Auditors"). All Unresolved Changes shall be submitted to the
Neutral Auditors no later than ten (10) days after conclusion of the Resolution
Period. Each party agrees to execute, if requested by the Neutral Auditors, a
reasonable engagement letter. All fees and expenses relating to the work, if
any, to be performed by the Neutral Auditors shall be borne pro rata by the
Seller and the Purchaser in proportion to the allocation of the dollar amount of
the Unresolved Changes between the Seller and the Purchaser made by the Neutral
Auditors such that the prevailing party pays a lesser proportion of the fees and
expenses. The Neutral Auditors shall act as an arbitrator to determine, based on
the provisions of this Section 2.4, only the Unresolved Changes but their review
of any Unresolved Changes shall be subject to the same limitations as are
applicable to the Purchaser pursuant to Section 2.4(c) above. The Neutral
Auditors' determination of the Unresolved Changes shall be made within thirty
(30) days after the submission of the Unresolved Changes thereto, and shall be
set forth in a written statement
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<PAGE> 21
delivered to the Seller and the Purchaser. The Closing Financial Data shall then
be revised to reflect the Neutral Auditor's determination of the Unresolved
Changes, whereupon the Closing Balance Sheet shall become the Final Closing
Balance Sheet, and the Final Closing Balance Sheet and the calculation of
Adjusted Closing Stockholder's Equity shall be final, binding and conclusive for
purposes of determining the Purchase Price.
(e) Once the Final Closing Balance Sheet and the
calculation of Adjusted Closing Stockholder's Equity are available, the Purchase
Price shall be determined. If the Purchase Price exceeds the Estimated Purchase
Price, the Purchaser shall pay to the Seller in cash, by wire transfer to an
account specified by the Seller, the amount equal to the Purchase Price less the
Estimated Purchase Price, together with interest on such amount at the
Applicable Rate from the Closing Date through the date of payment. If the
Purchase Price is less than the Estimated Purchase Price, the Seller shall pay
to the Purchaser in cash, by wire transfer to an account specified by the
Purchaser, the amount equal to the Estimated Purchase Price less the Purchase
Price, together with interest on such amount at the Applicable Rate from the
Closing Date through the date of payment. Such payment by the Purchaser to the
Seller, or by the Seller to the Purchaser, as the case may be, shall be made
within five (5) Business Days after the date that the Final Closing Balance
Sheet becomes available.
(f) The Purchaser and the Seller shall make good faith
efforts to comply with the timing and response requirements set forth in this
Section 2.4, but, in the absence of bad faith, neither party shall be deemed to
have waived its rights under the Purchase Price adjustment provisions as
contemplated herein on the basis of technical violations of timing or response
requirements.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser
as follows:
3.1. Organization and Qualification of the Seller. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of Delaware and has all requisite power and authority to own,
lease and operate its assets and Properties (including, without limitation, the
Shares) and to conduct its business as currently being conducted. The Seller is
duly qualified and in good standing as a foreign corporation in all
jurisdictions in which the nature of its business or the ownership of its
Properties makes such qualification necessary, except where the failure to be so
qualified or in good standing would not be reasonably likely to, individually or
in the aggregate, have a Material Adverse Effect or a material adverse effect on
the ability of the Seller to execute and deliver this Agreement, to perform its
obligations hereunder or to consummate the transactions contemplated hereby.
3.2. Authorization, Validity and Enforceability. The Seller
has all requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby, including, without limitation, the sale of the
Shares hereunder. The execution, delivery and performance of this
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<PAGE> 22
Agreement by the Seller and the consummation of the transactions contemplated
hereby by the Seller have been duly and validly authorized by all necessary
corporate action on the part of the Seller and no other corporate proceedings on
the part of the Seller (including any proceedings on the part of the
stockholders of the Seller) are necessary to authorize the execution, delivery
and performance of this Agreement or the consummation of any of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Seller and constitutes the legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms.
3.3. No Conflicts. Assuming compliance with the matters
referred to in Section 3.4 below, except as set forth in Schedule 3.3, the
execution, delivery and performance by the Seller of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with, result in any breach or violation of, constitute a default under
(or an event that with the giving of notice or the lapse of time or both would
constitute a default under), or give rise to any right of termination or
acceleration of any right or obligation of the Seller, the Company or any of the
Continuing Subsidiaries under, or result in the creation or imposition of any
Lien upon any assets or Properties (including, without limitation, the Shares)
of the Seller, the Company or any of the Continuing Subsidiaries by reason of
the terms of (a) the certificate or articles of incorporation or bylaws of the
Seller, the Company or any of the Continuing Subsidiaries, (b) any material
Contract to which any of the Seller, the Company or its Subsidiaries is a party
or by or to which any of them or their assets or Properties (including, without
limitation, the Shares) may be bound or subject, (c) any applicable order, writ,
judgment, injunction, award, decree, law, statute, ordinance, rule or regulation
or (d) any other Permit of any of the Seller, the Company or any of the
Continuing Subsidiaries other than, in the case of each of (b), (c) and (d), any
such items that would not be reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect or a material adverse effect on the
ability of the Seller to execute and deliver this Agreement, to perform its
obligations hereunder or to consummate the transactions contemplated hereby.
3.4. Consents and Approvals. Except as required under the
HSR Act and as set forth in Schedule 3.4, which includes a list of all Seller
Insurance Approvals, no consent, approval, authorization, license or order of,
registration or filing with, or notice to, any Governmental Entity or any other
Person (collectively, "Consents") is necessary to be obtained, made or given by
the Seller, the Company or its Subsidiaries in connection with the execution and
delivery by the Seller of this Agreement, the performance by the Seller of its
obligations hereunder and the consummation of the transactions contemplated
hereby, other than such Consents which, if not obtained or made, would not be
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect or a material adverse effect on the ability of the Seller to execute and
deliver this Agreement, to perform its obligations hereunder or to consummate
the transactions contemplated hereby.
3.5. Organization and Qualification of the Company and the
Continuing Subsidiaries. Schedule 3.5 lists each of the Company's directly and
indirectly owned Continuing Subsidiaries and identifies the Insurance
Subsidiaries and the Agency Subsidiaries. Except as set forth in Schedule 3.5,
the Company and each of its Continuing Subsidiaries are corporations duly
16
<PAGE> 23
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all requisite corporate power
and authority to own their Properties and to conduct their respective businesses
as currently being conducted. The Company and each of its Continuing
Subsidiaries are duly qualified and in good standing as a foreign corporation in
all jurisdictions in which the nature of their respective businesses or the
ownership of their respective Properties makes such qualification necessary, in
each case with such exceptions as would not be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect. All such
jurisdictions are listed in Schedule 3.5. The Seller has heretofore made
available to the Purchaser true and complete copies of the certificate of
incorporation, including all amendments thereto, and bylaws, as currently in
effect, of the Company and each of the Continuing Subsidiaries. Except as set
forth in Schedule 3.5, neither the Company nor any of the Continuing
Subsidiaries has any material interest in any Person or other equitable or
proprietary interest in any other entity or enterprise (other than those held in
the Investment Portfolio).
3.6. Capitalization of Company. (a) Schedule 3.6 sets forth
the designation, par value and the number of authorized, issued and outstanding
shares of capital stock of the Company. The issued and outstanding capital stock
of the Company consists solely of the Shares. Except as set forth in Schedule
3.6, no other class of equity securities, preferred stock, bonds, debentures,
notes, other evidences of indebtedness for borrowed money or other securities of
any kind of the Company (except for the Shares) is authorized, issued or
outstanding. All of the Shares are duly authorized, validly issued, fully paid
and non-assessable, and are owned of record and beneficially by the Seller, free
and clear of any Lien (other than any restrictions on the transferability of the
Shares expressly provided in Applicable Insurance Codes, the Securities Act and
any applicable state securities laws).
(b) The Company has not issued any securities in violation
of any preemptive or similar rights. Except for this Agreement and except as set
forth in Schedule 3.6, there are no subscriptions, options, warrants, calls,
commitments, preemptive rights or other rights of any kind (absolute, contingent
or otherwise) to purchase or otherwise receive, nor are there any securities or
instruments of any kind convertible into or exchangeable for, any capital stock
(including, without limitation, outstanding, authorized but unissued,
unauthorized, treasury or other shares thereof) or other equity interest or
evidence of indebtedness for borrowed money of the Company. Except as set forth
in Schedule 3.6, neither the Company nor the Seller is a party to any agreement
with a third party which places any restriction upon, or which creates any
voting trust, proxy, or other agreement or understanding with respect to, the
voting, purchase, redemption, acquisition or transfer of, or the declaration or
payment of any dividend or distribution on, the Shares.
3.7. Capitalization of Subsidiaries. (a) Schedule 3.7 sets
forth the designation, par value and the number and authorized, issued and
outstanding shares of capital stock for each of the Continuing Subsidiaries and
the number and percentage ownership interest of the Company in each such
Continuing Subsidiary. No other class of equity securities, preferred stock,
bonds, debentures, notes, other evidences of indebtedness for borrowed money or
other securities of any kind of any of the Continuing Subsidiaries is
authorized, issued or outstanding. All of the outstanding shares of capital
stock of each of the Continuing Subsidiaries are duly
17
<PAGE> 24
authorized, validly issued, fully paid and non-assessable. Except as set forth
in Schedule 3.7, all of the outstanding shares of capital stock of each of the
Continuing Subsidiaries is owned of record and beneficially by the Company or
one or more of its Continuing Subsidiaries, in each case free and clear of any
Lien.
(b) The Continuing Subsidiaries have not issued any
securities in violation of any preemptive or similar rights. Except as set forth
in Schedule 3.7, there are no subscriptions, options, warrants, calls,
commitments, preemptive rights or other rights of any kind (absolute, contingent
or otherwise) to purchase or otherwise receive, nor are there any securities or
instruments of any kind convertible into or exchangeable for, any capital stock
(including, without limitation, outstanding, authorized but unissued,
unauthorized, treasury or other shares thereof) or other equity interest or
evidence of indebtedness for borrowed money of any of the Continuing
Subsidiaries. Except as set forth in Schedule 3.7, neither the Company nor any
of the Continuing Subsidiaries is a party to any agreement with a third party
(other than the Company or another Continuing Subsidiary) which places any
restriction upon, or which creates any voting trust, proxy, or other agreement
or understanding with respect to, the voting, purchase, redemption, acquisition
or transfer of, or the declaration or payment of any dividend or distribution
on, any shares of any of the Continuing Subsidiaries' capital stock. To the
knowledge of the Company, except as set forth in Schedule 3.7 or as provided in
the Applicable Insurance Codes, there are no restrictions upon, or voting
trusts, proxies, or other agreements or understandings with respect to, the
voting, purchase, redemption, acquisition or transfer of, or the declaration or
payment of any dividend or distribution on, any shares of capital stock of any
of the Continuing Subsidiaries.
3.8. Title to Shares. The sale and delivery of the Shares
as contemplated by this Agreement are not subject to any preemptive right or
right of first refusal or other right or restriction (other than any
restrictions on transferability of the Shares provided in the Applicable
Insurance Codes, the Securities Act and any applicable state securities laws).
Upon the delivery of the Shares as provided in Section 2.3, the Purchaser will
acquire title to each of the Shares, free and clear of any Lien (other than any
restrictions on transferability of the Shares expressly provided in the
Applicable Insurance Codes, the Securities Act and any applicable state
securities laws).
3.9. Corporate Minutes. The Seller has heretofore made
available to the Purchaser true and complete copies, or the complete original,
of the minute books of the Company and its Continuing Subsidiaries.
3.10. Financial Statements. (a) The Seller has heretofore
delivered to the Purchaser true and complete copies of the Audited Financial
Statements, the Interim Financial Statements, the Additional Annual Financial
Statements, the Additional Interim Financial Statements and the Statutory
Statements.
(b) The Audited Financial Statements were prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods involved (except as may be indicated in the notes
thereto regarding the adoption of new
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accounting policies). The Audited Financial Statements have been audited by
KPMG, and present fairly in all material respects the consolidated financial
position of the Company and its Subsidiaries at the respective dates thereof and
the consolidated results of operations of the Company and its Subsidiaries for
the respective periods then ended. The Additional Annual Financial Statements
were prepared in accordance with GAAP consistently applied throughout the
periods involved. The Additional Annual Financial Statements do not contain any
footnote disclosures but otherwise are fairly stated in accordance with GAAP in
all material respects, in relation to the Audited Financial Statements taken as
a whole.
(c) The Interim Financial Statements were prepared in
accordance with GAAP consistently applied throughout the periods involved and in
a manner consistent with that employed in the Audited Financial Statements. The
Interim Financial Statements do not contain any footnote disclosures and are
subject to normal recurring year-end adjustments, but otherwise present fairly
in all material respects the consolidated financial condition and consolidated
results of operations of the Company and its Subsidiaries as of the dates and
for the periods indicated therein except as otherwise set forth therein. The
Additional Interim Financial Statements were prepared in accordance with GAAP
consistently applied throughout the periods involved and in a manner consistent
with that employed in the Additional Annual Financial Statements. The Additional
Interim Financial Statements do not contain any footnote disclosures and are
subject to normal recurring year-end adjustments, but otherwise are fairly
stated in accordance with GAAP in all material respects, in relation to the
Interim Financial Statements taken as a whole.
(d) The Statutory Statements were prepared in accordance
with SAP of the Home Insurance Department of each Insurance Subsidiary
consistently applied throughout the periods involved (except as may be indicated
in the notes thereto regarding the adoption of new accounting policies), have
been audited by KPMG and present fairly, in accordance with SAP of the Home
Insurance Department of each Insurance Subsidiary, the statutory financial
position of the Insurance Subsidiaries at the respective dates thereof and the
results of operations of the Insurance Subsidiaries for the respective periods
then ended, except that the quarterly Statutory Statements of the individual
Insurance Subsidiaries have not been audited and are subject to normal recurring
year-end audit adjustments. The Statutory Statements complied in all material
respects with SAP of the Home Insurance Department of each Insurance Subsidiary
and were complete and correct in all material respects when filed, and no
material deficiency has been asserted in writing with respect to any of the
Statutory Statements by any insurance regulatory authority.
3.11. Liabilities. (a) Except for Liabilities pursuant to
Insurance Contracts, (i) neither the Company nor any of its Subsidiaries has any
direct or indirect indebtedness, liability, or other obligation, whether fixed
or unfixed, secured or unsecured, accrued, absolute, contingent or otherwise
("Liabilities") that would be required by GAAP to be and were not reflected or
reserved against in the Latest Balance Sheet, and no such Liabilities have
arisen since December 31, 1998 and (ii) to the knowledge of the Seller, neither
the Company nor any of its Subsidiaries had any such Liabilities that are
material whether or not required by GAAP to be reflected or reserved against in
the Latest Balance Sheet, and no such Liabilities have arisen since December 31,
1998, other than in the case of clauses (i) and (ii), (A) Liabilities set forth
in Schedule 3.11,
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(B) Liabilities incurred since December 31, 1998 in the ordinary course of
business and consistent with past practice, none of which, individually or in
the aggregate, has had or would be reasonably likely to have a Material Adverse
Effect, or (C) Liabilities arising under or resulting from this Agreement;
provided, however, that no representation is made in this Section 3.11 as to
Reserves.
(b) Except as set forth in Schedule 3.11, no proceedings
related to rate roll-backs or premium refunds are pending against any of the
Insurance Subsidiaries or, to the knowledge of the Seller, threatened, except
for proceedings which would not be reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect. Each of the Company and its Insurance
Subsidiaries has paid in full all guaranty fund assessments. Except for regular
periodic assessments in the ordinary course of business or assessments based on
developments which are publicly known within the insurance industry, no claim or
assessment is pending or, to the knowledge of the Seller, threatened against any
Insurance Subsidiary which is peculiar or unique to such Insurance Subsidiary by
any state insurance guaranty association in connection with such association's
fund relating to insolvent insurers, except for such claims and assessments
which, if determined adversely, would not be reasonably likely to, individually
or in the aggregate, have a Material Adverse Effect.
3.12. Absence of Changes. (a) Except as set forth in
Schedule 3.12 or any other Schedule hereto, since September 30, 1999, no change
or event has occurred or condition exists that, individually or in the
aggregate, has had or would be reasonably likely to have a Material Adverse
Effect.
(b) Except as set forth in Schedule 3.12 or any other
Schedule hereto and except for the transactions contemplated hereby, between
December 31, 1998 through the date hereof, the Company and its Continuing
Subsidiaries have operated their businesses in the ordinary course of business
consistent with past practice.
(c) Except as set forth in Schedule 3.12 and for the
transactions contemplated hereby, since December 31, 1998, neither the Company
nor any of the Continuing Subsidiaries has:
(i) amended its certificate or articles of incorporation,
bylaws or other charter or organization document, or merged with or
into or consolidated with any other Person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights of its outstanding capital stock;
(ii) except pursuant to Insurance Contracts and except for
borrowings made under the Credit Agreement, the Predecessor Credit
Agreement and the Predecessor Letter of Credit Agreement, issued or
sold, or issued or sold any options, warrants, calls or other rights
of any kind to purchase or otherwise receive, or issued or sold any
securities or instruments convertible into or exchangeable for, or
entered into any Contract to issue or sell, any capital stock or
other equity interest or any bonds, debentures, notes, other
evidences of indebtedness for borrowed money or other securities of
any kind, including, without limitation, any stock options or stock
appreciation rights;
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<PAGE> 27
(iii) declared, paid or set aside any sum for any dividends
or declared or made any other distributions of any kind (whether in
cash, stock, Property, any combination thereof or otherwise) to its
stockholders, or made any direct or indirect redemption, retirement,
purchase or other acquisition of any shares of its capital stock or
other equity interests or any bonds, debentures, notes, other
evidences of indebtedness for borrowed money, options, warrants,
other rights to acquire capital stock or other securities of any
kind;
(iv) other than in amounts below $100,000 individually or
$500,000 in the aggregate, incurred any indebtedness for borrowed
money or entered into any Contract to borrow money or guarantee any
Liability for borrowed money;
(v) made any material change in its accounting methods or
practices (other than with respect to the establishment of Reserves)
or made any material change in depreciation or amortization policies
or rates adopted by it;
(vi) made any material changes in its indemnity,
underwriting, reinsurance, marketing, investment or claims adjusting,
settlement, processing or payment policies and practices or the lines
of business in which it engages, or types of risks it underwrites, or
the geographic areas in which it conducts business;
(vii) suffered any damage, destruction, casualty or loss,
whether covered by insurance or not, affecting any of its Property,
which has had or would be reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect;
(viii) terminated, failed to renew, received any written
notice (that was not subsequently withdrawn) of termination or
failure to renew, or intention to terminate or fail to renew,
amended, altered, modified, suffered the occurrence of any default
under, failed to perform any Liabilities or obligations under, or
waived or released any rights under, any Contract (excluding
Insurance Contracts and excluding Plans) which has had or would be
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect;
(ix) forgiven or permitted any cancellation of any material
claim, debt or account receivable, or effected the release of any
material right or claim;
(x) directly or indirectly made any payment, discharge or
satisfaction of any Liability before the same became due in
accordance with its terms, other than in the ordinary course of
business consistent with past practice, or as fully reflected or
reserved against in the Audited Financial Statements, the Interim
Financial Statements and the Statutory Statements for periods ended
prior to the date hereof;
(xi) made any revaluation of any assets or Properties or
write-down or write-off of the value of any assets or Properties or
change in the basis of valuation thereof (including, without
limitation, any receivables) in an amount in excess of $75,000
individually or $350,000 in the aggregate;
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(xii) made any loan or advance to any Person, other than
loans or advances made in the ordinary course of business consistent
with past practice, in an amount below $75,000 individually or
$350,000 in the aggregate;
(xiii) other than in the ordinary course of business
consistent with past practice, increased or agreed to increase any
salary, wages, bonus, severance, compensation, pension or other
benefits payable or to become payable, or granted any severance or
termination payments or benefits, to any of its current or former
officers, directors, Employees, consultants, agents or other
representatives, or increased any of the above forms of compensation
for the benefit of any class of Employees generally;
(xiv) entered into any collective bargaining agreement or
any other Contract with any labor union or association representing
any Employee, or been subjected to any strike, picket, work stoppage,
work slowdown, labor dispute or other labor trouble;
(xv) entered into any joint venture or partnership
arrangement with any Person;
(xvi) entered into any material Contract or transaction
(including, without limitation, any capital expenditure, capital
financing or sale of assets, but excluding Insurance Contracts and
Plans);
(xvii) purchased or agreed to purchase, or sold or agreed
to sell, or leased or agreed to lease, any assets or Properties of
any Person, other than in the ordinary course of business;
(xviii) accelerated the collection, or sale to third
parties, of any material amounts of receivables, or delayed the
payment of any material amounts of payables; or
(xix) entered into any Contract, whether in writing or
otherwise, to do any of the foregoing.
3.13. Legal Proceedings. Except as set forth in Schedule
3.13, there is no action, suit, claim, arbitration, Environmental Claim,
proceeding, inquiry or investigation pending or, to the knowledge of the Seller,
threatened against the Seller, the Company or its Subsidiaries or any of their
respective assets or Properties, by or before any court, other Governmental
Entity or arbitrator, other than actions, suits, claims or proceedings (i)
arising out of, or based upon, Insurance Contracts (except for such actions,
suits, claims or proceedings that assert a cause of action based upon action
allegedly taken in bad faith by the Company or by one of its Continuing
Subsidiaries or, to the knowledge of the Seller, by any agent or broker acting
on behalf of the Company or any of its Continuing Subsidiaries which, if
adversely determined, would be reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect) or (ii) which, if adversely
determined, would not be reasonably likely to, individually or in the aggregate,
have a Material Adverse Effect. Except as set forth in Schedule 3.13, there is
no outstanding order, writ, judgment, injunction, fine, award, determination or
decree of any court, other Governmental Entity or arbitrator against the Seller,
the Company or its Subsidiaries or any
22
<PAGE> 29
of their respective assets or Properties which would be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect.
3.14. Compliance with Laws; Permits. Except as set forth on
Schedule 3.14, each of the Company and the Subsidiaries is in compliance with
(a) the terms of its certificate or articles of incorporation, bylaws or other
charter or organization documents, (b) all applicable laws, statutes,
ordinances, rules, regulations or other legal requirements, whether federal,
state, local or foreign, (c) all applicable orders, writs, judgments,
injunctions, awards, determinations and decrees of any court, other Governmental
Entity or arbitrator and (d) its Permits (other than Insurance Permits, which
are the subject of Section 3.15 and as to which no representations are made in
this Section 3.14), except, in the case of clauses (b), (c) and (d), where the
failure to comply would not be reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 3.14,
since December 31, 1996, neither the Seller nor any senior officer of the
Company or any of the Continuing Subsidiaries has received written notice of any
violation of, or default under, (a) any law, statute, ordinance, rule,
regulation or other legal requirement, (b) any order, writ, judgment,
injunction, award, determination or decree of any court, other Governmental
Entity or arbitrator, or (c) any of its Permits, except, in the case of clauses
(a), (b) and (c), where the violation or default would not be reasonably likely
to, individually or in the aggregate, have a Material Adverse Effect. Each of
the Company and the Continuing Subsidiaries has all Permits necessary for the
ownership of its assets and Properties and to the conduct of its business which
if violated or not obtained would be reasonably likely to, individually or in
the aggregate, have a Material Adverse Effect (a "Material Permit"), and all
such Material Permits are valid and in full force and effect. Except as set
forth in Schedule 3.14, there is no action, proceeding, inquiry or investigation
pending or, to the knowledge of the Seller, threatened for or contemplating the
suspension, modification, cancellation, revocation or nonrenewal of any such
Material Permit, and the Seller has no knowledge of any existing fact or
circumstance which (with or without notice or lapse of time or both) would be
reasonably likely to result in the suspension, modification, limitation,
cancellation, revocation or nonrenewal of any such Material Permit.
3.15. Insurance Permits; Regulatory Matters. Each of the
Insurance Subsidiaries possesses all Insurance Permits necessary for the conduct
of its insurance or reinsurance businesses, as applicable, in each of the
jurisdictions in which it conducts or operates such business in the manner now
conducted (the "Material Insurance Permits"). Schedule 3.15 sets forth a true
and complete list of the Material Insurance Permits of the Insurance
Subsidiaries. The Seller has heretofore made available to the Purchaser true and
complete copies of the Material Insurance Permits. All such Material Insurance
Permits are valid and in full force and effect. Except as set forth in Schedule
3.15, there is no action, proceeding, inquiry or investigation pending or, to
the knowledge of the Seller, threatened for or contemplating the suspension,
modification, cancellation, revocation or nonrenewal of any Material Insurance
Permit. Assuming the Applicable Insurance Departments approve the transactions
contemplated hereby, the consummation of the transactions contemplated hereby
will not result in the suspension, modification, limitation, cancellation,
revocation or nonrenewal of any Material Insurance Permit. None of the Insurance
Subsidiaries is engaged in any insurance or reinsurance business in any
jurisdiction in which it is required to be authorized or qualified to transact
such
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<PAGE> 30
business where it is not so authorized or qualified. Except for compliance with
periodic renewal procedures, and assuming the Applicable Insurance Departments
approve the transactions contemplated hereby, no Consents are required to permit
the Insurance Subsidiaries to continue their businesses as presently conducted
following the Closing, except where the failure to obtain such Consents would
not be reasonably likely to, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth in Schedule 3.15, (i) all reports,
statements, documents, registrations, filings and submissions to state insurance
regulatory authorities complied in all respects with applicable law in effect
when filed and (ii) no deficiencies have been asserted by any such regulatory
authority with respect to such reports, statements, documents, registrations,
filings or submissions that have not been satisfied, except for such failures to
comply and such deficiencies which would not be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect.
3.16. Policy Forms and Rates. All policies and Contracts of
insurance, reinsurance or retrocessional coverage issued by the Insurance
Subsidiaries or which are being issued by the Insurance Subsidiaries and any and
all marketing materials are in compliance (and at their respective dates of
issuance were in compliance) with all applicable laws and, to the extent
required under applicable laws, are on forms approved by applicable insurance
regulatory authorities and other Governmental Entities in the jurisdiction where
issued or have been filed with and not objected to by such regulatory
authorities and other Governmental Entities within the period provided for
objection, except for such failures to comply and such failures to be approved
which would not be reasonably likely to, individually or in the aggregate, have
a Material Adverse Effect. Any premium rates with respect to policies and
Contracts of insurance, reinsurance or retrocession currently issued by the
Insurance Subsidiaries which are required to be filed with or approved by
insurance regulatory authorities or other Governmental Entities have been so
filed or approved and premiums charged conform thereto and comply (and complied
at the relevant time) with the insurance laws applicable thereto, except for
such failures to file or be approved and for such failures to conform which
would not be reasonably likely to, individually or in the aggregate, have a
Material Adverse Effect.
3.17. Agents and Producers; Fronting. (a) Schedule 3.17
sets forth each Contract in effect as of the date hereof with any agent, broker,
intermediary, manager or producer ("Broker") with which any of the Insurance
Subsidiaries has a written agreement to place or sell any insurance or
reinsurance policies on its behalf. Except as set forth in Schedule 3.17, no
single Broker generated more than 5% of the aggregate gross written premium of
the Insurance Subsidiaries during the years ended December 31, 1997 or December
31, 1998. To the knowledge of the Seller, each Broker with which any of the
Insurance Subsidiaries has a written agreement is duly licensed (to the extent
that such licenses are required) in each jurisdiction in which the Broker places
or sells insurance or reinsurance on behalf of the Insurance Subsidiaries, and
each such Broker is duly authorized and appointed by the applicable Insurance
Subsidiary pursuant to applicable insurance and reinsurance laws, rules and
regulations, except for failures of such Brokers to be so licensed or so
authorized and appointed as would not be reasonably likely to, individually or
in the aggregate, have a Material Adverse Effect. All Contracts between any
Broker, on the one hand, and any Insurance Subsidiary, on the other hand, are in
compliance in all material respects with all applicable insurance and
reinsurance laws, rules and regulations.
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<PAGE> 31
To the knowledge of the Seller, no Broker with which any of the Insurance
Subsidiaries has a written agreement is the subject of, or party to, any
disciplinary action or proceeding under any applicable insurance or reinsurance
laws, rules and regulations. Except as otherwise set forth in Schedule 3.17 or
as a result of the identity of the Purchaser as the buyer of the Company, since
December 31, 1998, no Broker who individually accounted for more than 5%, and no
Brokers who in the aggregate accounted for more than 10%, of the aggregate gross
written premiums of the Company and the Insurance Subsidiaries, taken as a
whole, for the year ended December 31, 1998 has given or been given written
notice of termination or, to the knowledge of the Seller, threatened or been
threatened with termination, or threatened or been threatened with a substantial
reduction in the amount of premiums to be written by such Person on behalf of
the Insurance Subsidiaries. Except as set forth on Schedule 3.17, there is no
material dispute pending or, to the knowledge of the Seller, threatened against
the Company or any of its Subsidiaries by any Broker.
(b) Schedule 3.17 sets forth a complete and accurate list
of the pools, general agency Contracts and fronting Contracts providing for
insurance services to which any Insurance Subsidiary is a party as of the date
hereof. Except as set forth in Schedule 3.17, each of such Contracts may be
terminated at the Purchaser's option on or within ninety (90) days after the
Closing Date without the payment of penalty.
(c) Except as set forth in Schedule 3.17, neither the
Company nor any of the Insurance Subsidiaries has any managing general agency
contracts, third party administration contacts or other similar arrangements or
commitments, or amendments, supplements or modifications thereto, under which an
independent party has authority to perform underwriting analysis and issue
insurance or reinsurance policies on behalf of any of the Insurance Subsidiaries
or otherwise bind any of the Insurance Subsidiaries without prior approval by
the applicable Insurance Subsidiary or pursuant to which any underwriting claims
settlement or distribution authority is delegated other than contracts or
similar arrangements or commitments with independent Brokers who produced gross
written premiums of less than $50,000 for the period from January 1, 1999
through September 30, 1999.
3.18. Reserves. Each of the Insurance Subsidiaries owns
assets that qualify as admitted assets under Applicable Insurance Codes in an
amount at least equal to the sum of such Reserves plus its minimum statutory
capital and surplus as required under Applicable Insurance Codes. The Seller has
delivered or made available to the Purchaser copies of all work papers used as
the basis for establishing the reserves for the Company and the Insurance
Subsidiaries as of December 31, 1997 and December 31, 1998, respectively.
(b) The Seller has delivered or made available to the
Purchaser true and complete copies of all actuarial reports, actuarial
certificates and loss and loss adjustment expense reserve reports prepared and
signed by Dale F. Ogden & Associates and any other report prepared by any
third-party actuarial consultant on behalf of or made available to the Seller or
any of its Affiliates, including the Company and its Subsidiaries (other than
the report identified in Schedule 3.18), in each case relating to the adequacy
of the Reserves of any of the Insurance Subsidiaries for any period ended on or
after December 31, 1995 (the "Actuarial Analyses").
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<PAGE> 32
The information and data furnished by the Company and by the Insurance
Subsidiaries to their independent actuaries in connection with the preparation
of the Actuarial Analyses was, taken as a whole, accurate and complete in all
material respects. To the knowledge of the Seller, each Actuarial Analysis was
based upon an inventory of policies in force for the Company and the Insurance
Subsidiaries, as the case may be, at the relevant time of preparation (which
inventory was accurate in all material respects), was prepared using appropriate
modeling procedures accurately applied and in conformity with generally accepted
actuarial standards consistently applied, and the projections contained therein
were properly prepared in accordance with the assumptions stated therein.
3.19. Reinsurance and Retrocession Agreements. (a) Schedule
3.19 contains a true and complete list of all treaties regarding the ceding of
reinsurance or retrocession in effect as of December 31, 1998 (including any
terminated or expired treaty or agreement under which there remains any
outstanding recoverable) to which any of the Insurance Subsidiaries is a party
or by or to which any of them are bound or subject, as each such treaty may have
been amended, modified or supplemented (each, an "Outbound Reinsurance
Contract"), together with a list setting forth the amount recoverable under such
Outbound Reinsurance Contracts. Except as set forth on Schedule 3.19, during the
period from December 31, 1998 through the date hereof, none of the Outbound
Reinsurance Contracts have been commuted or amended in any material respect and
neither the Company nor any Insurance Subsidiary has entered into any Outbound
Reinsurance Contract. Each of the foregoing Outbound Reinsurance Contracts is a
valid and binding obligation of the parties thereto, and is in full force and
effect enforceable in accordance with its terms. None of the Insurance
Subsidiaries nor, to the knowledge of the Seller, any other party thereto is in
default in any material respect with respect to any such Outbound Reinsurance
Contract. Except as set forth in Schedule 3.19, no Reinsurance Contract in force
as of the date hereof (other than property catastrophe or casualty clash
policies) or Outbound Reinsurance Contract in force as of the date hereof
contains any provision providing that any such other party thereto may
terminate, cancel or commute the same by reason of the transactions contemplated
by this Agreement.
(b) Except as set forth in Schedule 3.19 or as reflected on
Schedule F of the Statutory Statements, each of the Insurance Subsidiaries is
entitled under applicable law to take full credit in its Statutory Statements
for all amounts recoverable by it pursuant to any Reinsurance Contracts, and all
such amounts recoverable have been properly recorded in the books and records of
account of the Insurance Subsidiaries and are properly reflected in the
Statutory Statements. Except as set forth in Schedule 3.19, the Seller has no
knowledge that any such amounts recoverable by the Company or the Insurance
Subsidiaries are not fully collectible in due course, and has no knowledge of
any disputes as to reinsurance or retrocessional coverage under any Reinsurance
Contract. Except as set forth in Schedule 3.19, neither the Company nor its
Subsidiaries has received written notice that any other party to any Reinsurance
Contracts intends not to perform under any such Reinsurance Contracts, and, to
the knowledge of the Seller, the financial condition of any other party to any
Reinsurance Contracts listed on Schedule 3.19 pursuant to which the Company and
its Subsidiaries have ceded any premiums is not impaired to the extent that a
default thereunder is reasonably anticipated.
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3.20. Contracts. (a) Schedule 3.20 contains a true and
complete list of all of the following Contracts (excluding Insurance Contracts,
Contracts which are the subject of Section 3.17, and excluding Plans) to which
any of the Company or its Continuing Subsidiaries is a party or by or to which
any of them or their assets or Properties are bound or subject, as each such
Contract may have been amended, modified or supplemented:
(i) material partnership or joint venture Contracts;
(ii) Contracts containing any covenant or provision
limiting the freedom or ability of the Company or any of the
Continuing Subsidiaries to engage in any line of business, engage in
business in any geographical area or compete with any other Person;
(iii) other than the Credit Agreement, Contracts, involving
amounts in excess of $500,000, relating to the borrowing of money, or
the direct or indirect guaranty of any obligation for borrowed money,
or Contracts to service the repayment of borrowed money or any other
Liability in respect of indebtedness for borrowed money of any other
Person, including, without limitation, any Contract relating to (A)
the maintenance of compensating balances, (B) any lines of credit,
(C) the advance of any funds to any other Person outside the ordinary
course of business, (D) the payment for Property, products or
services that are not conveyed, delivered or rendered to any such
party or (E) any obligation to keep-well, make-whole or maintain
working capital or earnings or perform similar requirements;
(iv) lease, sublease, rental, licensing, use or similar
Contracts with respect to personal Property providing for annual
rental, license, or use payments in excess of $200,000 or the
guaranty of any such lease, sublease, rental or other Contracts;
(v) Contracts (A) outside the ordinary course of business
for the purchase, acquisition, sale or disposition of any assets or
Properties or (B) for the grant to any Person (excluding the Company
or its Subsidiaries) of any option or preferential rights to purchase
any assets or Properties;
(vi) employment Contracts with any current or former
officer, director or Employee providing for compensation of $100,000
or more per annum (the name, position or capacity and rate of
compensation of each such Person and the expiration date of each such
Contract being accurately set forth in Schedule 3.20);
(vii) Contracts (other than employment Contracts) with any
current or former officer, director, shareholder, Employee,
consultant, agent or other representative or, to the knowledge of the
Seller, with an entity in which any of the foregoing is a controlling
person;
(viii) Contracts pursuant to which there is either a
current or future obligation of the Company or any of its Continuing
Subsidiaries to make payments in excess of $200,000 in any
twelve-month period (other than Contracts relating to investments in
the ordinary course of business and other than leases of real
Property);
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(ix) Contracts under which the Company or any of its
Subsidiaries agrees to indemnify any Person or to share Tax liability
of any Person; and
(x) any other Contract material to the business of the
Company or its Continuing Subsidiaries.
(b) Schedule 3.20 also lists and describes the status of
all Contracts currently in negotiation or proposed by the Company or any of its
Continuing Subsidiaries of a type that, if entered into by the Company or any of
its Continuing Subsidiaries, as the case may be, would be required to be set
forth in Schedule 3.20 or in any other Schedule hereto ("Proposed Contracts");
(c) The Seller has heretofore delivered or made available
to the Purchaser true and complete copies of all of the Material Contracts set
forth in Schedule 3.20. Each of the Material Contracts is a valid and binding
obligation of the Company and its Continuing Subsidiaries party thereto and, to
the knowledge of the Seller, is a valid and binding obligation of any other
Person party thereto, and is in full force and effect enforceable against the
parties thereto in accordance with its terms. Except as specified in Schedule
3.20, none of the Company or any of the Insurance Subsidiaries is in breach or
violation of, or default under, any of the Material Contracts, except for such
breaches, violations and defaults as would not be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect.
3.21. Property and Assets. Schedule 3.21 contains a true
and complete list of (i) all real Property owned by the Company or any of the
Continuing Subsidiaries and (ii) all real Property leased by the Company or any
of the Continuing Subsidiaries for an annual lease amount in excess of $200,000
(the "Leased Real Property"). As of the date hereof, each of the Company or one
of the Continuing Subsidiaries has a valid leasehold interest in the applicable
Leased Property as provided in the applicable lease, in each case free and clear
of any Lien except (A) as set forth in Schedule 3.21, (B) Liens which
individually or in the aggregate do not materially interfere with the current
use of the Leased Real Property and (C) Permitted Liens.
3.22. Intellectual Property; Year 2000. (a) The Company
and/or each of the Continuing Subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, technology,
know-how, computer software programs or applications, and tangible or intangible
proprietary information or materials that are used in the business of the
Company and the Continuing Subsidiaries as currently conducted, except for any
such failures to own, be licensed or possess that would not be reasonably likely
to, individually or in the aggregate, have a Material Adverse Effect, and all of
such intellectual property is sufficient to conduct the business of the Company
and the Continuing Subsidiaries as currently conducted. All patents, trademarks,
trade names, service marks and copyrights owned by the Company and/or the
Continuing Subsidiaries are valid, except for any such items the absence of
which would not be reasonably likely to, individually or in the aggregate, have
a Material Adverse Effect.
(b) Except as disclosed in Schedule 3.22 or as would not be
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect:
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(i) neither the Company nor any of the Continuing
Subsidiaries is, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations
hereunder, in violation of any licenses, sublicenses or other
agreements as to which the Company or any of the Continuing
Subsidiaries is a party and pursuant to which the Company or any of
the Continuing Subsidiaries is authorized to use any third-party
patents, trademarks, service marks, or copyrights ("Third-Party
Intellectual Property Rights");
(ii) no claims with respect to (A) the patents, registered
and unregistered trademarks and service marks, registered copyrights,
trade names, and any applications therefor owned by the Company or
any of the Continuing Subsidiaries (the "Intellectual Property
Rights"); (B) any trade secret material to the Company or the
Continuing Subsidiaries; or (C) Third-Party Intellectual Property
Rights, are pending or, to the knowledge of the Seller, threatened by
any Person; and
(iii) to the knowledge of the Seller, there is no
unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including any
Employee.
(c) All computer systems and computer software used by the
Company or any of its Continuing Subsidiaries (i) recognize or are being adapted
so that, prior to December 31, 1999, they shall recognize the advent of the year
A.D. 2000 without any adverse change in operation associated with such
recognition, (ii) can correctly recognize or are being adapted so that they can
correctly recognize and manipulate date information relating to dates before, on
or after January 1, 2000, including but not limited to accepting date input,
performing calculations on dates or portion of dates and providing date output,
and the operation and functionality of such computer systems and such computer
software will not be adversely affected by the advent of the year A.D. 2000 or
any manipulation of data featuring information relating to dates before, on or
after January 1, 2000, and (iii) can suitably interact with other computer
systems and compute software in a way that does not compromise (y) its ability
to recognize the advent of the year A.D. 2000 correctly or (z) its ability to
recognize and manipulate date information relating to dates before, on or after
January 1, 2000 correctly (the operations of clauses (i), (ii) and (iii)
together, "Millennium Functionality"), except in each case for such computer
systems and computer software, the failure of which to achieve Millennium
Functionality would not be reasonably likely to, individually or in the
aggregate, have a Material Adverse Effect. As of the date hereof, the costs of
the adaptations necessary to achieve Millennium Functionality would not be
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect. The Company and the Insurance Subsidiaries are in compliance in all
material respects with all applicable state insurance department requests for
"Year 2000" filings. The Seller reasonably believes, after due inquiry, that the
suppliers, vendors, customers, insureds or reinsureds or other material third
parties used or served by the Company and its Continuing Subsidiaries are
addressing or will address Millennium Functionality in a timely manner, except
to the extent that a failure to address Millennium Functionality by any
supplier, vendor, customer, insureds or reinsureds or other material third party
would not be reasonably likely to, individually or in the aggregate, have a
Material Adverse Effect.
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3.23. Investments. Schedule 3.23 contains (a) a true and
complete list of all securities and other investments (excluding the BN Stock
and excluding the shares of capital stock of any of the Continuing Subsidiaries
owned by the Company or by any of the other Insurance Subsidiaries) owned by
each of the Company and the Insurance Subsidiaries as of November 30, 1999 (the
"Investments"), including the date of purchase, book value or amortized cost,
market value and carrying value thereof on the books and records of account of
such Persons as of such date and (b) a written statement of the current
investment programs (which contain the investment policies and guidelines) of
each such Person (the "Investment Guidelines"). Except as set forth in Schedule
3.23, neither the Company nor any of the Insurance Subsidiaries has received
written notice that any of the Investments owned by such Person is currently in
default in the payment of principal or interest or dividends. Except as set
forth in Schedule 3.23, all such Investments of the Insurance Subsidiaries
comply in all material respects with the Investment Guidelines and in all
material respects comply with all insurance laws and regulations of each of the
jurisdictions to which the Company and the Insurance Subsidiaries are subject
with respect thereto.
3.24. Employee Benefit Plans. (a) Schedule 3.24 contains a
true and complete list, as of the date hereof, of all material Plans. The Seller
has delivered or made available to the Purchaser true and complete copies of the
following documents: (i) each of the Plans listed in Schedule 3.24, including
all amendments thereto, or a written description if there is no formal Plan
document, any related trust agreements, group annuity contracts, insurance
policies or other funding agreements or arrangements; (ii) the most recent
determination letter, if any, from the IRS with respect to each of the Plans
that is intended to be qualified under section 401(a) of the Code or section
403(a) of the Code; (iii) the actuarial valuation, if any, with respect to each
of the Plans that is intended to be a tax-qualified defined benefit retirement
plan for the most recent plan year; (iv) the current summary plan description,
if any, for each of the Plans; and (v) the annual return/report on Form 5500,
5500-C or 5500-R, if any, for each of the Plans for the most recent plan year.
(b) Except as set forth in Schedule 3.24, (i) each of the
Plans has been administered in material compliance with the applicable
requirements, if any, of ERISA and the Code and in accordance with its terms;
(ii) all contributions which were due and payable on or before the Closing Date
under the terms of the Plans or applicable law (without regard to any waivers
granted under section 412 of the Code) have been made or will be made prior to
the Closing and adequate accruals have been provided for, or will be provided
for prior to the Closing, in the Audited Financial Statements for all other
contributions or amounts as may be required to be paid to the Plans with respect
to the periods which include the Closing Date or end prior thereto; (iii)
neither the Company nor any of the Continuing Subsidiaries is currently
obligated to make any change in benefits which would materially increase the
costs of maintaining any of the Plans; (iv) no "disqualified person" or "party
in interest" (as defined in section 4975 of the Code and section 3(14) of ERISA,
respectively) with respect to any Plan has engaged in any "prohibited
transaction," as such term is defined in section 4975 of the Code or section 406
of ERISA, for which there was not available an exemption or which could subject
the Company or its any of the Continuing Subsidiaries to any excise tax or
penalty, in a material amount, under section 4975 of the Code or section 502(i)
of ERISA; (v) each of the Plans that is
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<PAGE> 37
intended to be qualified under section 401(a) of the Code has received a
favorable determination letter from the IRS as to the tax qualification of such
Plan and all amendments and actions required to maintain the tax qualification
of such plans have been timely made except to the extent that such amendments
are not required by law to be made until after the Closing Date; (vi) there are
no actions, suits, disputes, arbitrations or claims (other than routine claims
for benefits) or legal, administrative or other proceedings or governmental
investigations pending or, to the knowledge of the Seller, threatened against
any Plan or against the assets or fiduciaries of any Plan; (vii) no Plan which
is subject to Title IV of ERISA or section 412 of the Code and currently or
formerly sponsored, maintained or contributed to by the Company or any entity
which is considered one employer with the Company under section 4001 of ERISA or
section 414 of the Code (each such entity, an "ERISA Affiliate," and each such
Plan, an "ERISA Affiliate Plan") has incurred any "accumulated funding
deficiency" (as defined in section 412(a) of the Code), whether or not waived;
(viii) no ERISA Affiliate Plan has been terminated and no proceeding has been
initiated or is reasonably likely to be initiated to terminate any ERISA
Affiliate Plan, and each of the Company and its ERISA Affiliates has paid all
premiums (and interest charges and penalties for late payment), if any, due the
PBGC as of the Closing Date with respect to the ERISA Affiliate Plans and
neither the Company nor its ERISA Affiliates has incurred or is reasonably
likely to incur any Liability to the PBGC, or a "section 4042 trustee" (within
the meaning of section 4042 of ERISA), or any Liability under section 4069 of
ERISA, except for required premium payments to the PBGC; (ix) each of the
Company and the Continuing Subsidiaries has satisfied any bond coverage
requirement of ERISA and has satisfied applicable reporting and disclosure
obligations under ERISA and the Code with respect to each of the Plans; (x) no
"reportable event" within the meaning of section 4043(c) of ERISA has occurred
with respect to any ERISA Affiliate Plan (other than those with respect to which
the reporting requirement is waived by rule or regulations promulgated by the
PBGC); and (xi) no Plan is a "multiemployer plan" as defined in section 3(37) of
ERISA. For purposes of determining the existence of any "accumulated funding
deficiency," as such term is used in this Section 3.24(b), the actuarial
assumptions and methods used under each Plan for the most recent Plan valuation
shall be used.
(c) Except as set forth in Schedule 3.24, with respect to
each ERISA Affiliate Plan, (i) the Seller has provided to the Purchaser a copy
of the most recent actuarial valuation report prepared for such Plan, (ii) the
assets and liabilities in respect of the accrued benefits as set forth in such
report fairly present the funded status of such Plan, (iii) since the date of
such report there has been no material adverse change in the funded status of
such Plan, and (iv) neither the Company nor any of the Continuing Subsidiaries
has any present or contingent Liability with respect to such Plan other than
liability for current or future contributions.
(d) Except as set forth in Schedule 3.24, none of the Plans
provides retiree life or retiree health benefits except as may be required under
section 4980B of the Code or section 601 through 608 of ERISA. The Company and
the Continuing Subsidiaries have at all times complied, in all material
respects, with the notice and health care continuation requirements of section
4980B of the Code and sections 601 through 608 of ERISA.
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(e) Except as set forth in Schedule 3.24, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will: (i) result in any payment becoming due to
any Employee (current, former or retired) under any Plan, (ii) increase any
benefits otherwise payable under any Plan, (iii) result in the acceleration of
the time of payment or vesting of any benefits under any Plan or (iv) result in
any payment, under any agreement or arrangement in which the Company or any of
the Continuing Subsidiaries is a party, becoming due to any individual that
would constitute an "excess parachute payment" under section 280G of the Code.
(f) All Liabilities of the Company and the Continuing
Subsidiaries with respect to the Plans have been or will be properly accrued for
on the Closing Balance Sheet in accordance with GAAP, without regard to any
changes thereto contemplated by the Purchaser.
(g) No material grants have been made under the Company's
1998 Long Term Incentive Plan since January 1, 1998.
3.25. Employee Relations. (a) Except as set forth in
Schedule 3.25, (i) there is no labor strike, dispute, slowdown, stoppage or
lockout pending or, to the knowledge of the Seller, threatened against the
Company or any of its Continuing Subsidiaries, and during the past three years
there has not been any such action; (ii) there are no union claims to represent
the Employees; (iii) neither the Company nor any of its Continuing Subsidiaries
is a party to or bound by any collective bargaining or similar agreement with
any labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to Employees; (iv) the Company
and its Continuing Subsidiaries are, and have at all times been, in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work,
occupational safety and health, equal opportunity, collective bargaining and
payment of social security and other taxes, and are not engaged in any
discriminatory employment practices or unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation;
(v) no charges with respect to or relating to the Company or any of its
Continuing Subsidiaries are pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of unlawful
employment practices; (vi) there are no complaints, lawsuits or other
proceedings pending or, to the knowledge of the Seller, threatened in any forum
by or on behalf of any Employee alleging breach of any express or implied
contract of employment, any law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship; and (vii) there has been no "mass
layoff" or "plant closing" as defined by WARN Act or any similar state or local
"plant closing" law with respect to the Employees.
(b) Except as set forth in Schedule 3.25, to the knowledge
of the Seller, as of the date hereof, no officer or key employee, or any group
of key employees, intends to terminate their employment with the Company or any
of the Continuing Subsidiaries, and neither the Company nor any of the
Continuing Subsidiaries currently intend to terminate the employment of any of
the foregoing.
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3.26. Officers, Directors and Key Employees. Schedule 3.26
sets forth (a) the name, title and total compensation (payable by the Company or
any of the Continuing Subsidiaries) of each officer and director of the Company
and the Continuing Subsidiaries and of each other Employee, consultant and agent
of the Company and the Continuing Subsidiaries whose total compensation (so
payable and including bonuses and commissions) for the year ended December 31,
1998 equaled or exceeded $100,000 or who will receive compensation (including
bonuses and commissions) for the year ending December 31, 1999 equal to or in
excess of $100,000, (b) all bonuses and other incentive compensation received by
such Persons since January 1, 1998, and any accrual for such bonuses and
incentive compensation, and (c) all Contracts or commitments by the Company or
any of the Continuing Subsidiaries to increase the compensation or to modify the
conditions or terms of employment of any of their respective officers or
directors, or Employees, consultants and agents of the Company and the
Continuing Subsidiaries whose total compensation (including bonuses and
commissions) exceeds $100,000 per annum.
3.27. Insurance Policies. Schedule 3.27 contains a true and
complete list of all policies of insurance (excluding retrocession agreements
and similar agreements) maintained by the Company or by any of the Continuing
Subsidiaries as of the date hereof with respect to their respective Properties
and the conduct of their respective businesses, showing the subject matter, the
beneficiary and the amount of coverage for each policy (the "Company Insurance
Policies"). Except as set forth in Schedule 3.27, each such insurance policy is
a valid and binding obligation of the parties thereto and is in full force and
effect enforceable in accordance with its terms and will remain in full force
and effect at all times until the Closing, except that any insurance policy
listed on Schedule 3.27 may be replaced prior to the Closing Date by a policy
with substantially similar coverage, quality of insurer and premiums, and
Schedule 3.27 may be updated prior to the Closing to reflect any such
replacements. Except as set forth in Schedule 3.27, (i) neither the Company nor
any of the Continuing Subsidiaries is in material breach or default, and no
event has occurred which, with notice or the lapse of time, would constitute
such a material breach or default and permit termination or modification under
the policy; and (ii) no party to the policy has repudiated, or given written
notice to the Company or any Continuing Subsidiary of an intent to repudiate,
any material provision thereof.
3.28. Tax Matters. (a) Except as otherwise stated or
disclosed in Schedule 3.28, the Seller is the common parent of an affiliated
group of corporations (within the meaning of section 1504(a) of the Code)
eligible to file consolidated federal income Tax Returns, of which the Company
and each of the Continuing Domestic Subsidiaries is a member. Except as
otherwise stated or disclosed in Schedule 3.28, from October 8, 1993 through the
Closing Date, the Seller has included (or, with respect to the taxable year
ending on the Closing Date, will include) the Company and each of its Continuing
Domestic Subsidiaries in its consolidated federal income Tax Return as a member
of the affiliated group of which the Seller is the common parent.
(b) Except as otherwise stated or disclosed in Schedule
3.28, (i) for all periods ending after October 8, 1993 for which the relevant
statutes of limitation have not expired, the Company and each of the Continuing
Subsidiaries have filed (or joined in the filing of) when due (after taking into
account all properly requested extensions) all material Tax Returns required by
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applicable law to be filed with respect to the Company or any of the Continuing
Subsidiaries and all Taxes shown to be due on such Tax Returns have been paid;
(ii) all such Tax Returns were true, correct and complete in all material
respects as of the time of such filing or after taking into account any changes
thereto reflected on any amended Tax Returns; (iii) all Taxes of the Company or
any of its Continuing Subsidiaries relating to all periods ending after October
8, 1993, for which the relevant statutes of limitation have not expired for
which the Company or any of the Continuing Subsidiaries may be liable (other
than any liability under Treasury Regulations Section 1.1502-6 or any analogous
state, local or foreign law or regulation as provided in Section 8.2(b) hereof),
whether or not shown on any Tax Return, if required to have been paid, have been
paid (except for Taxes which are being contested in good faith); (iv) the
statute of limitations for tax years of the Company and the Continuing
Subsidiaries has closed for all years ending prior to January 1, 1996; (v) any
liability of the Company or any of the Continuing Subsidiaries for Taxes not yet
due and payable, or which are being contested in good faith, has been adequately
provided for on the Audited Financial Statements, Interim Financial Statements
or Statutory Statements in accordance with GAAP; (vi) there is no action, suit,
proceeding, investigation, audit or claim now pending against, or with respect
to, the Company or any of the Continuing Subsidiaries in respect of any Tax or
assessment, nor is any claim for additional Tax or assessment being asserted by
any Taxing Authority; (vii) since October 8, 1993, no claim has been threatened
or made by any Taxing Authority in a jurisdiction where the Company or any of
the Continuing Subsidiaries does not currently file a Tax Return that it is or
may be subject to Tax by such jurisdiction; (viii) there is no outstanding
request for any extension of time within which to pay any Taxes; (ix) there has
been no waiver or extension of any applicable statute of limitations for the
assessment or collection of any Taxes of the Company or any of the Continuing
Subsidiaries and no power of attorney granted by or with respect to the Company
or any Continuing Subsidiary for Taxes is currently in force; moreover, no
closing agreement pursuant to section 7121 of the Code (or any predecessor
provision) or any similar provision of any state, local or foreign law has been
entered into by or with respect to the Company or any Continuing Subsidiary; (x)
no property of the Company or any of the Continuing Subsidiaries is "tax-exempt
use property" within the meaning of section 168(h) of the Code; (xi) neither the
Company nor any of the Continuing Subsidiaries is a party to any lease made
pursuant to former section 168(f)(8) of the Internal Revenue Code of 1954; (xii)
no excess loss account (within the meaning of Treasury Regulations Section
1.1502-19) exists with respect to the Company or any of the Continuing Domestic
Subsidiaries; (xiii) neither the Company nor any of the Continuing Subsidiaries
has filed any agreement or consent under section 341(f) of the Code; (xiv)
neither the Company nor any of the Continuing Subsidiaries is a party to any
agreement other than with the Seller, whether written or unwritten, providing
for the payment of Taxes, payment for Tax losses, entitlement to refunds or
similar Tax matters; (xv) no ruling with respect to Taxes (other than a request
for determination of the status of a qualified pension plan) has been requested
by or on behalf of the Company or any of the Continuing Subsidiaries; (xvi)
neither the Company nor any of the Continuing Subsidiaries has been a United
States real property holding corporation within the meaning of section 897(c)(2)
of the Code during the applicable period specified in section 897(c)(1)(A)(ii)
of the Code; (xvii) the Company and each of its Continuing Subsidiaries has
withheld and paid all Taxes required to be withheld in connection with any
material amounts paid or owing to any employee, creditor, independent contractor
or other Person; (xviii) neither the Company nor any Continuing Subsidiary has,
or will have, on or
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before the Closing Date, any liability for Taxes resulting from an acceleration
of an "intercompany transaction" within the meaning of Treasury Regulation
Section 1.1502-13(d) (or any analogous or similar provision under state, local
of foreign law or any predecessor provision or regulation) other than the
Underwriters U.K. Dividend and the BN Sale; (xix) no Continuing Subsidiary is a
passive foreign investment company within the meaning of section 1297 of the
Code; (xx) no Continuing Subsidiary is a controlled foreign corporation within
the meaning of section 957 of the Code; (xxi) no Continuing Subsidiary (other
than a Continuing Domestic Subsidiary) is engaged in a United States trade or
business within the meaning of Sections 882 and 884 of the Code; and (xxii)
except for the transaction contemplated hereby, since December 31, 1998, neither
the Company nor any of the Continuing Subsidiaries has (a) made, changed or
revoked, or permitted to be made, changed or revoked, any material election or
method of accounting with respect to Taxes affecting or relating to the Company
or any of the Continuing Subsidiaries, or (b) entered into, or permitted to be
entered into, any closing or other agreement or settlement with respect to Taxes
affecting or relating to the Company or any of the Continuing Subsidiaries.
3.29. Bank Accounts. Schedule 3.29 contains a true and
complete list of (a) the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which the Company or any
of the Continuing Subsidiaries has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship and (c)
the name of every Person authorized to draw thereon or having access thereto.
3.30. Transactions with Affiliates. Except as set forth in
Schedule 3.30, neither (1) any officer or director of the Seller or any officer
or director of an Affiliate of the Seller (including the Company or any of its
Subsidiaries) nor, to the knowledge of the Seller, any member of any such
Person's immediate family or any entity controlled by one or more of the
foregoing, nor (2) the Seller or any Affiliate of the Seller (other than the
Company and the Continuing Subsidiaries): (A) is a party to any transaction with
any of the Company or any of the Continuing Subsidiaries, including, without
limitation, any Contract (x) providing for the furnishing of services (except in
such Person's capacity as an officer or director) by, (y) providing for the
rental of real or personal Property from, or (z) otherwise requiring payments to
(other than for services as officers or directors), any such Person; (B) to the
knowledge of the Seller, owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person that is, or is engaged in business as, a competitor,
lessor, lessee, broker or customer of the Company or any of the Continuing
Subsidiaries; (C) owns, directly or indirectly, in whole or in part, any
Property that the Company or any of the Continuing Subsidiaries uses in the
conduct of its business; or (D) has any claim whatsoever against, or owes any
amounts to, the Company or any of the Continuing Subsidiaries, except for claims
in the ordinary course of business such as for accrued vacation pay, accrued
benefits under Plans and similar matters and Contracts existing as of the date
hereof.
3.31. Intercompany Accounts. Except for intercompany
balances relating to Contracts between the Company or any of the Continuing
Subsidiaries, on the one hand, and
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Underwriters U.K. and any of its Subsidiaries, on the other hand, Schedule 3.31
contains a complete list of all intercompany balances as of September 30, 1999
between the Seller and any Affiliate of the Seller (other than the Company and
the Continuing Subsidiaries), on the one hand, and the Company or any of the
Continuing Subsidiaries, on the other hand.
3.32. No Brokers. Except for ABN AMRO Inc., no broker,
finder or investment banker (an "Investment Broker") acting on behalf of the
Seller, the Company or any of its Subsidiaries is or will be entitled to any
brokerage, finder's or other fee, compensation or commission from the Seller,
the Company or any of its Subsidiaries in connection with the transactions
contemplated by this Agreement (the "Seller's Fee").
3.33. Environmental Matters. Except as provided in Schedule
3.33 attached hereto or as would not be reasonably likely to, individually or in
the aggregate, have a Material Adverse Effect:
(i) the Company and its Subsidiaries are in compliance with
Environmental Laws;
(ii) the Company and its Subsidiaries have obtained,
maintained in effect, and are in compliance with, any Permit required
pursuant to Environmental Laws;
(iii) the Company or its Subsidiaries has not disposed of,
transported or arranged for the disposal or transportation of any
Hazardous Materials at or to any location at which, to the knowledge
of the Seller, there is or has been a Release or threatened Release
of those Hazardous Materials;
(iv) no Hazardous Material has been Released by the Company
on or beneath any land owned or leased or formerly owned or leased by
the Company; and
(v) to the knowledge of the Seller, no real Property owned
or leased by the Company contains any (A) PCBs, (B) asbestos or
asbestos containing material, (C) underground storage tank, (D)
surface impoundment or lagoon, (E) landfill, (F) lead paint or (G)
wetlands.
3.34. Certain Matters Related to Accra Holdings. (a) The
Seller has heretofore delivered to the Purchaser true and complete copies of the
Accra Audited Financial Statements. All of the outstanding shares of common
stock of Accra Holdings are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in Schedule 3.34, all of the shares of
common stock of Accra Holdings are owned of record and beneficially by the
Company or one or more of the Continuing Subsidiaries, in each case free and
clear of any Lien.
(b) The Accra Audited Financial Statements were prepared in
accordance with GAAP consistently applied throughout the periods involved. The
Accra Audited Financial Statements have been audited by KPMG Chartered
Accountants, and present fairly in all material respects the consolidated
financial position of Accra Holdings and its
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Subsidiaries at the respective dates thereof and the consolidated results of
operations of Accra Holdings and its Subsidiaries for the respective periods
then ended (except for the fact that URC Barbados is not consolidated with Accra
Holdings).
(c) From the date hereof until the Closing Date, as soon as
practicable after they become available to the Seller, the Seller shall deliver
to the Purchaser true and complete copies of the quarterly or annual GAAP
consolidated financial statements of Accra Holdings for each quarterly and
annual fiscal period ending on or after the date hereof. All such GAAP
consolidated financial statements shall be prepared in accordance with GAAP
consistently applied throughout the periods involved (except for the fact that
URC Barbados is not consolidated with Accra Holdings)..
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller
as follows:
4.1. Organization of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
4.2. Authorization, Validity and Enforceability. The
execution, delivery and performance of this Agreement by the Purchaser and the
consummation of the transactions contemplated hereby by the Purchaser have been
duly and validly authorized by all necessary corporate action on the part of the
Purchaser and no other corporate proceedings on the part of the Purchaser are
necessary to authorize the execution, delivery and performance of this Agreement
or the consummation of any of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
the legal, valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms.
4.3. No Conflicts. Assuming compliance with the matters
referred to in Section 4.4 below, except as set forth in Schedule 4.3, the
execution, delivery and performance by the Purchaser of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with, result in any breach or violation of, or constitute a default
under (or an event which with the giving of notice or the lapse of time or both
would constitute a default under), (a) the certificate of incorporation, bylaws
or other charter or organization documents of the Purchaser, (b) any material
Contract to which the Purchaser is a party or by or to which it or its assets or
Properties may be bound or subject, (c) any applicable order, writ, judgment,
injunction, award, decree, law, statute, ordinance, rule or regulation or (d)
any other Permit of the Purchaser other than, in the case of each of (b), (c)
and (d), any such terms that would not be reasonably likely to, individually or
in the aggregate, have a material adverse effect on the ability of the Purchaser
to execute and deliver this Agreement, to perform its obligations hereunder or
to consummate the transactions contemplated hereby.
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4.4. Consents and Approvals. Except as required under the
HSR Act and as set forth in Schedule 4.4, which includes a list of all Purchaser
Insurance Approvals, no Consent of any Governmental Entity or other Person is
necessary to be obtained, made or given by the Purchaser in connection with the
execution and delivery by the Purchaser of this Agreement, the performance by
the Purchaser of its obligations hereunder and the consummation of the
transactions contemplated hereby, except for consents which if not obtained or
made would not be reasonably likely to, individually or in the aggregate, have a
material adverse effect on the ability of the Purchaser to execute and deliver
this Agreement, to perform its obligations hereunder or to consummate the
transactions contemplated hereby.
4.5. Investment Intent. The Shares will be acquired by the
Purchaser for its own account without a view to a distribution or resale
thereof, it being understood that the Purchaser shall have the right to sell or
otherwise dispose of any of the Shares pursuant to a registration or an
exemption therefrom under the Securities Act of 1933, as amended, and any
applicable state securities laws.
4.6. Financing. At the Closing, the Purchaser will have
sufficient funds to enable it to consummate the transactions contemplated by
this Agreement.
4.7. No Brokers. Except for Credit Suisse First Boston
Corporation, no Investment Broker acting on behalf of the Purchaser is entitled
to any brokerage, finder's or other fee, compensation or commission from the
Purchaser in connection with the transactions contemplated by this Agreement
(the "Purchaser's Fee"). The Purchaser shall be solely responsible for all fees
and other payments to Credit Suisse First Boston Corporation in connection with
the transactions contemplated by this Agreement.
ARTICLE V.
COVENANTS
5.1. Conduct of Business. (a) Except as set forth on
Schedule 5.1 or any of the other schedules hereto, as contemplated by this
Agreement, or as consented to in writing by the Purchaser, from the date hereof
to and including the Closing Date, the Seller will cause the Company and the
Continuing Subsidiaries to (i) conduct their operations in the ordinary course
of business consistent with past practice and use their reasonable best efforts
to preserve intact their business organizations, Permits and Insurance Permits,
to keep available the services of their officers and Employees and to maintain
existing relationships with customers, policyholders, agents, brokers,
regulators, reinsurance intermediaries and others having business dealings with
any of them, (ii) maintain insurance coverages and their books, records and
accounts in the usual manner consistent with prior practice and (iii) maintain
and keep its Properties and equipment in the ordinary course of business
consistent with past practice.
(b) Except as set forth on Schedule 5.1 or any of the other
Schedules hereto, or as otherwise contemplated by this Agreement, from the date
hereof to and including the Closing Date, the Seller will not without the prior
written consent of the Purchaser, permit the Company or any of the Continuing
Subsidiaries to directly or indirectly:
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(i) amend or modify its certificate or articles of
incorporation, bylaws or other charter or organization documents;
(ii) except in the ordinary course of business pursuant to
Reinsurance Contracts and except for borrowings made under the Credit
Agreement, authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, call, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or series or
any other equity interest, or any bonds, debentures, notes, surplus
notes, other evidences of indebtedness for borrowed money or other
securities of any kind, including, without limitation, any stock
options or stock appreciation rights or any securities convertible
into or exchangeable or exercisable for any of the foregoing;
(iii) other than the Underwriters U.K. Dividend
contemplated by Section 5.18 hereof, split, combine or reclassify any
shares of its capital stock, or declare, pay or set aside any sum for
any dividend or other distribution (whether in cash, stock or
Property, any combination thereof or otherwise) in respect of its
capital stock, or redeem, purchase or otherwise acquire (or agree to
redeem, purchase or otherwise acquire) any of its capital stock or
any of its other securities or any securities of its Subsidiaries;
(iv) adopt a plan of complete or partial liquidation,
dissolution, rehabilitation, merger, consolidation, restructuring,
recapitalization, redomestication or other reorganization;
(v) make any change in any SAP reporting or SAP accounting
methods or practices (other than a change required by SAP) or any
material change in the Investment Guidelines;
(vi) other than the BN Sale contemplated by Section 5.19
hereof, purchase or sell securities or other investments, or invest
or reinvest income and proceeds in respect thereof, other than in
accordance with the Investment Guidelines and applicable law;
(vii) except as required by applicable law or by any
Governmental Entity, adopt a new Plan, amend any Plan or permit any
Plan to enter into any Contract, insurance arrangement or funding
obligation to increase present or future benefits or the present or
future cost of providing benefits;
(viii) make or authorize or commit any capital expenditures
other than those in the ordinary course of business consistent with
past practice which do not exceed $250,000 individually or $500,000
in the aggregate;
(ix) settle or compromise any claims or litigation (other
than any claims or litigation for which the sole remedy is monetary
damages in an amount less than $250,000 and other than claims or
litigation arising out of any Insurance Contracts);
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(x) enter into any other Contracts which would be required
to be listed on Schedule 3.20;
(xi) enter into any managing general agency contracts,
third party administration contracts or other similar arrangements or
commitments, or amendments, supplements or modifications thereto,
under which an independent party has authority to perform
underwriting analysis and issue insurance or reinsurance policies on
behalf of any of the Insurance Subsidiaries or otherwise bind any of
the Insurance Subsidiaries without prior approval by the applicable
Insurance Subsidiary; or
(xii) take any action that would cause any of the
representations and warranties set forth in Article III of this
Agreement to become untrue in any material respect or which would
result in any of the conditions to Closing set forth in Articles VI
and VII not being satisfied.
(c) From the date hereof to and including the Closing Date,
the Seller shall notify the Purchaser promptly after settlement or compromise of
any litigation arising out of any Insurance Contracts, other than any such
litigation for which the sole remedy is monetary damages in an amount less than
$250,000 and, to the extent reasonably practicable, shall notify the Purchaser
prior to any such settlement or compromise.
5.2. Access to Information; Consultation; Confidentiality.
(a) From the date hereof until the Closing, the Seller will, and will cause the
Company and each of its Subsidiaries to, (i) allow the Purchaser and its
officers, employees, counsel, accountants, actuaries, consultants and other
authorized representatives ("Representatives") to have full access to the books,
records, Contracts, Properties, facilities, accountants, actuaries, consultants,
advisors, management and personnel of the Company and its Subsidiaries at all
reasonable times, upon reasonable notice and in a manner so as not to interfere
with the normal operation of the Company's business, (ii) furnish promptly to
the Purchaser and its Representatives all information and documents concerning
the Company and its Subsidiaries as the Purchaser or its Representatives may
reasonably request and (iii) cause the respective officers, employees and
Representatives of the Seller, the Company and their Subsidiaries to cooperate
in good faith with the Purchaser and its Representatives in connection with all
such access. In addition, the Seller will, and will cause the Company and each
of its Subsidiaries to, use reasonable efforts to consult with the Purchaser a
reasonable period of time prior to entering into any transaction or arrangement
or taking any action that is material, in a manner that will allow the Purchaser
a reasonable opportunity to evaluate and present its views to the Seller
regarding such transaction, arrangement or action; provided, however, that
except as set forth in Section 5.17, the foregoing shall not apply to, and no
such consultation shall be required in connection with, any determination by an
Insurance Subsidiary to enter into an Insurance Contract or an amendment or
renewal of an Insurance Contract; and provided, further, that any consultation
which takes place shall not constitute a waiver of, or negate, any of the
provisions of this Agreement. No investigation or review by the Purchaser or any
of its Representatives shall affect or be deemed to modify any of the
representations, warranties, covenants or agreements of the Seller under this
Agreement or otherwise; it being understood that, notwithstanding any right of
the Purchaser and
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its Representatives to fully investigate the affairs of the Company and its
Subsidiaries, and notwithstanding any knowledge of facts determined or
determinable by the Purchaser and its Representatives pursuant to any such
investigation or right of investigation, the Purchaser has the right to rely
fully upon the representations, warranties, covenants and agreements of the
Seller contained in this Agreement.
(b) Prior to the Closing, the Purchaser and its
Representatives shall keep confidential all information and documents provided
under this Section 5.2 in accordance with the terms of the Confidentiality
Agreement.
5.3. Cooperation and Reasonable Best Efforts. Subject to
the terms and conditions hereof, (a) each of the parties hereto shall cooperate
with each other, and the Seller shall cause the Company and its Subsidiaries to
cooperate with the Purchaser, in connection with consummating the transactions
contemplated by this Agreement, and (b) each of the parties hereto agrees to,
and the Seller shall cause the Company and each of its Subsidiaries to, use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. For purposes of this Agreement, the covenant of
the parties to use their "reasonable best efforts" shall not require any party
to (i) incur any unreasonable expenses, or (ii) agree to limit the conduct of
its business or to divest itself of any material assets or Properties.
5.4. Consents and Approvals. As soon as practicable after
the date hereof, each of the parties hereto shall, and the Seller shall cause
the Company and its Subsidiaries to use its reasonable best efforts in
connection with this transaction to assist the Purchaser to, obtain any
necessary Consents of, and make any filing with or give any notice to, any
Governmental Entities and other Persons (including, without limitation, (i)
Insurance Approvals and (ii) pursuant to the HSR Act, the Federal Trade
Commission and the United States Department of Justice) as are required to be
obtained, made or given by such party to consummate the transactions
contemplated by this Agreement. Each party shall pay all amounts required to be
paid by it in connection with obtaining any Consents that it is required to
obtain, including those set forth in Schedule 5.4. The parties hereto shall
cooperate with one another in exchanging such information and reasonable
assistance as may be required by any such Governmental Entity or as any other
party may request in connection with the foregoing. The Seller and the Purchaser
shall provide each other with a reasonable opportunity to review and comment
upon submissions made to the Applicable Insurance Departments in connection with
the Seller Insurance Approvals and the Purchaser Insurance Approvals,
respectively, and shall keep one another reasonably informed of developments
relating to their efforts to obtain such Insurance Approvals.
5.5. Notification of Certain Matters. Each of the Seller,
on the one hand, and the Purchaser, on the other hand, shall give prompt written
notice to the other of (i) the occurrence or non-occurrence of any event which
would be likely to cause any representation or warranty of any party contained
in this Agreement to be untrue or inaccurate in any material respect (or, in the
case of any representation or warranty that is qualified as to materiality,
untrue
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or inaccurate in any respect) at or prior to the Closing and (ii) any failure of
either the Seller or the Purchaser, respectively, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder. No disclosure by any party pursuant to this Section 5.5, however,
shall be deemed to amend or supplement the Seller's Schedules or the Purchaser's
Schedules or to prevent or cure any misrepresentation or breach of warranty nor
shall any such disclosure affect or otherwise limit the remedies available
hereunder to the party receiving such notice. Without limiting the generality of
the foregoing, from the date hereof through the Closing Date, the Seller shall
promptly notify the Purchaser of any action, suit, claim, proceeding or
investigation of the type required to be described in Schedule 3.13 hereof that
is commenced or, to its knowledge, threatened after the date hereof, and each of
Seller and Purchaser shall promptly inform the other of any notice or written
communication or any request for additional information or documentary materials
by, any Governmental Entity in connection with the transactions contemplated
hereby.
5.6. Press Releases. Prior to the Closing, each party
hereto shall consult with the other party hereto prior to issuing, and provide
the other party with a reasonable opportunity to review and comment upon, any
press release pertaining to this Agreement or the transactions contemplated
hereby and, except as may be required by applicable law or any listing agreement
with any national securities exchange, will not issue any such press release
prior to such consultation.
5.7. [Intentionally omitted]
5.8. Interim Financial Statements and Investment Reports.
(a) From the date hereof until the Closing Date, as soon as practicable after
they become available, the Seller shall deliver to the Purchaser true and
complete copies of: (i) the quarterly or annual statutory financial statements
of each of the Insurance Subsidiaries as filed with its Home Insurance
Department for each quarterly or annual period ending on or after the date
hereof, including in each case all exhibits, interrogatories, notes and
schedules thereto and any actuarial opinion, affirmation or certification filed
in connection therewith; (ii) the quarterly or annual GAAP consolidated
financial statements of the Company and its Subsidiaries for each quarterly or
annual period ending on or after the date hereof; and (iii) the quarterly or
annual GAAP consolidating financial statements of the Company and its
Subsidiaries for each quarterly and annual fiscal period ending on or after the
date hereof. All such GAAP consolidated financial statements shall be prepared
in accordance with GAAP consistently applied throughout the periods involved
(except as may be indicated in the notes thereto), and shall be delivered to the
Purchaser within forty-five (45) days after the end of each calendar quarter or
within seventy-five (75) days after the end of the fiscal year. All such
statutory financial statements shall be prepared in accordance with SAP
consistently applied throughout the periods involved, and shall be delivered to
the Purchaser within two (2) Business Days after the date of filing of such
statutory financial statements by each Insurance Subsidiary with its Home
Insurance Department.
(b) From the date hereof until the Closing Date, as soon as
practicable after it becomes available (and in any event within ten (10) days
after the end of each calendar month) the Seller shall deliver to the Purchaser
a true and complete list of all purchases, acquisitions,
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sales and dispositions during the previous month of investments owned by the
Company or its Subsidiaries (the "Investment Portfolio"), and all investments
and reinvestments of income and proceeds in respect thereof, including the dates
of such transactions and the book value or amortized cost, market value and
carrying value thereof on the books and records of account of such Persons as of
the end of the previous month. As of a date ten (10) Business Days prior to the
Closing, the Seller shall deliver to the Purchaser a true and complete statement
of the securities and other investments in the Investment Portfolio.
5.9. Tax Matters. (a) The Seller shall, or shall cause the
Company and/or its Continuing Subsidiaries to, prepare and file all Tax Returns
of or including the Company and/or its Continuing Subsidiaries that are required
to be filed (with extensions) on or before the Closing Date and shall pay all
Taxes due with respect to such Tax Returns. All such Tax Returns will be made
and filed by the Seller, the Company, and its Continuing Subsidiaries in a
manner consistent with the prior practice of the Seller, the Company and its
Continuing Subsidiaries.
(b) The Seller shall cause any tax sharing agreement or
similar arrangement with respect to Taxes involving the Company or any of the
Continuing Subsidiaries, on the one hand, and the Seller or any Affiliates of
the Seller (other than the Company and the Continuing Subsidiaries), on the
other hand, to be terminated effective as of the Closing Date, to the extent any
such agreement or arrangement relates to the Company or its Continuing
Subsidiaries, and after the Closing Date neither the Company and/or its
Continuing Subsidiaries nor the Seller and/or its Affiliates shall have any
obligation, whether to make payment or otherwise, under any such agreement or
arrangement for any past, present or future period.
(c) The Purchaser shall cause the Company to hire KPMG to
prepare, and shall instruct KPMG to deliver to the Seller no later than July 15,
2000, and July 15, 2001, respectively, all relevant Tax schedules, forms and
information relating to the Company and the Continuing Subsidiaries, complete in
all material respects, to permit their inclusion in the consolidated federal
income Tax Returns of the Seller for the calendar year 1999 and the portion of
the calendar year 2000 in which the Closing Date occurs. The Seller shall
promptly reimburse the Company for (i) the fees and expenses of KPMG for the
preparation of the relevant Tax schedules, forms and information for the 1999
taxable year, (ii) that portion of the aggregate fees and expenses of KPMG for
the preparation of the relevant Tax schedules, forms and information for all of
the 2000 taxable year which the ratio of the number of days in 2000 through the
Closing Date bears to the number of days in 2000, and (iii) any of the Company's
reasonable out-of-pocket expenses relating to the preparation of such schedules,
forms and information.
(d) The Purchaser agrees that none of the Company, any of
the Continuing Domestic Subsidiaries, or any affiliated group (within the
meaning of Section 1504(a) of the Code) which includes the Company and/or the
Continuing Domestic Subsidiaries shall claim in, or carryback to, any taxable
year for which a consolidated return was filed by the Seller any item of loss,
deduction or credit arising in any Post-Closing Tax Period. The Purchaser shall
not allow or cause the Company or any of the Continuing Subsidiaries to take, or
fail to take, any reasonable action or omit to take any reasonable action after
the Closing Date (which the Seller has notified the Purchaser on or before the
Closing Date and which relates to an accrual by the
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Seller for any Pre-Closing Tax Period) if the taking of such action or the
failure to take such action will increase the Taxes of the Company or any of the
Continuing Subsidiaries for any Pre-Closing Tax Period.
(e) The Seller and the Purchaser agree that for income tax
purposes the taxable period of the Company and the Continuing Domestic
Subsidiaries which began on January 1 of the calendar year in which the Closing
Date occurs shall be terminated as of the close of business on the Closing Date
in accordance with Treasury Regulations Section 1.1502-76(b)(1) (other than
transactions properly allocable thereunder to the portion of the day after the
Closing shall occur) and items of income, gain, loss, deduction or credit shall
be apportioned based upon a closing of the books for Tax purposes in accordance
with Treasury Regulation Section 1.1502-76(b). No election shall be made under
Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation
of a year's items), and Treasury Regulation Section 1.1502-76(b)(2)(iii) will be
applied to ratably allocate the items (other than extraordinary items,
including, without limiting the generality of the foregoing, compensation items)
for the month which includes the Closing Date. The Seller and the Purchaser
further agree to file all Tax Returns (including, without limitation, all State
income Tax Returns), handle the contest of any audit and otherwise act for all
Tax purposes consistent with the provisions of this paragraph (e).
(f) Each of the Seller and the Purchaser will provide the
other (and the other's attorneys, accountants and agents) with, and the
Purchaser, after the Closing Date, shall, and shall cause the Company and the
Continuing Subsidiaries to, cooperate in good faith with each other (including
the copying of relevant records and access to relevant personnel) in connection
with the preparation of any Tax Returns (including any amended Tax Returns), the
determination of the requesting party's own liability for Taxes, any audit or
other examination by any Taxing Authority, or any judicial or administrative
proceedings relating to liability for Taxes. The party requesting assistance
hereunder shall (i) make such request in writing and (ii) reimburse the other
party for reasonable out-of-pocket expenses incurred in providing such
assistance. Any information obtained pursuant to this Section 5.9(f) shall be
held in strict confidence and shall be used solely in connection with the reason
for which it was requested.
(g) The Seller shall be entitled to determine, in its sole
discretion, the federal income Tax consequences of, and the reporting with
respect to, the Underwriters U.K. Dividend.
(h) In the event that the aggregate net amount of Taxes
(other than federal income Taxes) paid after the Closing Date by or with respect
to the Company and the Continuing Subsidiaries for any Pre-Closing Tax Period
(including the portion of any Straddle Period Taxes for which the Seller is
responsible pursuant to Section 8.2(b) hereof) is less than the amount of the
provision for such Taxes (other than for federal income Taxes) provided for on
the Closing Balance Sheet (with the exclusion of any related deferred Taxes),
the Purchaser shall pay the Seller upon the expiration of the statutes of
limitation for all such Taxes (other than federal income Taxes) relating to such
Pre-Closing Tax Periods (including extensions thereof) the amount by which such
Tax provision (other than for federal income Taxes) exceeds the aggregate net
amount of Taxes (other than federal income Taxes) paid by or with respect to the
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Company and the Continuing Subsidiaries with respect to such periods. The
determination of any such excess shall be made solely by the Purchaser in the
exercise of its reasonable discretion.
(i) In addition to any other amounts payable to the Seller
pursuant to this Agreement, there shall be payable to the Seller within five (5)
Business Days after the date that the Final Closing Balance Sheet becomes
available an amount equal to the provisions for current (1999 and year 2000
through the Closing Date) federal income Taxes of the Company and the Continuing
Domestic Subsidiaries on the Closing Date Balance Sheet reduced by the amount of
federal income Taxes that had theretofore been paid to the Seller pursuant to
any Tax sharing agreement between the Company and the Seller.
(j) Without limiting the generality of Section 5.1(a),
except as set forth on Schedule 5.9 or any of the other Schedules hereto, or as
otherwise expressly contemplated by this Agreement, from the date hereof to and
including the Closing Date, the Seller will not without the prior written
consent of the Purchaser (which consent shall not be unreasonably withheld),
permit the Company or any of the Continuing Subsidiaries to directly or
indirectly (a) make, change or revoke, or permit to be made, changed or revoked,
any election or method of accounting, with respect to Taxes affecting the
Company or the Continuing Subsidiaries for Post-Closing Tax Periods, (b) enter
into, or permit to be entered into, any closing or other agreement or settlement
with respect to Taxes of the Company or any of its Continuing Subsidiaries
affecting or relating to Post-Closing Tax Periods, or (c) enter into any
transaction or series of transactions other than in the ordinary course of
business, or take any position on any Tax Return for any Pre-Closing Tax Period,
that would have the effect of increasing the Company's or any Continuing
Subsidiary's Tax liability for any Post-Closing Tax Period.
5.10. [Intentionally omitted]
5.11. Insurance Coverage. The Seller shall cooperate with
the Purchaser in obtaining, at the expense of the Purchaser, continued or
replacement insurance coverage, effective as of the Closing Date, providing
coverage to the Company and the Continuing Subsidiaries comparable to that
provided by the policies and Contracts listed on Schedule 3.27 that are not
issued directly to the Company and the Continuing Subsidiaries. Without limiting
the generality of the foregoing, the Seller shall provide such information, and
cause the Company and its Continuing Subsidiaries to complete and execute such
applications, as may be reasonably necessary to arrange for such continuation or
replacement insurance coverage.
5.12. Intercompany Accounts; Affiliate Agreements. (a)
Except as set forth in Schedule 5.12, the Seller shall cause all intercompany
accounts receivable or payable (whether or not currently due or payable) between
(x) the Company or the Continuing Subsidiaries, on the one hand, and (y) the
Seller or any of its Affiliates (other than the Company and the Continuing
Subsidiaries), or any of the officers or directors of any of the Seller and any
of its Affiliates (other than the Company and the Continuing Subsidiaries, or
any of the officers or directors of the Company or any of the Continuing
Subsidiaries), on the other hand, to be settled in full (without any premium or
penalty, and at values mutually agreed upon by the parties hereto) at or prior
to the Closing and reflected in the Closing Balance Sheet, except that none of
the foregoing
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shall apply to any intercompany accounts in respect of Contracts between the
Company or any of the Continuing Subsidiaries, on the one hand, and Underwriters
U.K. and any of its Subsidiaries, on the other hand, the disposition of which
shall be in accordance with the provisions of Section 5.12(b) below.
(b) Except as set forth in Schedule 5.12, all Affiliate
Agreements and all Contracts between the Company or any of the Continuing
Subsidiaries, on the one hand, and Underwriters U.K. or any of its Subsidiaries,
on the other hand, shall be terminated and discharged without any further
Liability or obligation thereunder effective at or prior to the Closing, upon
terms and pursuant to instruments reasonably satisfactory to the Purchaser.
Prior to the Closing, the Seller shall cause itself to be substituted for the
Company and the Continuing Subsidiaries on the Credit Agreement or shall cause
the Credit Agreement to be terminated without any further liability therewith on
the part of the Company, its Continuing Subsidiaries or the Purchaser and shall
cause all existing letters of credit, all of which are set forth in Schedule
5.12, provided by the Company or the Continuing Subsidiaries in support of
Underwriters U.K. syndicates in effect on the Closing Date to be terminated
without any liability to the Company, its Continuing Subsidiaries or the
Purchaser.
5.13. Corporate Records. At or prior to the Closing, the
Seller shall deliver to the Company all minute books, stock ledgers, stock
books, canceled or unused stock certificates, corporate seals, books, records
(including but not limited to, for all open Tax periods, any Tax Returns,
records and worksheets relating to Taxes, as well as any Tax closing or
settlement agreements and any Tax examinations or similar reports), files,
personnel records, policy forms, stationery, software, data, documents and
Properties of the Company or the Continuing Subsidiaries that are in the
possession of any of the Seller or their other Affiliates.
5.14. Instruments. Except as specifically provided
elsewhere herein (including without limitation with regard to Taxes and to
proceeds of exercise of Seller Options), any monies, checks, drafts, money
orders, postal notes and other instruments received after the Closing by the
Seller or its Affiliates in payment of any amounts due the Company or any of the
Continuing Subsidiaries (other than amounts due with respect to Taxes) shall be
held in trust therefor and, forthwith after receipt by the Seller or such
Affiliates thereof, be transferred and delivered by the Seller and such
Affiliates to the Company or such Continuing Subsidiaries, as appropriate, and
any such instruments made payable to the Seller or such Affiliates when so
delivered shall bear all endorsements required to effectuate the transfer of the
same to the Company or such Continuing Subsidiaries, as the case may be.
5.15. No-Hire Covenant. At all times from the Closing Date
until the second anniversary thereof, the Seller will not, and will cause its
Affiliates not to, directly or indirectly employ or hire any person set forth on
Schedule 5.15 or encourage any such person to leave such employment.
5.16. Covenant Not To Compete. (a) The Seller agrees that,
for a period of one year after the Closing Date, it shall not and shall not
permit any of its current or future Affiliates to compete directly or indirectly
with the Company or the Continuing Subsidiaries and shall not
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and shall not permit any of its current or future Affiliates to engage or
participate, directly or indirectly, in the reinsurance business ("Competing
Business"), provided that nothing in the foregoing shall preclude Underwriters
U.K. from undertaking through those of its Subsidiaries which engage, whether as
principal or agent, in the business of insurance at Lloyd's, any business or
activity in which such business may lawfully engage and which relates to the
underwriting of insurance or reinsurance at Lloyd's. The Seller agrees that, for
a period of one year after the Closing Date, it shall not and shall not permit
any of its current or future Affiliates to acquire any interest in a company
engaged in a Competing Business in the United States. Notwithstanding the
foregoing, the Seller (i) may own, directly or indirectly, solely as an
investment, securities of any Person traded on any national securities exchange
that engages in a Competing Business if the Seller is not a member of a group
that controls such Person and does not, directly or indirectly, own 9.9% or more
of any class of securities of such Person and (ii) may make additional
investments in Lloyd's entities without limitation.
(b) The Seller agrees that, for a period of one year after
the Closing Date, it shall not disclose to any Person not employed by the
Company or any of its Subsidiaries or not engaged to render services to the
Company or any of its Continuing Subsidiaries, and that it shall not use for the
benefit of itself or others, any confidential information of the Company or any
of its Continuing Subsidiaries and other Affiliates obtained by it while the
Seller was a stockholder of the Company; provided, however, that this provision
shall not preclude the Seller from use or disclosure of information if (i) use
or disclosure of such information shall be required by applicable law or order
of any Governmental Entity, (ii) use or disclosure of such information is
reasonably required in connection with any claim against or involving the Seller
or (iii) such information is readily ascertainable from public or published
information (other than information known generally to the public as a result of
a violation of this Section 5.16(b) by the Seller) or is known or subsequently
developed by the Seller outside of its affiliation with the Company.
(c) The Seller agrees that a monetary remedy for a breach
of the agreement set forth in this Section 5.16 will be inadequate and
impracticable and further agrees that such a breach would cause the Purchaser
irreparable harm, and that the Purchaser shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damages. In
the event of such a breach, the Seller agrees that the Purchaser shall be
entitled to such injunctive relief, including temporary restraining orders and
preliminary and permanent injunctions as determined by a court of competent
jurisdiction.
(d) If any provision of this Section 5.16 is held invalid
in part, it shall be curtailed, both as to time and location, to the minimum
extent required for its validity and shall be binding and enforceable with
respect to the Seller as so curtailed.
5.17. Reinsurance and Retrocession Agreements. Except as
set forth on Schedule 5.17, the Seller shall cause the Company and each of its
Subsidiaries not to, without the prior written consent of the Purchaser, enter
into or commit to enter into any Outbound Reinsurance Contract or commute,
amend, terminate or replace any Outbound Reinsurance Contract if the effect of
any such action, considered together with all other such actions taken
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after the date hereof, would materially alter the terms and conditions of the
reinsurance ceded by the Company and the Continuing Subsidiaries considered in
the aggregate.
5.18. Distribution of Underwriters U.K. Shares. Prior to
the Closing, the Seller shall cause the Company and its Subsidiaries to take
such action as is necessary to cause the distribution of 100% of the outstanding
equity interests of Underwriters U.K. to the Seller (such distribution being
referred to herein as the "Underwriters U.K. Dividend").
5.19. BN Sale. Prior to the Closing, the Seller shall cause
the Company and its Subsidiaries to sell at fair market value all of the shares
of BN Corporation owned by the Company and its Subsidiaries for cash on terms
and conditions that do not provide for any Liability or obligation of any kind
on the part of the Company and its Subsidiaries (other than taxes payable in
respect of such sale for which adequate reserves have been reflected on the
Closing Balance Sheet) (the "BN Sale").
5.20. Options. (a) The Seller and/or the Company shall use
its best efforts to ensure that, immediately prior to the Closing, all
outstanding options to purchase any securities of the Company or any of its
Subsidiaries ("Company Options") shall be canceled and shall be of no further
force or effect. Either (x) the Seller and/or the Company will provide the
Purchaser with evidence of such cancellation prior to the Closing or (y) the
Seller shall fully indemnify the Company and the Purchaser for any Adverse
Consequences associated with the cancellation of such options in excess of
amounts accrued on the Closing Balance Sheet in accordance with Section 8.2(a).
(b) The Seller shall retain all Liabilities and obligations
with respect to any options to acquire securities of the Seller ("Seller
Options") held by any Employees of the Company or its Continuing Subsidiaries
irrespective of whether such Seller Options were granted under a plan of the
Seller, the Company, its Subsidiaries or otherwise. The Seller shall be entitled
to all proceeds of exercises of the Seller Options and, subsequent to the
Closing, the Purchaser shall cause the Company to pay over to the Seller any
such proceeds received by it. The Purchaser will, and will cause the Company and
the Continuing Subsidiaries to, in each case at the Seller's expense, cooperate
reasonably with the Seller to facilitate exercises of Seller Options which occur
after the Closing.
5.21. Stay Bonuses; Severance; Other Plans.
(a) Stay Bonuses. Schedule 5.21 lists all existing stay
bonus or similar arrangements for Employees. The Seller shall retain
responsibility and Liability for any such arrangements with respect to employees
of Venton Holdings Ltd. (UK) and its Subsidiaries ("Venton Employees"). The
Company shall retain responsibility and Liability for all other such
arrangements.
(b) Severance Plans. As of the Closing, all Employees
(other than Venton Employees) will participate in the Purchaser's Severance Pay
Plan for U.S. employees, and for purposes of entitlement to severance benefits,
will receive credit for all years of service with the
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Company or the Continuing Subsidiaries prior to the Closing. Seller shall cause
the Company to terminate any other severance pay plans covering Employees not
later than the Closing.
(c) Incentive Plans. (i) Seller will assume liability for
payments to be made to all Venton Employees under any incentive or bonus plans
maintained by the Company or the Subsidiaries.
(ii) No further grants will be made under the Company's
1998 Long Term Incentive Plan after the date hereof.
(d) Golden Parachutes. The Seller agrees to structure all
stay bonuses, severance and other compensation arrangements for compensation to
be paid prior to the Closing Date ("Pre-Closing Payments") to any person who is
a "disqualified person" (within the meaning of Section 280G(c) of the Code) by
the Seller (whether directly or indirectly, including by any other Person whose
relationship to the Seller is such as to require attribution of stock ownership
with the Seller under Section 318(a) of the Code), the Company or the Continuing
Subsidiaries so that (i) no portion of such Pre-Closing Payments will constitute
a "parachute payment" under Section 280G(b)(2)(A) of the Code (a "Parachute
Payment"), and (ii) with respect to Pre-Closing Payments made to the persons
identified on Schedule 5.21 as disqualified persons, no portion of such
Pre-Closing Payments, when combined with payments made to such persons on or
after the Closing Date which are considered to be contingent on a change (I) in
the ownership or effective control of the Seller, or (II) in the ownership of a
substantial portion of the assets of the Seller, within the meaning of Section
280G(b)(2)(a)(i) of the Code ("Post-Closing 280G Payments"), will constitute a
Parachute Payment, provided that the aggregate present value of such
Post-Closing 280G Payments (as determined under Section 280G of the Code) does
not exceed the amount set forth opposite each such disqualified person's name in
Schedule 5.21 (such amount, for each such disqualified person, being referred to
as the "Parachute Payment Shortfall"). The Seller will not make any payments
whatsoever on or after the Closing Date to any disqualified person if such
payment would cause such disqualified person's Parachute Payment Shortfall to
decrease. The Purchaser agrees to indemnify and hold harmless the Seller for any
Taxes imposed upon, or assumed by Seller pursuant to Section 8.2(b) of this
Agreement, by reason of any Post-Closing 280G Payment made by the Purchaser
(whether directly or indirectly, including by any other Person whose
relationship to the Purchaser is such as to require attribution of stock
ownership with the Purchaser under Section 318(a) of the Code), the Company or
the Continuing Subsidiaries to any such disqualified person, but only if the
present value of such Post-Closing 280G Payment (as determined under Section
280G of the Code) exceeds such disqualified person's Parachute Payment
Shortfall.
(e) Pension and Welfare Benefit Plans. As of and after the
Closing, all Employees will, at the Purchaser's option, either become
participants in the pension and welfare benefit plans ("Benefit Plans") of the
Purchaser or will continue to participate in existing Plans of the Company and
the Continuing Subsidiaries. Employees who become participants in the
Purchaser's Benefit Plans will receive credit for service with the Company and
the Continuing Subsidiaries for eligibility and vesting purposes, but not for
purposes of benefit accrual.
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5.22. Indemnification of Brokerage. The Seller agrees to
pay the Seller's Fee and to indemnify and hold harmless the Purchaser from any
claim or demand for commission or other compensation by any Investment Broker
claiming to have been employed by or on behalf of the Company, any of its
Subsidiaries or the Seller in connection with the transactions contemplated
hereby, and to bear the cost of legal expenses incurred in defending against any
such claim. The Purchaser agrees to pay the Purchaser's Fee and to indemnify and
hold harmless the Seller from any claim or demand for commission or other
compensation by any Investment Broker claiming to have been employed by or on
behalf of the Purchaser in connection with the transactions contemplated hereby,
and to bear the cost of legal expenses incurred in defending against any such
claim.
5.23. Transitional Assistance. For a period not to extend
past the first anniversary of the Closing Date, the Purchaser agrees to make
available to the Seller at reasonable times the services of the Company
personnel who have heretofore been responsible for financial reporting and
accounting matters relating to the operations of Underwriters U.K. for the
purpose of providing assistance to the Seller with regard to the review of such
matters. The Seller will reimburse the Company for any costs incurred in
connection with providing such assistance. The Seller acknowledges that none of
the Purchaser, the Company or any Continuing Subsidiary shall be responsible
for, or have any liability to, the Seller arising out of any action or failure
to act by such employee with respect to such assistance.
5.24. Certain Matters. Prior to the Closing, the Company
shall adopt practices that will enable it to comply with the Texas statistical
data reporting requirement from and after January 1, 2000. The Purchaser shall
cause the Company to use commercially reasonable efforts (i) to take such
reasonable actions with respect to the right of offset under the Auto Treaty as
the Seller may direct and (ii) except as directed by the Seller, not to take
any action which would impact in any material respect the right of offset under
the Auto Treaty (other than to rescind or commute the Auto Treaty, which the
Purchaser may elect to do in its sole discretion). To the extent that,
subsequent to the Closing, the Auto Treaty has not been rescinded and
additional margin is earned on the Auto Treaty, the Purchaser shall pay to the
Seller an amount equal to 50% of such additional margin, such payment to be
made on the third anniversary of the Closing Date.
ARTICLE VI.
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Shares at
the Closing shall be subject to the satisfaction of the following conditions at
or prior to the Closing (unless waived by the Purchaser):
6.1. Representations, Warranties and Covenants. Except as
set forth in the following sentence, each of the representations and warranties
of the Seller contained in this Agreement which are qualified as to materiality
shall be true and correct in all respects, and each of those not so qualified
shall be true and correct in all material respects, as of the date of this
Agreement and, except for any such representations and warranties which are made
as of and relate solely to a particular date (which shall be true and correct as
of such date), as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. The representation and warranty set forth in
Section 3.8 (Title to Shares) shall be true and correct in all respects as of
the date of this Agreement and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date. The Seller shall have
performed and complied in all material respects with all covenants and
agreements (other than those in Section 5.18, Section 5.19 and Section 5.20)
required to be performed or complied with by the Seller on
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or prior to the Closing Date. The Seller shall have performed and complied in
all respects with the covenants and agreements contained in Section 5.18,
Section 5.19 and Section 5.20.
6.2. Consents. All Consents set forth on Schedule 6.2 or
otherwise required in connection with the purchase and sale of the Shares and
the consummation of the Closing shall have been duly obtained, made or given and
shall be in full force and effect, without the imposition upon the Purchaser,
the Company or its Subsidiaries or any of their respective Affiliates of any
material condition, restriction or required undertaking or any conditions or
restrictions which, individually or in the aggregate, (i) impair or interfere
with the ability of the Purchaser or the Company and its Subsidiaries, taken as
a whole, to conduct their respective businesses substantially in the manner as
such businesses are now being conducted, (ii) impair or interfere with the
ability of any Affiliate of the Purchaser to conduct its business substantially
in the manner as such business is now being conducted if such impairment or
interference, individually or in the aggregate, is material to the Purchaser's
North American property and casualty reinsurance operations or (iii) have or are
reasonably likely to have a Material Adverse Effect.
6.3. No Proceedings. No injunction, order, decree or
judgment shall have been issued by any Governmental Entity of competent
jurisdiction and be in effect, and no statute, rule or regulation shall have
been enacted or promulgated by any Governmental Entity and be in effect, which
in each case restrains or prohibits the consummation of the purchase and sale of
the Shares or imposes material limitations on the ability of the Purchaser to
exercise full rights of ownership of the Shares or requires the divestiture by
the Purchaser of the Shares or by the Company, the Purchaser or any of their
Affiliates of any material assets or businesses. No action or proceeding before
any court or regulatory authority, domestic or foreign, shall have been
instituted or threatened by (i) any Governmental Entity which seeks to prevent
or delay the consummation of the purchase and sale of the Shares, impose
material limitations on the ability of the Purchaser to exercise full rights of
ownership of the Shares, require the divestiture by the Purchaser of the Shares
or by the Company, the Purchaser or any of their Affiliates of any material
assets or businesses, or which challenges the validity or enforceability of this
Agreement or (ii) by any other Person which seeks to prevent or delay the
consummation of the purchase and sale of the Shares, impose material limitations
on the ability of the Purchaser to exercise full rights of ownership of the
Shares, require the divestiture by the Purchaser of the Shares or by the
Company, the Purchaser or any of their Affiliates of any material assets or
businesses, or which challenges the validity or enforceability of this Agreement
unless the Seller agrees to fully indemnify in accordance with Article VIII
hereof the Purchaser and any Purchaser Indemnitee from any and all Adverse
Consequences resulting from or arising out of such action or proceeding,
including any settlement thereof, to the extent such damages are not already
subject to indemnification by the Seller pursuant to Article VIII hereof or a
separate agreement of the Seller.
6.4. HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
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6.5. Opinions of Counsel to the Seller. The Purchaser shall
have received the opinion of Dewey Ballantine LLP, or other counsel to the
Seller, which counsel is reasonably acceptable to the Purchaser, dated the
Closing Date, and substantially in the form attached hereto as Exhibit B.
6.6. Certificates. The Seller shall have delivered to the
Purchaser a certificate dated the Closing Date, signed by an executive officer
thereof, certifying as to the fulfillment of the conditions set forth in Section
6.1. In addition, the Seller shall have furnished the Purchaser with such other
certificates and closing documents as the Purchaser may reasonably request and
as are customary for transactions such as those contemplated hereby.
6.7. Resignation of Directors. Any directors of the Company
and the Continuing Subsidiaries who are designated by the Purchaser for
replacement shall have delivered to the Purchaser their written resignations as
directors of such companies, effective upon the Closing.
6.8. Transfer Taxes. The Seller shall have caused all
appropriate stock transfer Tax stamps to be affixed to the certificate or
certificates representing the Shares so sold and delivered. The Seller, the
Company and the Purchaser shall cooperate in the preparation, execution and
filing of all returns, applications or other documents regarding any real
property transfer, transfer gains or similar taxes (including, without
limitation, any New York State Real Estate Transfer Tax) which become payable in
connection with the sale of the Shares pursuant to this Agreement (collectively,
"Transfer Taxes"). The Seller and the Purchaser each shall pay one-half of any
Transfer Taxes shown as due on such returns; provided, however, that in no event
shall the Purchaser's liability for Transfer Taxes exceed $30,000.
6.9. No Material Adverse Change. Since September 30, 1999,
no change or event has occurred or condition exists that, individually or in the
aggregate, has had or would be reasonably likely to have a Material Adverse
Effect.
6.10. Employment Agreements. The employment agreements
dated the date hereof between the Company and each of the Employees named in
Schedule 6.10 shall be in full force and effect (the "Employment Agreements").
6.11. Retrocession Agreements. The New Retro shall be in
full force and effect.
ARTICLE VII.
CONDITIONS TO THE OBLIGATIONS OF THE SELLER TO CLOSE
The obligations of the Seller to sell the Shares at the
Closing shall be subject to the satisfaction of the following conditions at or
prior to the Closing (unless waived by the Seller):
7.1. Representations, Warranties and Covenants. Each of the
representations and warranties of the Purchaser contained in this Agreement
which are qualified as to materiality
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shall be true and correct in all respects, and each of those not so qualified
shall be true and correct in all material respects, as of the date of this
Agreement and, except for any such representations and warranties which are made
as of and relate solely to a particular date (which shall be correct as of such
date), as of the Closing Date with the same force and effect as though made on
and as of the Closing Date. The Purchaser shall have performed and complied in
all material respects with all covenants and agreements required to be performed
or complied with by the Purchaser hereunder on or prior to the Closing Date.
7.2. Consents. All of the Purchaser Insurance Approvals
shall have been duly obtained, made or given and shall be in full force and
effect.
7.3. No Proceedings. No injunction, order, decree or
judgment shall have been issued by any Governmental Entity of competent
jurisdiction and be in effect, and no statute, rule or regulation shall have
been enacted or promulgated by any Governmental Entity and be in effect, which,
in each case restrains or prohibits the consummation of the purchase and sale of
the Shares; and no action or proceeding before any court or regulatory
authority, domestic or foreign, shall have been instituted or threatened by (i)
any Governmental Entity which seeks to prevent or delay the consummation of the
purchase and sale of the Shares or which challenges the validity or
enforceability of this Agreement or (ii) by any other Person which seeks to
prevent or delay the consummation of the purchase and sale of the Shares or
which challenges the validity or enforceability of this Agreement unless the
Purchaser agrees to fully indemnify in accordance with Article VIII hereof the
Seller and any Seller Indemnitee from any and all Adverse Consequences resulting
from or arising out of such action or proceeding, including any settlement
thereof, to the extent such damages are not already subject to indemnification
by the Purchaser pursuant to Article VIII hereof or a separate agreement of the
Purchaser.
7.4. HSR Act. The required waiting period applicable to the
purchase and sale of the Shares under the HSR Act shall have expired or been
earlier terminated.
7.5. Opinion of Counsel to the Purchaser. The Seller shall
have received the opinion of Willkie Farr & Gallagher, counsel to the Purchaser,
or other counsel to the Purchaser which counsel is reasonably acceptable to the
Seller, dated the Closing Date, and substantially in the form attached hereto as
Exhibit C.
7.6. Certificates. The Purchaser shall have delivered to
the Seller a certificate dated the Closing Date, signed by an executive officer
thereof, certifying as to the fulfillment of the conditions set forth in Section
7.1.
ARTICLE VIII.
INDEMNIFICATION
8.1. Survival. The representations, warranties, covenants
and agreements of the parties contained in this Agreement shall survive the
Closing hereunder and continue in full force and effect as follows:
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(a) the representations and warranties set forth in Section
3.6 (Capitalization of Company), Section 3.7 (Capitalization of Subsidiaries),
Section 3.8 (Title to Shares), Section 3.32 (No Brokers) and Section 3.33
(Environmental Matters) shall survive indefinitely;
(b) the representations and warranties set forth in Section
3.24 (Employee Benefit Plans) and Section 3.28 (Tax Matters) shall survive for
the applicable statutes of limitation;
(c) the representations and warranties set forth in this
Agreement (other than those referred to in Section 8.1(a) and 8.1(b) and other
than those set forth in Section 3.1 (Organization and Qualification of the
Seller), Section 3.2 (Authorization, Validity and Enforceability), Section 3.3
(No Conflicts), Section 3.4 (Consents and Approvals), Section 3.11
(Liabilities), Sections 3.12(a) and (b) (Absence of Changes), Section 3.17(c)
(Agents and Producers; Fronting), and Section 3.30 (Affiliate Transactions),
which shall survive for the period prescribed in Section 8.1(d)) shall not
survive the Closing;
(d) (i) the representations and warranties set forth in
Section 3.1 (Organization and Qualification of the Seller), Section 3.2
(Authorization, Validity and Enforceability), Section 3.3 (No Conflicts),
Section 3.4 (Consents and Approvals), Section 3.11 (Liabilities), Section
3.12(b) (Absence of Changes), Section 3.17(c) (Agents and Producers; Fronting),
and Section 3.30 (Affiliate Transactions) of this Agreement shall expire on the
first anniversary of the Closing Date and (ii) the representations and
warranties set forth in Section 3.12(a) (Absence of Changes) of this Agreement
shall expire on the first anniversary of the date hereof; and
(e) no claim or action for breach of any representation or
warranty shall be asserted or maintained by any party hereto after the
expiration thereof pursuant to the preceding clauses (a), (b), (c) and (d)
except for claims made in writing after the Closing Date and prior to such
expiration or actions (whether instituted before or after such expiration) based
on any claim made in writing after the Closing Date and prior to such
expiration. All rights in respect of any breach of any covenant or agreement set
forth in this Agreement shall survive indefinitely unless otherwise expressly
provided for herein. Except as set forth in clause (B) of the proviso to Section
8.2(a) below, in the event of a breach of any of such representations,
warranties, covenants or agreements, the party to whom such representations,
warranties, covenants or agreements have been made shall have all rights and
remedies for such breach available to it under the provisions of this Agreement,
whether at law or equity, regardless of any knowledge of, disclosure to, or
investigation made by or on behalf of, such party on or before the Closing Date.
8.2. Indemnification of the Purchaser. (a) Subject to the
limitations set forth in Section 8.1 above and, except in the case of any claim
related to Taxes (a "Tax Claim"), which shall be governed exclusively by Section
8.2(b) of this Agreement, the Seller agrees to indemnify the Purchaser and its
successors, permitted assigns, directors, officers, employees and Affiliates
("Purchaser Indemnitees") from and against all liabilities, losses, expenses,
and fees, including court costs and reasonable attorneys' fees and expenses
("Adverse Consequences"), arising out of or resulting from (x) any breach of any
representation or warranty of the Seller contained in this
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Agreement or in any certificate delivered to the Purchaser in connection with
the Closing, (y) the breach or nonperformance of any covenant or agreement of
the Seller contained in this Agreement, and (z) (1) the BN Sale and (2) the
exercise, cancellation or other disposition of the Company Options to the extent
the Liabilities are in excess of amounts accrued on the Closing Balance Sheet in
respect of such Company Options, and any and all actions, suits, proceedings,
judgments, costs and expenses incidental to any of the foregoing; provided,
however, that (A) for purposes of the indemnification provided under Section
8.2(a)(x) (other than in respect of the breach or inaccuracy of Sections 3.6,
3.7, 3.8, 3.24 and 3.28 to which the deductible shall not apply), the Seller
shall have no obligation to indemnify the Purchaser Indemnitees until such time,
if any, as, and only to the extent that, the aggregate amount of the Adverse
Consequences arising out of all such breaches exceeds $15,000,000 and (B) for
purposes of the indemnification provided under Section 8.2(a)(x), the Seller
shall have no obligation to indemnify the Purchaser Indemnitees in respect of a
breach of Section 3.12(a) to the extent the event giving rise to the breach
occurred after the date of this Agreement and either was disclosed in writing to
the Purchaser or the Purchaser otherwise had knowledge of the event prior to the
Closing; and provided, further, that for purposes of the indemnification
provided in Section 8.2(a)(x), the obligations of the Seller to indemnify the
Purchaser Indemnitees shall be limited to the aggregate payments equal to the
Purchase Price (other than in respect of the breach or inaccuracy of the
representation and warranties set forth in Sections 3.28 and 3.33 which shall
not be so limited). For purposes of the indemnification provided in Section
8.2(a)(x), in determining whether the representations and warranties of the
Seller have been breached, no effect will be given to any materiality qualifier
or dollar threshold set forth in such representations and warranties or related
definitions.
(b) Seller Indemnity for Taxes. The Seller shall indemnify
and hold harmless the Purchaser, the Company, and the Continuing Subsidiaries
and their respective successors and permitted assigns from all Adverse
Consequences without duplication attributable to Pre-Closing Taxes. For purposes
of this Agreement, "Pre-Closing Taxes" shall mean (i) all liability for Taxes of
the Company and its Continuing Subsidiaries for Pre-Closing Tax Periods if, and
to the extent that, such Taxes exceed the provision for Taxes on the Closing
Balance Sheet (excluding any provision for current federal income Taxes) and the
Seller's portion of the Straddle Period (as set forth below); (ii) all liability
resulting by reason of the failure of the Company or Continuing Subsidiaries to
file any Tax Returns that are required to be filed (with extensions) on or
before the Closing Date; (iii) all liability resulting by reason of the several
liability of the Company and its Continuing Subsidiaries pursuant to Treasury
Regulations Section 1.1502-6 or any analogous state, local or foreign law or
regulation or by reason of the Company and its Continuing Subsidiaries having
been a member of any consolidated, combined or unitary group on or prior to the
Closing Date; (iv) all liability for Taxes resulting by reason of the Company
and its Continuing Subsidiaries ceasing to be members of the affiliated group
(within the meaning of section 1504(a) of the Code) that includes the Seller on
the Closing Date; (v) all liability attributable to any misrepresentation or
breach of warranty made by the Seller in Section 3.28 of this Agreement; (vi)
all liability for Taxes attributable to the breach of any covenant under Section
5.9 or 6.8 of this Agreement; (vii) all Taxes attributable to the BN Sale and
the Underwriters U.K. Dividend; and (viii) all liability for Taxes of any other
Person pursuant to any Contract entered into on or before the Closing Date. Any
taxable period of the Company or any of the
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Continuing Subsidiaries that begins before the Closing Date and ends after the
Closing Date shall constitute a "Straddle Period" for purposes of this
Agreement. In the case of a Straddle Period, the Seller shall be solely
responsible for all Taxes attributable to the portion of the period ending on,
and which includes, the Closing Date, and the Purchaser shall be solely
responsible for all Taxes attributable to the portion of the period which begins
after the Closing Date. For purposes of this Agreement, the portion of any Tax
that is attributable to the portion of a Straddle Period up to and including the
Closing Date shall be (i) in the case of a Tax that is not based on net income,
gross income, sales or gross receipts (including real property taxes), the total
amount of such Tax for the period in question multiplied by a fraction, the
numerator of which is the number of days in the Straddle Period up to and
including the Closing Date, and the denominator of which is the total number of
days in such Straddle Period, and (ii) in the case of a Tax that is based on any
of net income, gross income, sales or gross receipts, the Tax would be due with
respect to the portion of the Straddle Period through and including the Closing
Date, if such portion of the Straddle Period were a separate Pre-Closing Tax
Period and such Tax were calculated with the methodology in Section 5.9(e)
hereof, except that exemptions, allowances, deductions or credits that are
calculated on an annual basis (such as the deduction for depreciation or capital
allowances) shall be apportioned on a per diem basis.
(c) In the case of any Tax Return for any Straddle Period,
the Purchaser shall provide the Seller with copies of the completed Tax Return
for such taxable period, together with such related work papers and other
documents as the Seller shall reasonably request, no later than thirty (30) days
before the due date for the filing of such Tax Return. The Seller and its
authorized representatives shall have the right to review the Tax Returns
received from the Purchaser pursuant to the terms of this Section 8.2(c). The
Seller and the Purchaser agree to consult each other and resolve in good faith
any issues arising under the terms of this Section 8.2(c) as a result of the
review of any such Tax Returns received from the Purchaser. If the parties are
unable to resolve any dispute within sixty (60) business days after the receipt
of any such Tax Returns, the parties shall refer the dispute to the Neutral
Auditors to act as an arbitrator to resolve the disagreement. The Neutral
Auditors' determination shall be final and binding upon the parties, and all
fees and expenses relating to the engagement of the Neutral Auditors shall be
shared equally by the Seller and the Purchaser. If such disputes have not been
resolved prior to the due date for filing of such Tax Return, the Tax Return in
question, to the extent any issues thereon remain unresolved, shall be filed in
accordance with the positions taken by the Purchaser provided that the fact that
such Tax Return will have been filed in accordance with the Purchaser's position
shall not be taken into account for purposes of any dispute resolution. If a
determination is made by the Neutral Auditors after a Tax Return is filed that
the Purchaser's position was inappropriate, the Purchaser shall promptly file an
amended Tax Return (to the extent permitted by applicable law) reflecting the
final decision of the Neutral Auditors, and the Purchaser shall pay the amount
of any refund of Tax (or the portion thereof attributable to the Seller) shown
on such amended Tax Return to the Seller no later than three (3) days after the
date of the filing of such amended Tax Return.
(d) Any refund of Taxes with respect to the Company or any
of the Continuing Subsidiaries that is received with respect to any Pre-Closing
Tax Period shall be for the account of the Seller. To the extent that the
Purchaser, the Company or any Continuing
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Subsidiary thereof receives any such refund of Taxes after the Closing Date with
respect to any such Pre-Closing Tax Period, the amount of such refund of Taxes
shall be promptly paid to the Seller.
8.3. Indemnification Provisions for Benefit of the Seller.
The Purchaser agrees to indemnify the Seller and its successors, permitted
assigns, directors, officers, employees and Affiliates ("Seller Indemnitees")
from and against all Adverse Consequences arising out of or resulting from (a)
any breach of any representation or warranty of the Purchaser contained in this
Agreement, or (b) the breach or nonperformance of any covenant or agreement of
the Purchaser contained in this Agreement, and any and all actions, suits,
proceedings, judgments, costs and expenses incidental to the foregoing;
provided, however, that the obligation of the Purchaser to indemnify the Seller
Indemnitees pursuant to this Section 8.3 shall be limited to aggregate payments
equal to the Purchase Price. For purposes of the indemnification provided in
this Section 8.3, in determining whether the representations and warranties of
the Purchaser have been breached, no effect will be given to any materiality
qualifier or dollar threshold set forth in such representations and warranties
or related definitions.
8.4. Matters Involving Third Parties Other Than Tax Claims.
(a) If any third party shall notify any party (the "Indemnified Party") with
respect to any matter (a "Third-Party Claim") which may give rise to a claim for
indemnification against any other party (the "Indemnifying Party") under this
Article VIII, then the Indemnified Party shall promptly (and in any event within
two (2) Business Days after receiving written notice of the Third-Party Claim)
notify the Indemnifying Party thereof in writing; provided, however, that
failure to provide such written notice on a timely basis shall not release the
Indemnifying Party from any of its obligations under this Article VIII except to
the extent the Indemnifying Party is materially prejudiced by such failure.
(b) The Indemnifying Party shall, upon receipt of such
notice and upon its irrevocably and unconditionally notifying the Indemnified
Party in writing that it shall indemnify all Indemnified Parties in respect of
such matter, be entitled to participate in or, at the Indemnifying Party's
option, assume at its own expense the defense, appeal or settlement of such
Third-Party Claim with respect to which such indemnity has been invoked with
counsel of its own choosing (who shall be reasonably satisfactory to the
Indemnified Party), and the Indemnified Party shall fully cooperate with the
Indemnifying Party in connection therewith including contesting such Third-Party
Claim or making any counterclaim against the Person asserting such Third-Party
Claim; provided, however, that if the Indemnifying Party assumes the defense,
appeal or settlement of such Third-Party Claim, (i) the Indemnifying Party shall
reimburse the Indemnified Party for out of pocket expenses incurred by the
Indemnified Party (such as travel costs, but not internal time charges) and (ii)
the Indemnified Party shall be entitled to employ one counsel to represent
itself if an actual conflict of interest exists in the opinion of counsel to the
Indemnified Party between the Indemnifying Party and the Indemnified Party in
respect of such Third-Party Claim and in that event the reasonable fees and
expenses of such counsel shall be paid by the Indemnifying Party (it being
understood that all Indemnified Parties may employ not more than one counsel to
represent them at the expense of the Indemnified Party). Any Indemnified Party
is hereby authorized prior to the date on which its receives
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written notice from the Indemnifying Party that it intends to assume the
defense, appeal or settlement of such Third-Party Claim, to file any motion,
answer or other pleading and take such other action which it shall reasonably
deem necessary to protect its interest or that of the Indemnifying Party until
the date on which the Indemnified Party receives such notice from the
Indemnifying Party, provided that, prior to filing such motion, answer or other
pleading or taking such other action, the Indemnified Party shall have made
reasonable efforts to consult with the Indemnifying Party. In the event that the
Indemnifying Party fails to assume the defense, appeal or settlement of such
Third-Party Claim within twenty (20) days after receipt of notice thereof from
the Indemnified Party, such Indemnified Party shall have the right to undertake
the defense or appeal of or settle or compromise such Third-Party Claim on
behalf of and for the account and risk of the Indemnifying Party.
(c) Except as set forth in Section 8.4(b), no claim or
demand may be settled by the Indemnified Party without the consent of the
Indemnifying Party, which consent shall not be unreasonably delayed or withheld.
Unless the claim or demand seeks only dollar damages (all of which are to be
paid by the Indemnifying Party), no such claim or demand may be settled by the
Indemnifying Party without the consent of the Indemnified Party, which consent
shall not be unreasonably delayed or withheld.
8.5. Matters Involving Tax Claims. If a Tax Claim is made
or threatened by any Taxing Authority that, if successful, may result in an
indemnity payment under Section 8.2(b), the Purchaser shall promptly notify the
Seller, stating the nature and basis of such claim and the amount thereof, to
the extent known. Failure to give such notice shall not relieve the Seller from
any liability that it may have on account of this indemnification or otherwise,
except to the extent that the Seller is prejudiced in the defense of such claim
thereby. The Seller will have the right, at its option, upon timely notice to
the Purchaser, to assume at its own expense control of any audit or other
defense of any Tax Claim (other than a Tax Claim relating solely to Taxes of any
of the Company or its Continuing Subsidiaries for a Straddle Period) with its
own counsel if the Seller acknowledges its indemnification liability for such
claim. The Seller's right to control a Tax Claim will be limited to issues in
respect of which amounts in dispute would be paid by the Seller or for which the
Seller would be liable pursuant to Section 8.2(b). Costs of such Tax Claims are
to be borne by the Seller unless the Tax Claim relates to a Straddle Period, in
which event such costs shall be fairly apportioned. The Purchaser and each of
the Company and the Continuing Subsidiaries at their own expense shall cooperate
with the Seller in contesting any Tax Claim, which cooperation shall include the
retention and, upon the Seller's request, the provision of records and
information that are reasonably relevant to such Tax Claim and making employees
available on a mutually convenient basis to provide additional information or
explanation of any material provided hereunder. Notwithstanding the foregoing,
the Seller shall neither consent nor agree to the settlement of any Tax Claim
with respect to any liability for Taxes that may affect the liability for any
state, federal or foreign income tax of the Company or the Continuing
Subsidiaries or any affiliated group (as defined in section 1504(a) of the Code)
of which any of the Company or the Continuing Subsidiaries is a member for any
Post-Closing Tax Period without the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld and neither the Seller, nor any
entity related to the Seller, shall file an amended Tax Return that may increase
the liability for Taxes of any of the Company or the
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Continuing Subsidiaries for any Post-Closing Tax Period without the prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld. The Purchaser and the Seller shall jointly control all proceedings
taken in connection with any claims for Taxes relating solely to a Straddle
Period of any of the Company or the Continuing Subsidiaries and each party shall
bear its own out-of-pocket costs and expenses of the contest and all joint costs
and expenses of the contest shall be borne in the same ratio as the applicable
proposed Tax would be allocated.
8.6. Matters Not Involving Third-Party Claims. Any
indemnifiable claim that is not a Third-Party Claim shall be asserted by written
notice to the Indemnifying Party.
8.7. Collateral Source Recoveries. The amount of an
indemnification payment in respect of an Adverse Consequence required to be made
to any Purchaser Indemnitee or Seller Indemnitee hereunder shall be limited to
the amount of any Adverse Consequence that remains after deduction therefrom of
(i) any actual and realized Tax benefits received by the Indemnified Party as a
direct result of the Adverse Consequence and (ii) any third-party insurance
recoveries relating to the Adverse Consequence giving rise to the
indemnification claim paid to the Indemnified Party; provided, however, that
nothing in this Section 8.7 shall limit in any way the ability of the Company or
the Purchaser to (i) take (or refrain from taking, as the case may be) any
position for Tax purposes that the Purchaser or the Company determines to take
(or refrain from taking) in its sole discretion, or (ii) refrain from pursuing
any third party insurance recovery that the Purchaser or the Company, as the
case may be, determines would be commercially inadvisable to pursue.
8.8. Purchase Price Adjustment. The Purchaser and the
Seller agree to treat any payments under this Article VIII as an adjustment to
the Purchase Price for all Tax purposes.
8.9. Exclusive Remedy. If the Closing occurs, except as
specifically provided in Section 5.22 hereof, absent fraud, the indemnification
provided for in this Article VIII shall be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement.
ARTICLE IX.
TERMINATION
9.1. Termination of Agreement. This Agreement may be
terminated prior to the Closing:
(a) by either the Purchaser, on the one hand, or by the
Seller, on the other hand, upon written notice to the other if, without fault of
the terminating party, the Closing shall not have occurred on or before April
30, 2000; provided, however, that if all conditions to the obligations of the
Purchaser, on the one hand, and the Seller, on the other hand, to consummate the
Closing (as set forth in Articles VI and VII hereof), other than obtaining the
Insurance Approvals, have then been satisfied, and the Purchaser and/or the
Seller are diligently seeking to obtain such outstanding Insurance Approvals,
then the right to terminate this Agreement pursuant to this clause (a) shall not
be available to any party hereto, and the obligations hereunder of the
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parties hereto shall be extended, until June 30, 2000; and provided, further,
that the right to terminate this Agreement under this Section 9.1(a) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such dates;
(b) at any time by mutual agreement in writing of the
parties hereto;
(c) by the Purchaser if (i) there shall have been a breach
of any representation or warranty (without giving effect to any materiality or
similar qualifications contained therein) of the Seller that has had, or is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect or (ii) there shall have been a breach of any covenant or agreement on
the part of the Seller that has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect, in each case which
breach shall not have been sufficiently cured within ten (10) days following
written notice to the Seller of such breach so that it would no longer have, or
be reasonably likely to have, a Material Adverse Effect;
(d) by the Seller if (i) there shall have been a material
breach of any representation or warranty (without giving effect to any
materiality or similar qualifications contained therein) of the Purchaser or
(ii) there shall have been a material breach of any covenant or agreement on the
part of the Purchaser, in each case which breach shall not have been
sufficiently cured within ten (10) days following written notice to the
Purchaser of such breach so that it would no longer constitute a material
breach;
(e) by the Seller pursuant to, and subject to any
limitations set forth in, Section 2.1(d);
(f) by the Seller or the Purchaser if: (i) there shall be a
final, non-appealable order of a federal, state or foreign court in effect
preventing consummation of the transactions contemplated hereby; or (ii) there
shall be any final action taken, or any final statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the transactions
contemplated hereby by any Governmental Entity that would make consummation of
the transactions contemplated hereby illegal; provided, however, that the right
to terminate this Agreement under this Section 9.1(f) shall not be available to
any party whose breach of any provision or whose failure to perform any
obligation under this Agreement has been the cause of such order, action,
statute, rule or regulation.
9.2. Effect of Termination. Except as provided in the
following sentence, in the event of the termination of this Agreement pursuant
to Section 9.1, this Agreement shall thereafter become void and have no effect,
and no party hereto shall have any liability or obligation to any other party
hereto in respect of this Agreement, except that the provisions of Section 5.6
(Press Releases), Section 5.22 (Indemnification of Brokerage), Article X
(Miscellaneous) and this Section 9.2 shall survive any such termination. Nothing
herein shall relieve any party from liability for any breach of any of its
covenants or agreements or willful breach of its representations or warranties
contained in this Agreement prior to termination of this Agreement or any
obligations hereunder.
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ARTICLE X.
MISCELLANEOUS
10.1. Notices. Any notices and other communications
required to be given pursuant to this Agreement shall be in writing and shall be
effective upon delivery by hand or upon receipt if sent certified or registered
mail (postage prepaid and return receipt requested) or by a nationally
recognized overnight courier service (appropriately marked for overnight
delivery) or upon transmission if sent by telex or facsimile (with request for
immediate confirmation of receipt in a manner customary for communications of
such respective type and with physical delivery of the communication being made
by one of the other means specified in this Section 10.1 as promptly as
practicable thereafter). Notices are to be addressed as follows:
(a) If to the Seller to:
Alleghany Corporation
375 Park Avenue
New York, New York 10152
Attn: Robert M. Hart, Esq.
Telecopy No.: (212) 759-8149
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attn: Aileen C. Meehan, Esq.
Telecopy No.: (212) 259-6333
(b) If to the Purchaser to:
Swiss Re America Holding Company
175 King Street
Armonk, New York 10504
Attn: David J. Walsh, Esq.
Telecopy No.: (914) 828-7000
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attn: John S. D'Alimonte, Esq.
Telecopy No.: (212) 728-8111
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or to such other respective addresses as any of the parties hereto shall
designate to the others by like notice, provided that notice of a change of
address shall be effective only upon receipt thereof.
10.2. Fees and Expenses. Except as provided herein, each of
the parties hereto shall pay its own respective fees and expenses (including,
without limitation, the fees of any other attorneys, accountants, investment
bankers or other Representatives) incurred in connection with this Agreement and
the transactions contemplated hereby, whether or not such transactions are
consummated. Without limiting the foregoing, the fees and expenses of the
Company incurred prior to the Closing in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Company and shall be fully
accrued on the Closing Balance Sheet.
10.3. Entire Agreement; Waivers and Amendments. This
Agreement (including the Exhibits and Schedules hereto and the documents and
instruments referred to herein) contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all
prior written or oral agreements and understandings with respect thereto. This
Agreement may be amended or modified, and the terms hereof may be waived, only
by a writing signed by all parties hereto or, in the case of a waiver, by the
party entitled to the benefit of the terms being waived.
10.4. Assignment; Binding Effect. This Agreement may not be
assigned or delegated, in whole or in part, by any party hereto without the
prior written consent of the other party hereto, except that the Purchaser shall
have the right at any time, without such consent, to assign, in whole or in
part, its rights hereunder to any wholly owned Subsidiary of Swiss Reinsurance
Company, provided that such assignment shall not relieve the Purchaser of any of
its obligations hereunder. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
10.5. Severability. If any provision of this Agreement
shall be declared invalid or unenforceable by a court of competent jurisdiction
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
However, if any such provision shall be declared unenforceable due to its scope,
breadth or duration, then it shall be modified to the scope, breadth or duration
permitted by law or Governmental Entities and shall continue to be fully
enforceable as so modified.
10.6. No Third-Party Beneficiaries. This Agreement is for
the benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder.
10.7. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the principles of conflicts of law thereof.
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10.8. Consent to Jurisdiction. Except as otherwise
expressly provided in this Agreement, the parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in the United States District Court for the
Southern District of New York or any New York State court sitting in Manhattan,
and each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in this Section 10.8 shall be
deemed effective service of process on such party.
10.9. Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.10. Interpretation. This Agreement is the result of
arms-length negotiations between the parties hereto and has been prepared
jointly by the parties. In applying and interpreting the provisions of this
Agreement, there shall be no presumption that the Agreement was prepared by any
one party or that the Agreement shall be construed in favor of or against any
one party.
10.11. Captions. The Article and Section headings in this
Agreement are inserted for convenience of reference only, and shall not affect
the interpretation of this Agreement.
10.12. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
10.13. Extension; Waiver. At any time prior to the Closing
Date, either party may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement of the other party or (c) waive compliance
with any of the agreements or conditions contained in this Agreement of the
other party. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No delay on the part of any party in exercising any right
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right nor any single or partial exercise of any such right
preclude any further exercise thereof or the exercise of any other such right.
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IN WITNESS WHEREOF, each of the parties has executed this
Agreement as of the date first written above.
ALLEGHANY CORPORATION
By: /s/ John J. Burns, Jr.
----------------------------
Name: John J. Burns, Jr.
Title: President and chief
executive officer
SWISS RE AMERICA HOLDING
CORPORATION
By: /s/ James P. Slattery
----------------------------
Name: James P. Slattery
Title: President
By: /s/ John Baily
----------------------------
Name: John Baily
Title: Vice President
64
