EXHIBIT 10.1
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ACQUISITION AGREEMENT
By and Between
ROYAL GROUP, INC.
and
ALLEGHANY INSURANCE HOLDINGS LLC
Dated as of June 6, 2003
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TABLE OF CONTENTS
Page
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ARTICLE I THE CLOSING................................................................................... 2
Section 1.1 Sale and Purchase............................................................... 2
Section 1.2 Transfer of Acquired Assets..................................................... 2
Section 1.3 Excluded Assets, Excluded Contracts and Retained Liabilities.................... 2
Section 1.4 Quota Share Reinsurance Agreements.............................................. 3
Section 1.5 Administrative Services Agreements.............................................. 3
Section 1.6 Claims Servicing Agreement...................................................... 4
Section 1.7 Renewal Rights Agreement........................................................ 4
Section 1.8 Transition Services Agreement................................................... 4
Section 1.9 Intellectual Property Agreements................................................ 4
Section 1.10 Employee Leasing Agreement...................................................... 4
Section 1.11 Managing General Agency Agreement............................................... 5
Section 1.12 Substitution and Indemnification Agreement...................................... 5
Section 1.13 Assignment of Reinsurance Recoverables.......................................... 5
Section 1.14 Terrorism Treaty Cost Allocation................................................ 5
Section 1.15 RSA SLISI Purchase Agreement.................................................... 5
Section 1.16 Closing......................................................................... 5
Section 1.17 Consideration................................................................... 6
Section 1.18 Purchase Price Adjustment....................................................... 6
Section 1.19 Transfer of Unearned Premium Reserves........................................... 9
Section 1.20 Sharing of Profit Contingency Commissions for the Property Surplus Share
Contracts....................................................................... 10
Section 1.21 Closing Items................................................................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER..................................................... 14
Section 2.1 Organization and Standing....................................................... 14
Section 2.2 Authority....................................................................... 14
Section 2.3 Noncontravention................................................................ 15
Section 2.4 Litigation...................................................................... 15
Section 2.5 Title to the RSUI Shares........................................................ 16
Section 2.6 Brokers and Finders............................................................. 16
ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO ROYAL INSURER AFFILIATES......................... 16
Section 3.1 Organization and Standing....................................................... 16
Section 3.2 Authority....................................................................... 16
Section 3.3 Noncontravention................................................................ 17
Section 3.4 Permits......................................................................... 18
Section 3.5 Litigation...................................................................... 18
Section 3.6 Compliance with Applicable Law.................................................. 18
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ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO RSUI.............................................. 19
Section 4.1 Organization and Standing....................................................... 19
Section 4.2 Noncontravention................................................................ 19
Section 4.3 Capitalization.................................................................. 20
Section 4.4 Financial Statements............................................................ 20
Section 4.5 Accounts........................................................................ 21
Section 4.6 Working Capital................................................................. 21
Section 4.7 Administration of Fiduciary Accounts............................................ 21
Section 4.8 Compliance with Applicable Law.................................................. 21
Section 4.9 Permits......................................................................... 22
Section 4.10 Litigation...................................................................... 22
Section 4.11 All Necessary Assets............................................................ 22
Section 4.12 Absence of Certain Changes...................................................... 22
Section 4.13 Taxes........................................................................... 22
Section 4.14 Employee Benefit Plans; ERISA................................................... 23
Section 4.15 Intellectual Property........................................................... 26
Section 4.16 Material Business Contracts..................................................... 28
Section 4.17 Intercompany Agreements; Transactions with Affiliates; Intercompany Accounts.... 29
Section 4.18 Insurance Coverage.............................................................. 30
Section 4.19 Books and Records............................................................... 30
ARTICLE V REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS....................................... 30
Section 5.1 RSUI-Produced Insurance Contracts............................................... 30
Section 5.2 Producer Relationships.......................................................... 31
Section 5.3 Third Party Reinsurance Contracts............................................... 32
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................. 33
Section 6.1 Organization and Standing....................................................... 33
Section 6.2 Authority....................................................................... 33
Section 6.3 Noncontravention................................................................ 34
Section 6.4 Litigation...................................................................... 34
Section 6.5 Purchase of the RSUI Shares for Investment...................................... 35
Section 6.6 Sufficient Funds and Balance Sheet Support...................................... 35
Section 6.7 Brokers and Finders............................................................. 35
ARTICLE VII REPRESENTATIONS AND WARRANTIES RELATING TO AIHL INSURANCE CO................................ 36
Section 7.1 Organization and Standing....................................................... 36
Section 7.2 Authority....................................................................... 36
Section 7.3 Noncontravention................................................................ 36
Section 7.4 Permits......................................................................... 37
Section 7.5 Compliance with Applicable Law.................................................. 37
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ARTICLE VIII GENERAL COVENANTS.......................................................................... 37
Section 8.1 Conduct of Business Pending the Closing......................................... 37
Section 8.2 Exclusivity..................................................................... 41
Section 8.3 Pre-Closing Access and Transition Matters....................................... 41
Section 8.4 Post-Closing Access............................................................. 42
Section 8.5 Governmental Entity Consents and Filings; Rating Agencies....................... 43
Section 8.6 Non-Governmental Consents....................................................... 44
Section 8.7 Further Assurances.............................................................. 46
Section 8.8 Expenses........................................................................ 46
Section 8.9 Public Announcements............................................................ 46
Section 8.10 Notice of Adverse Developments.................................................. 47
Section 8.11 Policy Form, Rate and Rule Filings.............................................. 47
Section 8.12 Intercompany Balances........................................................... 47
Section 8.13 Affiliate Agreements............................................................ 48
Section 8.14 Insurance Matters............................................................... 48
Section 8.15 Resignation of RSUI Directors................................................... 48
Section 8.16 Disposition of Business......................................................... 48
Section 8.17 Transfer of Excluded Assets, Excluded Contracts and Retained Liabilities........ 48
Section 8.18 Indemnification of Brokerage.................................................... 49
Section 8.19 Interim Financial Statements.................................................... 49
Section 8.20 Corporate Records............................................................... 49
Section 8.21 Instruments..................................................................... 49
Section 8.22 Cooperation..................................................................... 50
ARTICLE IX ADDITIONAL COVENANTS......................................................................... 50
Section 9.1 Trademarks; Change of Corporate Names........................................... 50
Section 9.2 Other Intellectual Property Matters............................................. 51
Section 9.3 Noncompetition and Nonsolicitation by Seller.................................... 52
Section 9.4 Ancillary Agreements; Other Closing Deliveries.................................. 55
Section 9.5 Updates to Seller Disclosure Schedules.......................................... 55
Section 9.6 The American Agency............................................................. 55
Section 9.7 Capitalization of AIHL Insurance Co............................................. 55
Section 9.8 Certain Matters................................................................. 55
ARTICLE X TAX MATTERS................................................................................... 56
Section 10.1 Transfer Taxes.................................................................. 56
Section 10.2 Tax Matters..................................................................... 57
Section 10.3 Computation of Tax Liabilities.................................................. 58
Section 10.4 Seller's Indemnity for Taxes.................................................... 59
Section 10.5 Assistance and Cooperation...................................................... 59
Section 10.6 Refunds......................................................................... 60
Section 10.7 Contests........................................................................ 60
Section 10.8 Post-Closing Actions which Affect Seller's Liability for Taxes.................. 61
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Section 10.9 Section 338(h)(10) Election..................................................... 62
Section 10.10 Post-Effective Date Taxes....................................................... 64
ARTICLE XI EMPLOYMENT MATTERS........................................................................... 64
Section 11.1 RSUI Employees.................................................................. 64
Section 11.2 RSUI Employee Benefits.......................................................... 66
Section 11.3 Service Credit.................................................................. 67
Section 11.4 Termination of Employment....................................................... 67
ARTICLE XII REAL ESTATE MATTERS......................................................................... 68
Section 12.1 Real Property Used in the Business.............................................. 68
ARTICLE XIII CONDITIONS TO CLOSING...................................................................... 69
Section 13.1 Conditions of Purchaser and Seller to Closing................................... 69
ARTICLE XIV TERMINATION................................................................................. 72
Section 14.1 Termination Prior to Closing.................................................... 72
Section 14.2 Effect of Termination........................................................... 73
Section 14.3 Notice Regarding Termination.................................................... 74
ARTICLE XV EXCLUSIONS FROM REPRESENTATIONS AND WARRANTIES; SURVIVAL; INDEMNIFICATION.................... 74
Section 15.1 Exclusions from the Representations and Warranties of Seller.................... 74
Section 15.2 Survival of Representations, Warranties and Covenants........................... 74
Section 15.3 Seller's Indemnification Obligation............................................. 75
Section 15.4 Purchaser's Indemnification Obligation.......................................... 76
Section 15.5 Other Limitations on Indemnification............................................ 76
Section 15.6 Notice.......................................................................... 77
Section 15.7 Right to Contest Claims of Third Parties........................................ 78
Section 15.8 Indemnification Payments........................................................ 79
Section 15.9 Exclusive Remedy................................................................ 79
Section 15.10 No Duplication of Recovery...................................................... 79
Section 15.11 Purchase Price Adjustment....................................................... 79
ARTICLE XVI CERTAIN DEFINITIONS AND OTHER MATTERS....................................................... 80
Section 16.1 Definitions..................................................................... 80
Section 16.2 Disclosure Schedules............................................................ 86
ARTICLE XVII MISCELLANEOUS.............................................................................. 86
Section 17.1 Amendment, Modification and Waiver.............................................. 86
Section 17.2 Entire Agreement................................................................ 86
Section 17.3 Interpretation.................................................................. 86
Section 17.4 Due Investigation............................................................... 87
Section 17.5 Notices......................................................................... 87
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Section 17.6 Governing Law................................................................... 89
Section 17.7 Descriptive Headings............................................................ 89
Section 17.8 Assignment; Binding Agreement................................................... 89
Section 17.9 Third Party Beneficiaries....................................................... 89
Section 17.10 Specific Performance............................................................ 89
Section 17.11 Severability.................................................................... 89
Section 17.12 Counterparts.................................................................... 89
Section 17.13 Consent to Jurisdiction......................................................... 90
Section 17.14 Waiver of Jury Trial............................................................ 90
Section 17.15 Extension; Waiver............................................................... 90
Section 17.16 Confidentiality................................................................. 90
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LIST OF EXHIBITS
Exhibit A List of Royal Insurer Affiliates
Exhibit B RIC Quota Share Reinsurance Agreement
Exhibit C RSLIC Quota Share Reinsurance Agreement
Exhibit D Landmark Quota Share Reinsurance Agreement
Exhibit E RIC Administrative Services Agreement
Exhibit F RSLIC Administrative Services Agreement
Exhibit G RICA Administrative Services Agreement
Exhibit H Landmark Administrative Services Agreement
Exhibit I Claims Servicing Agreement
Exhibit J Renewal Rights Agreement
Exhibit K Transition Services Agreement Term Sheet
Exhibit L Transitional Trademark License Agreement
Exhibit M Service ▇▇▇▇ Assignment
Exhibit N Employee Leasing Agreement
Exhibit O Managing General Agency Agreement
Exhibit P Substitution and Indemnification Agreement
Exhibit Q Assignment of Reinsurance Recoverables
Exhibit R Terrorism Treaty Cost Allocation
Exhibit S RSA SLISI Purchase Agreement
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LIST OF SCHEDULES
SELLER DISCLOSURE SCHEDULES
Schedule 1.3(a) Excluded Assets
Schedule 1.3(b) Excluded Contracts
Schedule 1.3(c) Certain Retained Liabilities
Schedule 1.19(c) Reinsurance Treaties
Schedule 1.20(a) Property Surplus Share Contracts
Schedule 2.3(a) Seller Noncontravention
Schedule 2.4 Seller Litigation
Schedule 3.3(a) Royal Insurer Affiliates Noncontravention
Schedule 3.4(a) Royal Insurer Affiliates Exceptions to Permits
Schedule 3.5 Royal Insurer Affiliates Litigation
Schedule 3.6 Royal Insurer Affiliates Exceptions to Compliance with Applicable Law
Schedule 4.1 RSUI Jurisdictions
Schedule 4.2(a) RSUI Noncontravention
Schedule 4.3(b) Equity Interests Owned by RSUI
Schedule 4.5 Accounts of RSUI
Schedule 4.6 Working Capital
Schedule 4.7 Exceptions to Administration of Fiduciary Accounts by RSUI
Schedule 4.8 RSUI Exceptions to Compliance with Applicable Law
Schedule 4.9(a) RSUI Permits
Schedule 4.10 RSUI Litigation
Schedule 4.11 Exceptions to All Necessary Assets
Schedule 4.12 Changes in Conduct of Business
Schedule 4.13 Tax
Schedule 4.14(a) Plans
Schedule 4.14(b) RSUI Employee Contracts
Schedule 4.15(a) Business Intellectual Property
Schedule 4.15(d) Exceptions to Business Intellectual Property
Schedule 4.16(a) Material Business Contracts
Schedule 4.16(b) Third Party Consents for Acquired Contracts
Schedule 4.16(c) Breaches of Acquired Contracts
Schedule 4.17(a) Intercompany Agreements
Schedule 4.17(b) Affiliate Agreements
Schedule 4.17(c) Affiliate Agreements Post-Closing
Schedule 4.18 Insurance Policies
Schedule 5.2(a)(i) Standard Forms of Producer Agreements
Schedule 5.2(a)(ii) Exceptions to Standard Producer Agreements
Schedule 5.2(b) Major Producers
Schedule 5.2(c) Underwriting Authority
Schedule 5.3(a) Third Party Reinsurance Contracts
Schedule 5.3(b) Terminated Third Party Reinsurance Contracts
Schedule 5.3(c) Corporate Treaties
Schedule 5.3(d) Material Breaches of Third Party Reinsurance Agreements
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Schedule 8.1(a) Exceptions to Conduct of Business Pending the Closing
Schedule 8.6(a)(i) Seller's Third Party, Nongovernmental Consents
Schedule 8.12(a) Exceptions to Accounts Receivable or Payable to be Settled Prior to Closing
Schedule 8.15 Resigning RSUI Directors
Schedule 9.1(c) Royal Group Intellectual Property
Schedule 11.1(a) RSUI Employees
Schedule 11.1(d) Assumed RSUI Employee Contract
Schedule 13.1(c)(ii) Consents
Schedule 16.1(a) Seller Persons with Knowledge
PURCHASER DISCLOSURE SCHEDULES
Schedule 6.3(a) Purchaser Noncontravention
Schedule 7.3 AIHL Insurance Co. Noncontravention
Schedule 7.4 AIHL Insurance Co. Exceptions to Permits
Schedule 8.6(a)(ii) Purchaser's Third Party, Nongovernmental Consents
Schedule 16.1(b) Purchaser Persons with Knowledge
JOINT DISCLOSURE SCHEDULES
Schedule 8.5(a) Governmental Entity Consents
Schedule 8.5(b) Governmental Entity Filings
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LIST OF DEFINED TERMS
Page
2003 Bonus Payment...................................................................................... 64
Acceptable Reinsurers................................................................................... 32
Acquired Assets......................................................................................... .2
Acquired Entity......................................................................................... 53
Acquisition............................................................................................. 1
Actions................................................................................................. 15
Actual DAC.............................................................................................. 10
Actual NUPR............................................................................................. 10
Adjusted Net Worth Deficit.............................................................................. 8
Administrative Services Agreements...................................................................... 4
Affiliate............................................................................................... 80
Affiliate Agreements.................................................................................... 29
Aggregate Ceding Commission............................................................................. 9
Agreement............................................................................................... 1
AIHL Insurance Co....................................................................................... 3
AIHL Insurance Co. Permits.............................................................................. 36
Ancillary Agreements.................................................................................... 80
Applicable Law.......................................................................................... 80
Applicable Rate......................................................................................... 80
Asserted Liability...................................................................................... 78
Assignment of Reinsurance Recoverables.................................................................. 5
Assumed Contracts....................................................................................... 80
Audited RSUI Financial Statements....................................................................... 20
Bankruptcy and Equity Exception......................................................................... 80
Books and Records....................................................................................... 81
Business................................................................................................ 81
Business Day............................................................................................ 81
Business Intellectual Property.......................................................................... 26
Business IP Contracts................................................................................... 26
Business Material Adverse Effect........................................................................ 81
Cat Cover............................................................................................... 81
Cat Cover Endorsement................................................................................... 10
Ceding Insurers......................................................................................... 9
Claims Histories........................................................................................ 42
Claims Notice........................................................................................... 77
Claims Servicing Agreement.............................................................................. 4
Closing................................................................................................. 5
Closing Balance Sheet................................................................................... 6
Closing Date............................................................................................ 5
Closing Financial Data.................................................................................. 6
Closing RSUI Contract List.............................................................................. 13
Code.................................................................................................... 81
Collected Net Premium................................................................................... 9
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Competing Business...................................................................................... 53
Computer Software....................................................................................... 82
Confidential Information................................................................................ 90
Confidentiality Agreement............................................................................... 42
Corporate Treaties...................................................................................... 32
Damages................................................................................................. 82
Deferred Acquisition Cost............................................................................... 82
Disclosing Party........................................................................................ 90
Effective Date.......................................................................................... 82
Employee Leasing Agreement.............................................................................. 4
Employment Agreements................................................................................... 1
ERISA................................................................................................... 23
ERISA Affiliate......................................................................................... 23
Estimated DAC........................................................................................... 9
Estimated NUPR.......................................................................................... 9
Excluded Assets......................................................................................... 2
Excluded Contracts...................................................................................... 3
Extended Closing Date................................................................................... 5
Final Allocation........................................................................................ 62
Final Seller's Tax Cost................................................................................. 62
Form.................................................................................................... 51
GAAP.................................................................................................... 82
Governmental Entity..................................................................................... 82
Guaranty National....................................................................................... 1
HSR Act................................................................................................. 82
In Force................................................................................................ 82
Income Tax.............................................................................................. 82
Income Tax Return....................................................................................... 82
Indemnified Party....................................................................................... 77
Indemnifying Party...................................................................................... 77
Independent Firm........................................................................................ 57
Insurance Permit........................................................................................ 82
Insurance Policies...................................................................................... 30
Intellectual Property................................................................................... 83
Intellectual Property Contracts......................................................................... 83
Intercompany Agreements................................................................................. 29
Investment Broker....................................................................................... 16
Knowledge............................................................................................... 83
Landmark................................................................................................ 1
Landmark Administrative Services Agreement.............................................................. 4
Landmark Purchase Agreement............................................................................. 1
Landmark Quota Share Reinsurance Agreement.............................................................. 3
Latest Balance Sheet.................................................................................... 6
Leased Employee......................................................................................... 65
Lien.................................................................................................... 83
Losses.................................................................................................. 75
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Major Producers......................................................................................... 31
Managing General Agency Agreement....................................................................... 5
▇▇▇▇ Registration....................................................................................... 26
Material Business Contracts............................................................................. 28
Minimum Continued Participation Level................................................................... 71
Net Unearned Premium Reserves........................................................................... 83
Network Partner......................................................................................... 54
Neutral Auditors........................................................................................ 7
New Hire................................................................................................ 64
Non-Compete Period...................................................................................... 51
Non-Owned Intellectual Property......................................................................... 26
NUPR Settlement Date.................................................................................... 10
Parallel Treaty......................................................................................... 71
Parent.................................................................................................. 22
Parent Group............................................................................................ 22
Patents................................................................................................. 83
PBGC.................................................................................................... 24
Permits................................................................................................. 83
Permitted Liens......................................................................................... 83
Person.................................................................................................. 84
Plan.................................................................................................... 23
Plans................................................................................................... 23
Post-Closing Tax Period................................................................................. 84
Pre-Closing Tax Period.................................................................................. 84
Producer................................................................................................ 31
Producer Agreement...................................................................................... 30
Proposed Allocation..................................................................................... 62
Proprietary Software.................................................................................... 26
Purchase Price.......................................................................................... 6
Purchaser............................................................................................... 1
Purchaser Disclosure Schedules.......................................................................... 84
Purchaser Indemnitees................................................................................... 75
Purchaser Performance Amount............................................................................ 64
Purchaser's Fee......................................................................................... 35
PwC..................................................................................................... 6
Qualifying Assets....................................................................................... 84
Quota Share Reinsurance Agreements...................................................................... 3
Receiving Party......................................................................................... 90
Reinsurance Schedule.................................................................................... 31
Reinsured Contracts..................................................................................... 84
Renewal Rights Agreement................................................................................ 4
Reserves................................................................................................ 84
Resolution Period....................................................................................... 7
Retained Liabilities.................................................................................... 3
RIC..................................................................................................... 1
RIC Administrative Services Agreement................................................................... 3
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RIC Quota Share Reinsurance Agreement................................................................... 3
RICA.................................................................................................... 1
RICA Administrative Services Agreement.................................................................. 4
Royal & SunAlliance..................................................................................... 5
Royal Group Intellectual Property....................................................................... 52
Royal Insurer Affiliate Permits......................................................................... 18
Royal Insurer Affiliates................................................................................ 1
RSA SLISI Purchase Agreement............................................................................ 5
RSLIC................................................................................................... 1
RSLIC Administrative Services Agreement................................................................. 3
RSLIC Quota Share Reinsurance Agreement................................................................. 3
RSUI.................................................................................................... 1
RSUI Affiliate Owned Intellectual Property.............................................................. 26
RSUI Confidential Information........................................................................... 53
RSUI Employee Contracts................................................................................. 23
RSUI ▇▇▇▇............................................................................................... 26
RSUI Owned Intellectual Property........................................................................ 26
RSUI Permits............................................................................................ 21
RSUI Shares............................................................................................. 2
RSUI-Produced Insurance Contracts....................................................................... 84
SAP..................................................................................................... 84
Schedule 1.3(c) Liabilities............................................................................. 3
Schedule 1.20(a) Contracts.............................................................................. 10
Schedule 5.3(a) Contracts............................................................................... 31
Schedule of Adjusted Underwriting Results............................................................... 84
Section 338 Elections................................................................................... 62
Section 338 Forms....................................................................................... 63
Securities Act.......................................................................................... 34
Seller.................................................................................................. 1
Seller Bonus Payment.................................................................................... 64
Seller Disclosure Schedules............................................................................. 84
Seller Indemnitees...................................................................................... 76
Seller Performance Amount............................................................................... 64
Seller's Fee............................................................................................ 16
Seller's Tax Cost....................................................................................... 62
Service ▇▇▇▇ Assignment................................................................................. 50
▇▇▇▇▇▇▇ Oaks Consent.................................................................................... 29
Straddle Period......................................................................................... 84
Subsidiary.............................................................................................. 85
Substitution and Indemnification Agreement.............................................................. 5
Survival Period......................................................................................... 74
Target Closing Date..................................................................................... 5
Tax..................................................................................................... 85
Tax Claim............................................................................................... 60
Tax Return.............................................................................................. 85
Taxes................................................................................................... 85
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Taxing Authority........................................................................................ 85
Terrorism Treaty........................................................................................ 85
Third Party Claimant.................................................................................... 78
Third Party Reinsurance Contracts....................................................................... 31
Title IV Plan........................................................................................... 24
Trade Secrets........................................................................................... 85
Trademarks.............................................................................................. 85
Transfer Taxes.......................................................................................... 85
Transferred Employees................................................................................... 65
Transition Period....................................................................................... 64
Transition Services Agreement........................................................................... 4
Transitional Trademark License Agreement................................................................ 4
Trust Account........................................................................................... 9
Unaffiliated Reinsurers................................................................................. 85
Unresolved Changes...................................................................................... 7
WARN.................................................................................................... 67
WARN Act................................................................................................ 67
Working Capital Deficit................................................................................. 8
Working Capital Surplus................................................................................. 8
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ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT (this "Agreement"), dated as of
June 6, 2003, is made by and between ROYAL GROUP, INC., a Delaware corporation
("Seller") and ALLEGHANY INSURANCE HOLDINGS LLC, a Delaware limited liability
company ("Purchaser"). Certain capitalized terms used in this Agreement are
defined in Section 16.1 hereof.
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding shares
of common stock of Royal Specialty Underwriting, Inc., a Georgia company
("RSUI");
WHEREAS, RSUI is in the business of underwriting and
administering insurance and reinsurance coverages for Royal Indemnity Company
("RIC"), Royal Surplus Lines Insurance Company ("RSLIC"), Royal Insurance
Company of America ("RICA") and certain other insurer affiliates of Seller
listed on Exhibit A hereto (collectively, the "Royal Insurer Affiliates");
WHEREAS, pursuant to the terms and subject to the conditions
set forth in this Agreement, Seller desires to sell, assign, convey, transfer
and deliver to Purchaser, and Purchaser desires to purchase, acquire, accept and
assume from Seller: (i) all of the issued and outstanding shares of common stock
of RSUI; (ii) certain assets used in, and certain of the rights to, the Business
(as defined in Section 16.1 hereof) as provided herein; and (iii) certain
agreements relating to the Business as provided herein (collectively, the
"Acquisition");
WHEREAS, as a condition and inducement to Purchaser's
willingness to enter into this Agreement, Purchaser or an Affiliate of Purchaser
and certain key employees have entered into Employment Agreements dated as of
June 4, 2003 and effective upon the Closing Date (the "Employment Agreements");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Purchaser and Guaranty National Insurance Company, an Affiliate of
Seller ("Guaranty National") are entering into a stock purchase agreement (such
agreement, together with any and all agreements and instruments to be executed
and delivered pursuant thereto and all schedules and exhibits thereto, the
"Landmark Purchase Agreement"), pursuant to which Purchaser agrees to acquire,
and Guaranty National agrees to sell, all of the issued and outstanding capital
stock of Landmark American Insurance Company ("Landmark");
WHEREAS, in connection with the Acquisition, on the Closing
Date, each of Purchaser and Seller desires to cause their respective Affiliates
to enter into certain related agreements as provided herein, each effective as
of July 1, 2003, including, without limitation, the Quota Share Reinsurance
Agreements (as defined herein), the Administrative Services Agreements (as
defined herein) and the Renewal Rights Agreement (as defined herein); and
WHEREAS, in connection with the Acquisition, on the Closing
Date, each of Purchaser and Seller desires to enter into the RSA SLISI Purchase
Agreement (as defined herein).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE CLOSING
Section 1.1 Sale and Purchase.
(a) Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing, Seller shall sell, assign, convey,
transfer and deliver to Purchaser, and Purchaser shall purchase, acquire, accept
and assume from Seller, all of its right, title and interest in, to and under
the following (the "Acquired Assets"): 127,500 shares of common stock of RSUI,
representing all of the issued and outstanding shares of common stock of RSUI
(the "RSUI Shares").
(b) At the Closing, each of Seller and Purchaser
shall, and shall cause each of their respective Affiliates to, enter into those
Ancillary Agreements (as defined herein) to which each of such Persons is a
party, including, without limitation, the Renewal Rights Agreement.
(c) The RSUI Shares shall be transferred to
Purchaser free and clear of all Liens.
(d) The consideration to be paid by Purchaser
for the Acquired Assets shall be as set forth in Section 1.17 hereof, subject to
adjustment as provided in Section 1.18 hereof.
Section 1.2 Transfer of Acquired Assets. At the Closing, the
RSUI Shares shall be transferred by such instruments of transfer as are
reasonably acceptable to Seller and Purchaser.
Section 1.3 Excluded Assets, Excluded Contracts and Retained
Liabilities.
(a) Except as provided in Sections 9.1 or 9.2
below, at the Closing, Seller shall not transfer, and, except as provided in the
Ancillary Agreements, from and after the Closing, RSUI shall not own or be
subject to any obligation under, any Royal Group Intellectual Property or any of
the assets of RSUI or the Business set forth in Schedule 1.3(a) (collectively,
the "Excluded Assets").
2
(b) At the Closing, Seller shall not transfer,
and, from and after the Closing, RSUI shall not own or be subject to, any
contracts entered into by RSUI or relating to the Business set forth in Schedule
1.3(b) (collectively, the "Excluded Contracts").
(c) Except as provided in the Quota Share
Reinsurance Agreements, the Administrative Services Agreements and the Claims
Servicing Agreement, from and after the Closing, Seller shall indemnify
Purchaser for and shall hold Purchaser and its Affiliates harmless from (i) all
liabilities related to the Excluded Assets, (ii) all liabilities related to the
Excluded Contracts, (iii) all liabilities arising out of claims litigation
relating to RSUI-Produced Insurance Contracts which are not Reinsured Contracts,
whether or not RSUI is named as a party thereto, and (iv) the liabilities and
obligations set forth in Schedule 1.3(c) (the "Schedule 1.3(c) Liabilities," and
together with the liabilities described in clauses (i), (ii) and (iii) above,
the "Retained Liabilities").
Section 1.4 Quota Share Reinsurance Agreements.
(a) At the Closing, Seller shall cause RIC to
execute and deliver to an insurance company to be designated by Purchaser, which
insurance company shall be a direct or indirect wholly owned subsidiary of
Purchaser ("AIHL Insurance Co."), and Purchaser shall cause AIHL Insurance Co.
to execute and deliver to RIC, a quota share reinsurance agreement substantially
in the form attached hereto as Exhibit B (the "RIC Quota Share Reinsurance
Agreement").
(b) At the Closing, Seller shall cause RSLIC to
execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL
Insurance Co. to execute and deliver to RSLIC, a quota share reinsurance
agreement substantially in the form attached hereto as Exhibit C (the "RSLIC
Quota Share Reinsurance Agreement").
(c) At the Closing, Seller shall cause Landmark
to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL
Insurance Co. to execute and deliver to Landmark, a quota share reinsurance
agreement substantially in the form attached hereto as Exhibit D (the "Landmark
Quota Share Reinsurance Agreement" and together with the RIC Quota Share
Reinsurance Agreement and the RSLIC Quota Share Reinsurance Agreement, the
"Quota Share Reinsurance Agreements").
Section 1.5 Administrative Services Agreements.
(a) At the Closing, Seller shall cause RSUI and
RIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL
Insurance Co. to execute and deliver to RSUI and RIC, an administrative services
agreement substantially in the form attached hereto as Exhibit E (the "RIC
Administrative Services Agreement").
(b) At the Closing, Seller shall cause RSUI and
RSLIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause
AIHL Insurance Co. to execute and deliver to RSUI and RSLIC, an administrative
services agreement substantially in the form attached hereto as Exhibit F (the
"RSLIC Administrative Services Agreement").
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(c) At the Closing, Seller shall cause RSUI and
RICA to execute and deliver to AIHL Insurance Co., and Purchaser shall cause
AIHL Insurance Co. to execute and deliver to RSUI and RICA, an administrative
services agreement substantially in the form attached hereto as Exhibit G (the
"RICA Administrative Services Agreement").
(d) At the Closing, Seller shall cause RSUI and
Landmark to execute and deliver to AIHL Insurance Co., and Purchaser shall cause
AIHL Insurance Co. to execute and deliver to RSUI and Landmark, an
administrative services agreement substantially in the form attached hereto as
Exhibit H (the "Landmark Administrative Services Agreement", and together with
the RIC Administrative Services Agreement, the RSLIC Administrative Services
Agreement and the RICA Administrative Services Agreement, the "Administrative
Services Agreements").
Section 1.6 Claims Servicing Agreement. At the Closing, Seller
shall cause RSUI, RIC, RSLIC, RICA and the Royal Insurer Affiliates listed on
Exhibit A thereto to execute a claims servicing agreement substantially in the
form attached hereto as Exhibit I (the "Claims Servicing Agreement").
Section 1.7 Renewal Rights Agreement. At the Closing, Seller
shall, and shall cause each of the Royal Insurer Affiliates to, execute and
deliver to Purchaser, and Purchaser shall execute and deliver to Seller and each
of the Royal Insurer Affiliates, a renewal rights agreement substantially in the
form attached hereto as Exhibit J (the "Renewal Rights Agreement").
Section 1.8 Transition Services Agreement. At the Closing,
Seller shall execute and deliver to Purchaser, and Purchaser shall execute and
deliver to Seller, a transition services agreement which shall incorporate the
terms set forth on Exhibit K (the "Transition Services Agreement").
Section 1.9 Intellectual Property Agreements.
(a) At the Closing, Royal & SunAlliance USA,
Inc. ("Royal & SunAlliance" ) shall execute and deliver to RSUI, and Seller
shall cause RSUI to execute and deliver to Royal & SunAlliance a transitional
trademark license agreement substantially in the form attached hereto as Exhibit
L (the "Transitional Trademark License Agreement").
(b) At the Closing, Royal & SunAlliance shall
execute and deliver to RSUI, and Seller shall cause RSUI to execute and deliver
to Royal & SunAlliance the Service ▇▇▇▇ Assignment (as defined herein)
substantially in the form attached hereto as Exhibit M.
Section 1.10 Employee Leasing Agreement. At the Closing,
Seller shall cause RIC to execute and deliver to RSUI, and Seller shall cause
RSUI to execute and deliver to RIC, an employee leasing agreement substantially
in the form attached hereto as Exhibit N (the "Employee Leasing Agreement").
4
Section 1.11 Managing General Agency Agreement. At the
Closing, Seller shall cause RSUI, RIC, RSLIC, RICA and Landmark to execute a
managing general agency agreement substantially in the form attached hereto as
Exhibit O (the "Managing General Agency Agreement").
Section 1.12 Substitution and Indemnification Agreement. At
the Closing, Seller shall cause RIC to execute and deliver to AIHL Insurance
Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RIC,
a substitution and indemnification agreement substantially in the form attached
hereto as Exhibit P (the "Substitution and Indemnification Agreement").
Section 1.13 Assignment of Reinsurance Recoverables. At the
Closing, Purchaser shall cause AIHL Insurance Co. to conditionally assign to the
Trust Account established under the Quota Share Reinsurance Agreements all AIHL
reinsurance recoverables relating to the catastrophe excess of loss reinsurance
purchased by AIHL Insurance Co. and its Affiliates with respect to the Reinsured
Contracts. Such conditional assignment of reinsurance recoverables shall be
substantially in the form of Exhibit Q hereto (the "Assignment of Reinsurance
Recoverables").
Section 1.14 Terrorism Treaty Cost Allocation. Each of Seller
and Purchaser agrees, on behalf of itself and its Affiliates, to the allocation
of the cost of the Terrorism Treaty (and any extension thereof) and to the other
terms and conditions relating to the Terrorism Treaty (and any extension
thereof) set forth in Exhibit R hereto.
Section 1.15 RSA SLISI Purchase Agreement. At the Closing,
Seller shall execute and deliver to Purchaser, and Purchaser shall execute and
deliver to Seller, a purchase agreement substantially in the form of Exhibit S
(the "RSA SLISI Purchase Agreement"), pursuant to which Purchaser will acquire,
and Seller will sell, all of the issued and outstanding capital stock of RSA
Surplus Lines Insurance Services, Inc.
Section 1.16 Closing.
(a) Subject to Section 1.16(b), the closing of
the transactions contemplated hereunder (the "Closing") will take place at 10:00
a.m., New York City time, on a date (the "Closing Date") to be agreed to by the
parties hereto, which shall be the later of (x) July 1, 2003 (the "Target
Closing Date") or (y) the fifth (5th) Business Day on which the last unfulfilled
or unwaived condition set forth in Section 13.1 hereof (other than any such
condition to be fulfilled at the Closing) shall be fulfilled or waived in
accordance with the terms of this Agreement; provided, that, notwithstanding the
satisfaction or waiver of all conditions to Closing (other than any condition to
be fulfilled at the Closing), the Purchaser shall be entitled to delay the
Closing to a Closing Date not later than July 31, 2003 (the "Extended Closing
Date"). The Closing shall be held at the offices of Skadden, Arps, Slate,
▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such other
place as the parties may mutually agree in writing.
(b) If the Closing does not occur on the Target
Closing Date, then (i) when the Closing occurs, the Closing shall be given
effect as of the Effective
5
Date, (ii) all of the Ancillary Agreements shall be dated as of the Effective
Date and given effect as of the Effective Date and (iii) at the Closing,
Purchaser shall pay to Seller an amount equal to the net operating expenses of
RSUI paid by RSUI or Seller or an Affiliate of Seller during the period, or
accrued as payable for such period, from July 1, 2003 to the Closing Date to the
extent not payable by RSUI to Seller or an Affiliate of Seller after the Closing
Date in respect of such period under the Ancillary Agreements. If the Closing
does not occur on the Target Closing Date solely by reason of Purchaser's
election to delay the Closing until an Extended Closing Date as provided in
Section 1.16(a) above, then Seller shall deliver to Purchaser on July 1, 2003
the certificate described in Section 13.1(c)(ix) hereof and, upon delivery of
such certificate by Seller to Purchaser, the condition to Closing set forth in
Section 13.1(c)(ix) hereof shall be deemed to be satisfied.
(c) If the Closing Date does not occur on the
Target Closing Date, then, during the period from the Effective Date until the
Closing Date, Seller shall cause RSUI and each Royal Insurer Affiliate (to the
extent that the conduct of each such Royal Insurer Affiliate relates to the
Business) to conduct their operations in accordance with the provisions of
Section 8.1 hereof.
(d) At the Closing, each of the parties shall
deliver or cause to be delivered to the intended recipient the monies, documents
and instruments required to be delivered by or on behalf of such party at or
prior to the Closing pursuant to the terms of this Agreement.
Section 1.17 Consideration. The aggregate purchase price to be
paid by Purchaser to Seller at the Closing in consideration of the transfer by
Seller of the Acquired Assets shall be one hundred million dollars
($100,000,000), subject to adjustments as provided in Section 1.18 (the
"Purchase Price"). On the Closing Date, the Purchase Price shall be paid in U.S.
dollars by wire transfer of immediately available funds to the bank account
specified by Seller to Purchaser.
Section 1.18 Purchase Price Adjustment.
(a) As soon as practicable, but in no event
later than sixty (60) days following the Closing Date, Seller shall prepare and
deliver to Purchaser (i) a balance sheet of RSUI as of 12:01 a.m. on the Closing
Date (the "Closing Balance Sheet") which shall be audited by Pricewaterhouse
Coopers LLC ("PwC"), (ii) a calculation of GAAP Net Worth of RSUI, as defined in
Section 1.18(g) below, and (iii) a calculation of Working Capital of RSUI, as
defined in Section 1.18(g) below (the Closing Balance Sheet, GAAP Net Worth and
Working Capital 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 accounting principles used to prepare the December
31, 2002 balance sheet included in the Audited RSUI Financial Statements (the
"Latest Balance Sheet"); provided, however, that whether or not required by
GAAP, the Closing Balance Sheet will not give effect to the Employment
Agreements or the Ancillary Agreements. The fees and expenses of PwC incurred in
connection with the audit of the Closing Balance Sheet, as well as the
preparation of the Audited RSUI
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Financial Statements and related underwriting review conducted by PwC, shall be
borne fifty percent (50%) by Seller and fifty percent (50%) by Purchaser.
(b) During the preparation of the Closing
Balance Sheet, and the period of any review or dispute contemplated by this
Section 1.18, Purchaser shall (i) provide Seller and Seller's authorized
representatives with reasonable access to all relevant books, records,
workpapers and RSUI Employees, (ii) cooperate with Seller and 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 PwC's workpapers, with full
access to PwC during the entirety of said audit, including during the planning
stage.
(c) After receipt of the Closing Financial Data,
Purchaser shall have forty-five (45) days to review the Closing Financial Data,
together with the workpapers used in the preparation thereof. Purchaser's review
of the Closing Financial Data and therefore any objections thereto shall be
limited to whether such Closing Financial Data was prepared in accordance with
GAAP consistently applied with the Audited RSUI Financial Statements. Unless
Purchaser delivers written notice to Seller on or prior to the 45th day after
Purchaser's receipt of the Closing Financial Data stating that Purchaser objects
to the Closing Balance Sheet, the calculation of GAAP Net Worth or the
calculation of Working Capital, and specifying the nature of such objections and
the reasons therefor, Purchaser shall be deemed to have accepted and agreed to
the Closing Financial Data and the Closing Balance Sheet shall become the Final
Closing Balance Sheet, and the Final Closing Balance Sheet and the calculations
of GAAP Net Worth and Working Capital shall be final, binding and conclusive for
purposes of determining the Final Purchase Price. If Purchaser so notifies
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 Seller's receipt of 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.
(d) Any objections regarding the Closing
Financial Data remaining in dispute at the conclusion of the Resolution Period
("Unresolved Changes") shall be submitted to Deloitte & Touche LLP or Ernst &
Young LLP (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
Seller and Purchaser in proportion to the allocation of the dollar amount of the
Unresolved Changes between Seller and 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 expert to determine, based on the
provisions of this Section 1.18, only the Unresolved Changes. 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 delivered to Seller and Purchaser. The Closing
Financial Data shall then be revised to reflect the
7
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 calculations of GAAP Net Worth and Working Capital
as determined by the Neutral Auditors shall be final, binding and conclusive for
purposes of determining the Final Purchase Price.
(e) Once the Final Closing Balance Sheet and the
calculations of GAAP Net Worth and Working Capital are available, the Final
Purchase Price shall be determined as follows: (i) first, to the extent that
Working Capital is less than zero, the Purchase Price shall be decreased by an
amount equal to the difference between Working Capital and zero (the "Working
Capital Deficit"); to the extent that Working Capital is more than zero, the
Purchase Price shall be increased by an amount equal to the difference between
Working Capital and zero (the "Working Capital Surplus"); and (ii) second, to
the extent that Adjusted Net Worth (as defined in Section 1.18(g) below), is
less than zero, the Purchase Price shall be decreased by an amount equal to the
difference between Adjusted Net Worth and zero (the "Adjusted Net Worth
Deficit"). If the Final Purchase Price exceeds the Purchase Price, Purchaser
shall pay to Seller in cash, by wire transfer to an account specified by Seller,
the amount equal to the Final Purchase Price less the Purchase Price, together
with simple interest on such amount at the Applicable Rate from the Closing Date
through the date of payment. If the Final Purchase Price is less than the
Purchase Price, Seller shall pay to Purchaser in cash, by wire transfer to an
account specified by Purchaser, the amount equal to the Purchase Price less the
Final Purchase Price, together with simple interest on such amount at the
Applicable Rate from the Closing Date through the date of payment. Such payment
by Purchaser to Seller, or by Seller to 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) Purchaser and Seller shall make good faith
efforts to comply with the timing and response requirements set forth in this
Section 1.18, 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.
(g) For purposes hereof, (i) GAAP Net Worth is
an amount equal to "Total Stockholder's Equity (Deficit)" as set forth on the
Closing Balance Sheet (excluding any Tax assets and any liability for Taxes),
(ii) Working Capital is an amount computed as (x) "Total Current Assets" as set
forth on the Closing Balance Sheet (excluding any Tax assets, and provided that
the amount of the deposit in respect of the July 2004 meeting at Pebble Beach
resorts described in Schedule 4.16(a) hereto shall be treated as a current asset
for purposes of computing Working Capital) less (y) "Total Current Liabilities"
as set forth on the Closing Balance Sheet (excluding any liability for Taxes),
(iii) if there is a Working Capital Deficit, Adjusted Net Worth shall be an
amount equal to GAAP Net Worth increased by the Working Capital Deficit, and
(iv) if there is a Working Capital Surplus, Adjusted Net Worth shall be an
amount equal to GAAP Net Worth decreased by the Working Capital Surplus.
8
Section 1.19 Transfer of Unearned Premium Reserves.
(a) On the Closing Date, Seller shall estimate
the Net Unearned Premium Reserves ("Estimated NUPR") and cause each of RIC,
RSLIC and Landmark (collectively, the "Ceding Insurers"), to place Qualifying
Assets in an amount equal to their respective portions of the Estimated NUPR,
net of their respective portions of the Aggregate Ceding Commission, into the
trust account established by AIHL Insurance Co. pursuant to Section 9.1 of the
Quota Share Reinsurance Agreements (the "Trust Account"); provided, however,
neither Seller nor any of the Ceding Insurers shall be required to place
Qualifying Assets into the Trust Account in excess of the amounts actually
collected by such Ceding Insurer in respect of the Net Unearned Premium Reserves
at or prior to the Closing Date; and provided, further, with respect to any
premium actually collected by RSUI at or prior to the Closing Date in respect of
the Net Unearned Premium Reserves and not paid to a Ceding Insurer, Seller shall
cause RSUI to place, on the Closing Date, Qualifying Assets in such amount into
the Trust Account.
(b) On the Closing Date, Seller shall cause the
Ceding Insurers to assign to the Trust Account all premium receivables related
to the Reinsured Contracts, net of premium receivables to be ceded to third
party reinsurers relating to such Reinsured Contracts. Premiums which are
actually collected, net of premiums ceded to third party reinsurers, shall be
referred to herein as the "Collected Net Premium". At any time on and after the
Closing Date, the Ceding Insurers and RSUI shall place in the Trust Account all
Collected Net Premium as soon as practicable upon receipt of the Collected Net
Premium, but no later than five (5) Business Days after receipt of such
Collected Net Premium.
(c) For purposes of this Section 1.19,
"Aggregate Ceding Commission" shall be an amount equal to the sum of the
following:
(i) an amount equal to (x) 6.0%
multiplied by (y) the Estimated NUPR, representing reimbursement of the
estimated Deferred Acquisition Cost (the "Estimated DAC") paid by the Royal
Insurer Affiliates in connection with the Net Unearned Premium Reserves;
(ii) $15.0 million, representing the
embedded value in the Net Unearned Premium Reserves; and
(iii) $9.753 million, representing the
cost of the Cat Cover previously paid by the Royal Insurer Affiliates for the
RSUI-Produced Insurance Contracts for the six-month period ending on October 31,
2003; and
(iv) an amount, representing payment for
a portion of the value of the credit carryforwards existing as of December 31,
2002 in the reinsurance treaties identified on Schedule 1.19 (c) hereto, equal
to (A) $3.75 million less (B) any amount paid to a Royal Insurer Affiliate by a
participant in a treaty identified on Schedule 1.19(c) hereto by reason of such
participant's failure to continue as a participant in such treaty.
9
(d) As of a date to be agreed by Seller and
Purchaser, but not later than December 31, 2003 (the "NUPR Settlement Date"),
Seller shall cause PwC to compute (i) the actual Net Unearned Premium Reserves
(the "Actual NUPR") and the actual Deferred Acquisition Cost paid by the Royal
Insurer Affiliates in connection with the Actual NUPR (the "Actual DAC").
Promptly upon receipt of PwC's computation of the Actual NUPR and the Actual
DAC, Seller shall forward such computations to Purchaser. In the event that
Actual NUPR exceeds Estimated NUPR, Seller shall cause the Ceding Reinsurers
promptly to remit the difference to Purchaser, and in the event that Estimated
NUPR exceeds Actual NUPR, Purchaser (or an Affiliate of Purchaser) shall
promptly remit the difference to Seller or to such Ceding Reinsurer as may be
designated by Seller. In the event that Actual DAC exceeds Estimated DAC,
Purchaser shall promptly remit the difference to Seller, and in the event that
Estimated DAC exceeds Actual DAC, Seller shall promptly remit the difference to
Purchaser. Payments made in respect of differences between Actual NUPR and
Estimated NUPR and between Actual DAC and Estimated DAC shall include payment of
simple interest on the amount of such difference at the Applicable Rate from the
Closing Date through the date of payment. Payments made pursuant to this Section
1.19(d) shall be subject to offset but only to the extent agreed by Seller and
Purchaser.
(e) In the event that, subsequent to the Closing
Date, Purchaser notifies Seller that the reinsurers party to the treaties set
forth on Schedule 1.19(c) have not agreed to make available to AIHL Insurance
Co. the benefit of the credit carryforwards that existed in such treaties as of
December 31, 2002, Seller shall refund to Purchaser a portion of the $3.75
million payment paid as part of the Aggregate Ceding Commission pursuant to
Section 1.19(c)(iv) above. The amount of the refund shall be proportionate to
the portion of the credit carryforwards existing in the treaties identified on
Schedule 1.19(c) as of December 31, 2002 not made available to AIHL Insurance
Co., and shall include payment of simple interest on such amount at the
Applicable Rate from the Closing Date through the date of payment.
(f) On the Closing Date, the Cat Cover shall be
endorsed over to AIHL Insurance Co. (the "Cat Cover Endorsement"), and AIHL
Insurance Co. shall be solely responsible for all payments to be made in respect
of the Cat Cover from and after November 1, 2003.
(g) Seller and the Ceding Insurers shall
allocate the Net Unearned Premium Reserves and Aggregate Ceding Commission among
the Royal Insurer Affiliates in a fair and equitable manner.
Section 1.20 Sharing of Profit Contingency Commissions for the
Property Surplus Share Contracts.
(a) The calculation of the profit contingency
commissions will continue on the same basis as defined in the treaties set forth
on Schedule 1.20(a) (the "Schedule 1.20(a) Contracts") with the results ceded by
the Royal Insurer Affiliates and the results ceded by AIHL Insurance Co. to the
Parallel Treaty (as defined in Section 13.1(c)(x)) being merged for purposes of
the calculation.
10
(b) According to the terms of the Schedule
1.20(a) Contracts, the premiums ceded to the treaties and the corresponding
paid, outstanding and incurred losses and resulting ceded loss ratio are grouped
together into adjustment periods or compartments for the calculation. These
adjustment periods are defined on a policy/risk attaching basis. All ceded
policies with effective dates within the defined adjustment period are grouped
together. Thus, the calculations are done on a "Policy Year" basis rather than a
calendar year basis. Typically, these adjustment periods correspond to a single
calendar year (January through December). However, for the RSUI Pool the most
recent adjustment period, Part 5, is currently for three years beginning January
1, 2001 and ending December 31, 2003.
(c) While the calculations of the profit
contingency commissions will continue to be made on a consistent basis as
respects the reinsurer participants and will include ceded premium and loss
experience from both the period when Seller owned RSUI and the period when
Purchaser owns RSUI, it will be necessary to further break down the calculations
for each adjustment period into two components: one for the Seller ownership
period and one for the Purchaser ownership period. Since the transfer of the Net
Unearned Premium Reserves will be made on the Effective Date and, from and after
the Effective Date, RSUI-Produced Insurance Contracts will be either 100% ceded
to or issued by AIHL Insurance Co., all ceded earned premium and newly arising
loss experience from and after the Effective Date will be credited to the period
of Purchaser's ownership of RSUI. Similarly, all ceded earned premium for
periods up to and including the Effective Date will be credited to the period of
Seller's ownership of RSUI, as will the ceded loss experience relating to ceded
claims arising from occurrences prior to the Effective Date.
(d) The reinsurers will be billed based upon the
results of the calculation using the combined 2003 RSUI experience (including
results during the period of Seller ownership of RSUI and results during the
period of Purchaser ownership of RSUI). After such billed contingent commissions
have been collected by RSUI, such collected cash amounts will be shared by the
two companies in proportion to their respective percentage of contribution to
the 2003 contingent profit calculation. This apportionment will be made for the
calculation as of December 31, 2003. Thereafter, the total results of the profit
contingency commissions will be retained by AIHL Insurance Co.
Section 1.21 Closing Items.
(a) At the Closing, Seller, RSUI or the Royal
Insurer Affiliates, as applicable, shall execute (except as to clauses (xv),
(xvi), (xvii), (xviii), (xix), (xx) and (xxiii) of this Section 1.21(a)) and
deliver to Purchaser the following:
(i) the Quota Share Reinsurance
Agreements;
(ii) the Administrative Services
Agreements;
(iii) the Claims Servicing Agreement;
11
(iv) the Renewal Rights Agreement;
(v) the Transition Services Agreement;
(vi) the Transitional Trademark License
Agreement;
(vii) the Service ▇▇▇▇ Assignment;
(viii) the Employee Leasing Agreement;
(ix) the Managing General Agency
Agreement;
(x) the Substitution and
Indemnification Agreement;
(xi) the Assignment of Reinsurance
Recoverables;
(xii) the RSA SLISI Purchase Agreement;
(xiii) the certificates representing all
of the RSUI Shares as provided in Section 13.1(c)(viii);
(xiv) the Cat Cover Endorsement;
(xv) evidence of compliance with any
applicable regulatory filings or approvals from which no exemption is
available as provided in Section 8.5(a);
(xvi) evidence of compliance with the
requirements of Section 8.12 regarding the settlement of intercompany
balances and the termination of Intercompany Agreements;
(xvii) evidence of compliance with the
requirements of Section 8.13 regarding the termination of Affiliate
Agreements;
(xviii) evidence of the resignations of the
directors of RSUI set forth on Schedule 8.15;
(xix) evidence of the transfer or other
disposition of the Excluded Assets and the Excluded Contracts in
compliance with the requirements of Section 8.17;
(xx) evidence of the receipt of all
consents set forth in Section 13.1(c)(ii);
(xxi) certificates of a senior officer of
Seller required by Section 13.1(c)(v) and Section 13.1(c)(ix);
(xxii) a certificate of Seller satisfying
the requirements of Treasury Regulation Section 1.1445-2(b)(2);
12
(xxiii) a computer generated listing of the
In Force RSUI-Produced Insurance Contracts as of the Closing Date or
the closest practicable date prior thereto (the "Closing RSUI Contract
List"); and
(xxiv) a certificate signed by the
secretary of Seller certifying the adoption of resolutions by the Board
of Directors of Seller authorizing the transactions contemplated
hereby.
(b) At the Closing, Purchaser, or AIHL Insurance
Co., as applicable, shall execute (except as to clause (x) of this Section
1.21(b)) and deliver to Seller the following:
(i) the Quota Share Reinsurance
Agreements;
(ii) the Administrative Services
Agreements;
(iii) the Claims Servicing Agreement;
(iv) the Renewal Rights Agreement;
(v) the Transition Services Agreement;
(vi) the Transitional Trademark License
Agreement;
(vii) the Service ▇▇▇▇ Assignment;
(viii) the Substitution and
Indemnification Agreement;
(ix) the Assignment of Reinsurance
Recoverables Agreement;
(x) evidence of compliance with any
applicable regulatory filings or approvals from which no exemption is
available, as provided in Section 8.5(a);
(xi) a certificate of a senior officer
of Purchaser required by Section 13.1(b)(iv); and
(xii) a certificate signed by the
secretary of Purchaser certifying the adoption of resolutions by the
Board of Directors of Seller authorizing the transactions contemplated
hereby.
13
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to Section 15.1 hereof, Seller hereby represents and
warrants to Purchaser as of the date of this Agreement (except if another date
is specified in the representation or warranty), that:
Section 2.1 Organization and Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as now being
conducted. Seller is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing would not
adversely affect the Business or adversely affect the ability of Seller to
execute and deliver this Agreement or any Ancillary Agreement to which it is a
party, to perform its obligations hereunder and thereunder or to consummate the
transactions contemplated hereby and thereby. Seller has made available to
Purchaser prior to the execution of this Agreement true, correct and complete
copies of its certificates of incorporation and bylaws, as currently in effect.
Section 2.2 Authority. Seller has all requisite power and
authority to enter into and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby, including,
without limitation, the sale of the Acquired Assets. Seller has all requisite
power and authority to execute and deliver the Ancillary Agreements to which it
is a party, to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
this Agreement by Seller and the consummation by Seller of the transactions
contemplated hereby, and the execution, delivery and performance of the
Ancillary Agreements to which Seller is a party and the consummation of the
transactions contemplated thereby, have been duly and validly authorized by all
necessary action on the part of Seller and no other proceedings on the part of
Seller (including any proceedings on the part of the stockholders of Seller) are
necessary to authorize the execution, delivery and performance of this
Agreement, the Ancillary Agreements to which Seller is a party or the
consummation of any of the transactions contemplated hereby or thereby. This
Agreement has been duly executed and delivered by Seller and, assuming the due
authorization, execution and delivery of this Agreement by Purchaser,
constitutes a legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms and conditions, subject only to the
Bankruptcy and Equity Exception. On the Closing Date, the Ancillary Agreements
to which Seller is a party will have been duly executed and delivered by Seller
and, assuming the due authorization, execution and delivery of such Ancillary
Agreements by each of the other Persons party thereto, will constitute legal,
valid and binding obligations of Seller, enforceable against Seller and in
accordance with their terms subject only to the Bankruptcy and Equity Exception.
14
Section 2.3 Noncontravention.
(a) Except as set forth in Schedule 2.3(a), the
execution, delivery and performance of this Agreement by Seller does not, and,
as of the Closing Date, the execution, delivery and performance of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated by this Agreement and such Ancillary Agreements, will not, conflict
with, or result in any breach, violation, impairment or revocation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to the creation of a Lien, a right of termination, cancellation, revocation or
acceleration of any obligation or loss of a benefit under (i) the certificate of
incorporation or bylaws of Seller, (ii) any loan or credit agreement, note,
mortgage, indenture, lease, material agreement, concession, franchise,
contractual license or similar authorization applicable to Seller or by or to
which its properties or assets (including, without limitation, the Acquired
Assets) may be bound or subject, (iii) subject to the governmental filings and
other matters referred to in Section 2.3(b) below, any Applicable Law applicable
to Seller or to which its properties or assets may be bound or subject, (iv) any
order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule
or regulation of any Governmental Entity or any agreement with, or condition
imposed by, any Governmental Entity, in each case, which is binding upon Seller
or its properties or assets in connection with the Business or (v) any Permit
related to the Business, other than, in the case of clauses (ii), (iii), (iv)
and (v), any such conflicts, violations, impairments, revocations, defaults,
Liens, rights or losses which would not adversely affect the Business or
adversely affect the ability of Seller to execute and deliver this Agreement or
the Ancillary Agreements to which it is a party, to perform its obligations
hereunder and thereunder or to consummate the transactions contemplated hereby
and thereby.
(b) Except as set forth in Schedule 8.5(a), no
consent, approval, license, order or authorization of, action by or in respect
of, or registration, declaration or filing with, or notice to, any Governmental
Entity or any other Person is required or necessary to be obtained, made or
given by Seller in connection with (i) its execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party, (ii) the
performance by Seller of its obligations hereunder and thereunder and (iii) the
consummation by Seller of the transactions contemplated hereby and thereby.
Section 2.4 Litigation. Except as set forth in Schedule 2.4,
there is no action, order, writ, injunction, judgment or decree outstanding or
any claim, suit, litigation, proceeding, arbitration, inquiry, governmental
audit or investigation (collectively, "Actions") pending, or, to the Knowledge
of Seller, threatened, against Seller, by or before any court, other
Governmental Entity or arbitrator, other than those which would not (x) prevent
or materially delay Seller from consummating the transactions contemplated by
this Agreement and the Ancillary Agreements to which it is a party or (y)
adversely affect the Business.
15
Section 2.5 Title to the RSUI Shares.
(a) The sale and delivery of the RSUI Shares as
contemplated by this Agreement are not subject to any preemptive right or right
of first refusal or other right or restriction.
(b) Seller has good and valid title to the RSUI
Shares, free and clear of all Liens. At the Closing, Purchaser will acquire the
RSUI Shares, free and clear of all Liens.
Section 2.6 Brokers and Finders. Except for ▇▇▇▇▇▇▇, ▇▇▇▇▇ &
Co., the fees and expenses of which will be paid by Seller (the "Seller's Fee"),
no broker, investment banker, financial advisor or other Person (an "Investment
Broker") is entitled to any broker's, finder's, financial advisor's or similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Seller or any of its
Affiliates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO ROYAL INSURER AFFILIATES
Subject to Section 15.1 hereof, Seller hereby represents and
warrants to Purchaser as of the date of this Agreement (except if another date
is specified in the representation or warranty), that:
Section 3.1 Organization and Standing. Each of the Royal
Insurer Affiliates is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has all
the requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as now being conducted. Each of the
Royal Insurer Affiliates is duly qualified or licensed to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business or the ownership, leasing or operation of its properties makes
such qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing would not
adversely affect the Business or adversely affect the ability of any Royal
Insurer Affiliate to execute and deliver any Ancillary Agreement to which it is
a party, to perform its obligations thereunder or to consummate the transactions
contemplated thereby. Seller has made available to Purchaser prior to the
execution of this Agreement true, correct and complete copies of the certificate
of incorporation and bylaws, as currently in effect, for each of the Royal
Insurer Affiliates who are parties to any Ancillary Agreement.
Section 3.2 Authority. Each of the Royal Insurer Affiliates
which is a party to any Ancillary Agreement has all requisite power and
authority to execute and deliver the Ancillary Agreements to which it is a
party, to perform its obligations thereunder and to consummate the transactions
contemplated thereby. The execution, delivery and performance of the Ancillary
Agreements by each of the Royal Insurer
16
Affiliates which is a party thereto, and the consummation of the transactions
contemplated thereby, have been duly and validly authorized by all necessary
action on the part of each such Royal Insurer Affiliate and no other corporate
proceedings on the part of any of such Royal Insurer Affiliates are necessary to
authorize the execution, delivery and performance of such Ancillary Agreements
or the consummation of any of the transactions contemplated thereby. On the
Closing Date, the Ancillary Agreements will have been duly executed and
delivered by each of the Royal Insurer Affiliates which is a party thereto and,
assuming the due authorization, execution and delivery of such Ancillary
Agreements by each of the other parties thereto, will constitute legal, valid
and binding obligations of each Royal Insurer Affiliate which is a party
thereto, enforceable against each such Royal Insurer Affiliate in accordance
with its terms subject only to the Bankruptcy and Equity Exception.
Section 3.3 Noncontravention.
(a) Except as set forth in Schedule 3.3(a), as
of the Closing Date, the execution, delivery and performance by each of the
Royal Insurer Affiliates of the Ancillary Agreements to which it is a party and
the consummation of the transactions contemplated thereby, will not conflict
with, or result in any breach, violation, impairment or revocation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to the creation of a Lien, a right of termination, cancellation, revocation or
acceleration of any obligation or loss of a benefit under (i) the certificate of
incorporation or bylaws (or comparable organizational document) of any of the
Royal Insurer Affiliates, (ii) any loan or credit agreement, note, mortgage,
indenture, lease, material agreement, concession, franchise, contractual license
or similar authorization applicable to any of the Royal Insurer Affiliates, or
by or to which any of them or their respective assets or properties (including,
without limitation, the Acquired Assets) may be bound or subject, (iii) subject
to the governmental filings and other matters referred to in Section 3.3(b)
below, any Applicable Law applicable to any of the Royal Insurer Affiliates
which is a party to any Ancillary Agreement or to which its assets or properties
may be bound or subject, (iv) any order, writ, judgment, injunction, award,
decree, law, statute, ordinance, rule or regulation of any Governmental Entity
or any agreement with, or condition imposed by, any Governmental Entity, in each
case, which is binding upon any of the Royal Insurer Affiliates which is a party
to any of the Ancillary Agreements or its respective properties or assets in
connection with the Business or (v) any Permit related to the Business, other
than, in the case of clauses (ii), (iii) (iv) and (v) any such conflicts,
violations, impairments, revocations, defaults, Liens, rights or losses which
would not adversely affect the Business or adversely affect the ability of any
of the Royal Insurer Affiliates to execute and deliver any of the Ancillary
Agreements to which such Royal Insurer Affiliate is a party, to perform its
obligations thereunder or to consummate the transactions contemplated thereby.
(b) Except as set forth in Schedule 8.5(a), no
consent, approval, license, order or authorization of, action by or in respect
of, or registration, declaration or filing with, or notice to, any Governmental
Entity or any other Person is required or necessary to be obtained, made or
given by any of the Royal Insurer Affiliates in connection with (i) the
execution and delivery of the Ancillary Agreements to which it
17
is a party, (ii) the performance by such Royal Insurer Affiliate of its
obligations thereunder and (iii) the consummation by such Royal Insurer
Affiliates of the transactions contemplated thereby.
Section 3.4 Permits.
(a) Except as set forth in Schedule 3.4(a), each
of the Royal Insurer Affiliates has (i) all Permits necessary to perform its
obligations under each Ancillary Agreement to which it is a party and (ii) all
Permits which are necessary for the lawful operation of the Business as
conducted on the date hereof, (collectively, the "Royal Insurer Affiliate
Permits"), and all such Royal Insurer Affiliate Permits are valid and in full
force and effect. Except as set forth in Schedule 3.4(a), there is no action,
proceeding, inquiry or investigation pending or, to the Knowledge of Seller,
threatened for the suspension, cancellation, revocation or nonrenewal of any
such Royal Insurer Affiliate Permit.
(b) None of the Royal Insurer Affiliates is
operating under any agreement or understanding with any Governmental Entity
which requires any of the Royal Insurer Affiliates to take, or refrain from
taking, any action relating to the conduct of the Business which would adversely
affect the Business or the performance of its obligations under each Ancillary
Agreement to which it is a party otherwise permitted by Applicable Law.
Section 3.5 Litigation. Except as set forth in Schedule 3.5,
there is no Action pending, or, to the Knowledge of Seller, threatened, against
any of the Royal Insurer Affiliates or any of their respective assets and
properties, by or before any court, other Governmental Entity or arbitrator,
other than those which would not prevent or materially delay any of the Royal
Insurer Affiliates from consummating the transactions contemplated by this
Agreement and the Ancillary Agreements to which it is a party.
Section 3.6 Compliance with Applicable Law. Except as set
forth in Schedule 3.6, each Royal Insurer Affiliate is in compliance with (a)
the terms of its certificate or articles of incorporation, bylaws or other
charter or organization documents and (b) all Applicable Laws in the conduct of
the Business, except, in the case of clause (b), where the failure to comply
would not materially adversely affect the Business. Except as set forth in
Schedule 3.6 and except for individual consumer complaints made to Governmental
Entities and forwarded to Royal Insurer Affiliates, to the Knowledge of Seller,
no Royal Insurer Affiliate has received any written notice since January 1,
2000, from any Governmental Entity or arbitrator alleging any violation of, or
default under, any Applicable Law by such Royal Insurer Affiliate with regard to
the In Force RSUI-Produced Insurance Contracts or directing any Royal Insurer
Affiliate to take any remedial action with respect to such Applicable Law.
18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO RSUI
Subject to Section 15.1 hereof, Seller hereby represents and
warrants to Purchaser as of the date of this Agreement (except if another date
is specified in the representation or warranty), that:
Section 4.1 Organization and Standing. RSUI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia and has all requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as now being
conducted. RSUI is duly qualified or licensed to do business as a foreign
corporation and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its properties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing would not adversely affect the Business. Schedule 4.1
is a list of all jurisdictions in which RSUI is duly qualified or licensed to do
business as a foreign corporation. Seller has made available to Purchaser prior
to the execution of this Agreement true, correct and complete copies of the
certificate of incorporation and bylaws, as currently in effect, for RSUI.
Section 4.2 Noncontravention.
(a) Except as set forth in Schedule 4.2(a), the
execution, delivery and performance of this Agreement does not, and, as of the
Closing Date, the execution, delivery and performance of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated by this Agreement and such Ancillary Agreements, will not, conflict
with, or result in any breach, violation, impairment or revocation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to the creation of a Lien, a right of termination, cancellation, revocation or
acceleration of any obligation or loss of a benefit under (i) the certificate of
incorporation or bylaws of RSUI, (ii) any loan or credit agreement, note,
mortgage, indenture, lease, material agreement, concession, franchise,
contractual license or similar authorization applicable to RSUI or by or to
which its assets or properties (including, without limitation, the Acquired
Assets) may be bound or subject, (iii) subject to the governmental filings and
other matters referred to in Section 4.2(b) below, any Applicable Law applicable
to RSUI or to which its assets or properties may be bound or subject, (iv) any
order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule
or regulation of any Governmental Entity or any agreement with, or condition
imposed by, any Governmental Entity, in each case, which is binding upon RSUI or
its properties or assets in connection with the Business or (v) any Permit
related to the Business, other than, in the case of clauses (ii), (iii), (iv)
and (v), any such conflicts, violations, impairments, revocations, defaults,
Liens, rights or losses which would not adversely affect the Business.
19
(b) Except as set forth in Schedule 8.5(a), no
consent, approval, license, order or authorization of, action by or in respect
of, or registration, declaration or filing with, or notice to, any Governmental
Entity or any other Person is required or necessary to be obtained, made or
given by RSUI in connection with (i) its execution and delivery of the Ancillary
Agreements to which it is party, (ii) the performance by RSUI of its obligations
thereunder and (iii) the consummation by RSUI of the transactions contemplated
thereby.
Section 4.3 Capitalization.
(a) The authorized capital stock of RSUI
consists of (i) 86,800 shares of preferred stock, no par value, none of which
are issued and outstanding, and (ii) 250,000 shares of common stock, no par
value, of which 127,500 shares are issued and outstanding. No other class of
equity securities, preferred stocks, bonds, debentures, notes, other evidences
of indebtedness for borrowed money or other securities of any kind of RSUI is
authorized, issued or outstanding. All of the outstanding shares of RSUI are
duly authorized, validly issued and are fully paid and non-assessable and are
owned of record and beneficially by Seller free and clear of all Liens.
(b) Except as set forth in Schedule 4.3(b),
except for interests which constitute a part of the Excluded Assets and except
for investment securities owned by RSUI in the ordinary course of business, RSUI
does not own any proprietary interest or equity interest in, or any interest
convertible or exchangeable into a proprietary interest or equity interest in,
any Person.
(c) RSUI has not issued any securities in
violation of any preemptive or similar rights. There are no outstanding options,
warrants, calls, preemptive or other rights, commitments, subscriptions or
agreements of any kind (absolute, contingent or otherwise) to which RSUI is a
party, or by which RSUI is bound 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 RSUI. Neither RSUI
nor 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, any shares of capital stock of RSUI. To the Knowledge of Seller, 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 RSUI.
Section 4.4 Financial Statements.
(a) Seller heretofore has delivered to Purchaser
true, correct and complete copies of the audited GAAP balance sheet of RSUI as
of December 31, 2001 and 2002 and the related audited statements of operations
of RSUI, statements of
20
stockholder's equity and statements of cash flow for the years then ended,
including in each case the related notes and the auditor's report thereon (the
"Audited RSUI Financial Statements"). The Audited RSUI Financial Statements have
been prepared in accordance with GAAP consistently applied throughout the
periods involved (except as may be indicated in the notes thereto regarding the
adoption of new accounting policies) and fairly present in all material respects
the financial position and results of operations of RSUI as a wholly-owned
subsidiary of Seller as of the dates and for the periods indicated therein.
(b) The underwriting results of the Business as
reported in the Schedule of Adjusted Underwriting Results for 2002 and 2001 have
been included in the consolidated accounts of the Royal & SunAlliance without
difference and form part of the audited financial statements of Royal &
SunAlliance.
Section 4.5 Accounts. Schedule 4.5 sets forth the names of all
financial and other similar institutions at which RSUI maintains accounts,
deposits or safe deposit boxes of any nature, and the account numbers and the
names of all Persons authorized to draw thereon or make withdrawals therefrom.
Section 4.6 Working Capital. Except as set forth on Schedule
4.6, since December 31, 2002, (x) RSUI has not incurred any liabilities that
would not be treated as current liabilities under GAAP consistently applied with
the accounting principles used to prepare the Audited RSUI Financial Statements
and (y) there has not been any capital contribution to RSUI other than a capital
contribution made in cash.
Section 4.7 Administration of Fiduciary Accounts. Except as
set forth in Schedule 4.7, RSUI has properly administered, in all material
respects with Applicable Law, all accounts for which it acts as a fiduciary, if
any, including, but not limited to, accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing document and Applicable
Laws. Neither RSUI nor any of its directors, officers or employees has committed
any breach of trust with respect to any such fiduciary account, and the
accounting for each such fiduciary account is true and correct in all material
respects and accurately reflects the assets of such fiduciary account.
Section 4.8 Compliance with Applicable Law. Except as set
forth in Schedule 4.8, RSUI is in compliance with (a) the terms of its
certificate or articles of incorporation, bylaws or other charter or
organization documents and (b) all Applicable Laws, except in the case of clause
(b), where the failure to comply would not materially adversely affect the
Business. Except as set forth in Schedule 4.8, RSUI has not received any written
notice since January 1, 2000 from any Governmental Entity or arbitrator alleging
any violation of, or any default under, any Applicable Law by RSUI in the
conduct of the Business or directing RSUI to take any remedial action with
respect to such Applicable Law.
21
Section 4.9 Permits.
(a) Except as set forth on Schedule 4.9(a), RSUI
has (i) all Permits necessary to perform its obligations under each Ancillary
Agreement to which it is a party and (ii) all Permits which are necessary for
the lawful operation of its Business as conducted on the date hereof
(collectively, the "RSUI Permits"), and all such RSUI Permits are valid and in
full force and effect. Except as set forth in Schedule 4.9(a), there is no
action, proceeding, inquiry or investigation pending or, to the Knowledge of
Seller, threatened for the suspension, cancellation, revocation or nonrenewal of
any such Material RSUI Permit. All such RSUI Permits (other than licenses or
qualifications to do business as a foreign corporation which are set forth on
Schedule 4.1) are set forth in Schedule 4.9(a).
(b) RSUI is not operating under any agreement or
understanding with any Governmental Entity which requires RSUI to take, or
refrain from taking, any action relating to the conduct of the Business or the
performance of its obligations under each Ancillary Agreement to which it is a
party otherwise permitted by Applicable Law.
Section 4.10 Litigation. Except as set forth in Schedule 4.10,
there is no Action outstanding or pending, or, to the Knowledge of Seller,
threatened, against RSUI or any of its assets and properties, by or before any
court, other Governmental Entity or arbitrator, other than those which (i) would
not (x) prevent or materially delay RSUI from consummating the transactions
contemplated by this Agreement and the Ancillary Agreements to which it is a
party or (y) adversely affect the Business and (ii) do not assert a cause of
action based upon an action allegedly taken in bad faith by RSUI or by any
agent, broker or other Person acting on behalf of RSUI.
Section 4.11 All Necessary Assets. Except as set forth in
Schedule 4.11, and except for services to be provided under the Ancillary
Agreements, at the Closing hereunder, RSUI will own, lease or license all
property, assets and rights of any nature necessary to carry on the Business as
presently conducted in all material respects. The exclusion of the Excluded
Assets from the Acquired Assets will not, individually or in the aggregate,
adversely affect the ability of RSUI to carry on the Business immediately
following the Closing as presently conducted in all material respects. This
Section 4.11 does not relate to Intellectual Property assets and rights, which
are the subject of Section 4.15.
Section 4.12 Absence of Certain Changes. Except as set forth
in Schedule 4.12, since December 31, 2002, RSUI has conducted the Business only
in the usual and ordinary course consistent with past practice and there has not
been any event, action, occurrence, development, transaction, commitment,
dispute, change, violation, inaccuracy or other condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
that would materially adversely affect the Business.
Section 4.13 Taxes.
22
(a) Arrowpoint General Partnership ("Parent") is
the common parent of an affiliated group of corporations (within the meaning of
section 1504(a) of the Code) (such group, the "Parent Group") which files
consolidated federal income Tax Returns. From July 1, 1994 through the Closing
Date, Parent has included (or, with respect to the taxable year ending on the
Closing Date, will include) RSUI in its consolidated federal income Tax Return
as a member of the Parent Group.
(b) Other than as set forth on Schedule 4.13:
(i) For all periods ending after June 30, 1994, and for which the relevant
statutes of limitation have not expired, RSUI has filed (or joined in the filing
of) when due (after taking into account all properly requested extensions) all
material Tax Returns required by Applicable Law to be filed with respect to RSUI
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) there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to, RSUI in
respect of any material Tax or assessment, nor is any claim for additional Tax
or assessment being asserted by any Taxing Authority; (iv) except for the Parent
Group, RSUI has never been a member of an affiliated, consolidated, combined or
unitary group; (v) since July 1, 1994, no claim has been asserted in writing by
any Taxing Authority in a jurisdiction in which RSUI does not currently file a
Tax Return that it is or may be subject to Tax by such jurisdiction; (vi) RSUI
is not a party to any agreement (other than an agreement entered into in the
ordinary course of business for the purchase or lease of assets, the borrowing
of money, the hiring of employees or consultants or other commercial
transactions in the ordinary course of business), whether written or unwritten,
providing for the payment of Taxes, payment for Tax losses, entitlement to
refunds or similar Tax matters; (vii) RSUI has withheld and remitted to its
applicable taxing authorities all Taxes required to be withheld in connection
with any material amounts paid or owing to any employee, creditor, attorney,
independent contractor or other Person; (viii) since July 1, 1994, neither
Parent, Seller, nor RSUI has made, changed or revoked, or permitted to be made,
changed or revoked, any material election or method of accounting with respect
to material Taxes affecting or relating to RSUI, or entered into, or permitted
to be entered into, any closing or other agreement or settlement with respect to
Taxes affecting or relating to RSUI; (ix) no ruling with respect to Taxes (other
than a request for a determination of the status of a qualified plan) has been
requested by or on behalf of RSUI or by Parent with respect to any transaction
involving RSUI that could affect the liability of RSUI for Taxes for any period
after the Closing; (x) RSUI has no liability for the Taxes of any Person (other
than pursuant to Treasury Regulation Section 1.1502-6, or any analogous state,
local or foreign law or regulation) as a transferee or successor; and (xi) the
statutes of limitations for Tax years of RSUI have closed for all such years
ending prior to January 1, 2000.
Section 4.14 Employee Benefit Plans; ERISA.
(a) Schedule 4.14(a) contains a true, correct
and complete list, as of the date of this Agreement, of each "welfare plan"
(within the meaning of Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")),
23
each "pension plan" (within the meaning of Section 3(2) of ERISA), and each
other material employee benefit plan, fund, program, agreement or arrangement,
in each case, that is sponsored, maintained or contributed to or required to be
contributed to by Seller or its Affiliates that would be deemed a "single
employer" with Seller under Section 4001(b) of ERISA (an "ERISA Affiliate") for
the benefit of any RSUI Employee, or to which Seller or any ERISA Affiliate is
party, for the benefit of any RSUI Employee (each a "Plan," collectively the
"Plans").
(b) Schedule 4.14(b) contains a true, correct
and complete list as of the date of this Agreement of each employment agreement,
severance agreement and other similar agreement or arrangement relating to
compensation or benefits entered into by and among Seller or any of its
Affiliates and any RSUI Employee (collectively, the "RSUI Employee Contracts").
True, correct and complete copies of each RSUI Employee Contract, including any
amendments thereto, have been delivered or made available by Seller to
Purchaser.
(c) Seller has delivered or made available to
Purchaser true, correct and complete copies of each of the following documents:
(i) each of the Plans, including all amendments thereto, or a written
description of all of the material terms thereof if there is no formal Plan
document, and 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 Internal Revenue Service with respect to
each Plan that is, or is intended to be, qualified under section 401 (a) of the
Code; (iii) the actuarial valuation, if any, for the most recent plan year with
respect to each Plan that is intended to be a tax-qualified defined benefit
retirement plan; (iv) the current summary plan description, if any, and any
modifications or supplements thereto, for each Plan; and (v) the annual
return/report on Form 5500, 5500-C or 5500-R, if any, for each Plan for the most
recent plan year.
(d) No liability under Section 302 or Title IV
of ERISA has been incurred by Seller or any ERISA Affiliate that to the
Knowledge of Seller has not been satisfied in accordance with Applicable Law,
and, to the Knowledge of Seller, no condition exists that presents a material
risk to Seller or any ERISA Affiliate of incurring any such liability. Insofar
as the representation made in this paragraph (d) applies to Sections 4064, 4069
or 4204 of Title IV of ERISA, it is made only with respect to any benefit plan,
agreement or arrangement subject to Title IV of ERISA to which Seller, any of
its Affiliates or any ERISA Affiliate made, or was required to make,
contributions during the five-year period ending on the last day of the most
recent plan year which ended prior to the Closing Date (each a "Title IV Plan").
(e) The Pension Benefit Guarantee Corporation
("PBGC") has not instituted proceedings to terminate any Title IV Plan and no
Title IV Plan has been terminated and to the Knowledge of Seller, no proceeding
is reasonably likely to be initiated by the PBGC to terminate any Title IV Plan.
All premiums (and interest charges and penalties for late payment), if any, due
the PBGC on or prior to the Closing Date with respect to the Title IV Plans have
been or will be paid and neither Seller, any of its Affiliates nor any ERISA
Affiliate has incurred or is reasonably likely to incur any liability to
24
the PBGC, or to a "section 4042 trustee" (within the meaning of Section 4042 of
ERISA), or any liability under Section 4069 of ERISA with respect to any Title
IV Plan, except for required premium payments to the PBGC.
(f) No Title IV Plan or any other Plan subject
to section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of each Title IV Plan
or Plan which ended prior to the Closing Date. All contributions required to be
made with respect to any Plan on or prior to the Closing Date have been made in
full. For purposes of determining the existence of any such "accumulated funding
deficiency," the actuarial assumptions and methods used under each Plan for the
most recent Plan valuation shall be used.
(g) No Title IV Plan is a "multiemployer pension
plan," as defined in Section 3(37) of ERISA.
(h) To the Knowledge of Seller, each Plan has
been operated and administered in all material respects in accordance with its
terms and in accordance with Applicable Law, including, but not limited to,
ERISA and the Code, and no written notice has been received by Seller or an
Affiliate from any governmental authority questioning or challenging such
compliance. Neither the Seller nor any of its Affiliates has announced, or is
currently obligated to make, any change in benefits which would materially
increase the costs of maintaining any of the Plans or to establish any new
employee benefit plan which will cover any RSUI Employee, except that all RSUI
Employees shall become fully vested in the Pension Plan of RIC as of the Closing
Date, to the extent permitted under Applicable Law. Each Plan intended to be
"qualified" within the meaning of Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service or has applied for a
determination letter from the Internal Revenue Service stating that it is so
qualified. To the Knowledge of Seller, each Plan intended to be "qualified"
within the meaning of Section 401(a) of the Code, in form and operation, is so
qualified.
(i) No RSUI Employee is covered by any
collective bargaining agreement.
(j) To the Knowledge of the Seller, no RSUI
Employee is, on the date of this Agreement, subject to any contract,
arrangement, policy or understanding that in any way could limit such employee's
ability to continue to perform services for such employee's current employer or
RSUI.
(k) RSUI is under no obligation (express or
implied) to modify or change any of the benefits of a Plan, other than provided
in RSUI Employee Contracts and other than vesting all RSUI Employees in the
Pension Plan of RIC, to the extent permitted under Applicable Law.
(l) The transactions contemplated by this
Agreement, including by way of illustration and not by way of limitation, those
referred to in the RSA
25
SLISI Purchase Agreement, the Quota Share Reinsurance Agreements and the
Landmark Purchase Agreement, will not result in a transfer of assets to the
Purchaser or its Affiliates that have a total fair market value equal to or
greater than one-third (1/3) of the total fair market value of the Parent
Group's assets immediately before the Closing Date.
(m) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated thereby will
result in or require RSUI or any RSUI Affiliate on or after the Closing Date to
make any payment to, increase the amount payable to, or accelerate the time of
payment or the vesting of any amount payable to, any Leased Employee (other than
any amounts payable pursuant to the Employment Agreements or any payment that
results from a claim or entitlement to post-retirement medical benefits).
(n) Neither Seller, any of its Affiliates nor
any ERISA Affiliate has incurred any liability, fine, penalty or tax with
respect to any Plan or any other employee benefit plan, fund, program, practice,
agreement or arrangement which is material in amount, and which could reasonably
be expected to be imposed on Purchaser, RSUI, or any of their Affiliates.
Section 4.15 Intellectual Property.
(a) Schedule 4.15(a) sets forth: (i) a complete
and accurate list of all Intellectual Property in which RSUI has an ownership
interest and which is used in or relates to the Business ("RSUI Owned
Intellectual Property") and of all Intellectual Property in which one of RSUI's
Affiliates has an ownership interest and which directly impacts or materially
relates to the Business (collectively, the "RSUI Affiliate Owned Intellectual
Property"), indicating the owner thereof, and all applications, registrations
and grants with respect thereto, provided that such list need not identify
non-material Trade Secrets or unregistered copyrights unless such Trade Secrets
or copyrights relate to proprietary Computer Software, (ii) all Intellectual
Property (other than the RSUI Owned Intellectual Property or RSUI Affiliate
Owned Intellectual Property) which is used or necessary for the operation of the
Business (collectively, "Non-Owned Intellectual Property"), indicating the owner
and, if applicable, the licensor and/or licensee thereof, provided that such
list need not identify non material Non-Owned Intellectual Property, and (iii)
all Intellectual Property Contracts (a) to which RSUI is a party and which
directly impact or materially relate to the Business, or (b) which relate to
Intellectual Property included in clauses (i) and (ii) above (collectively,
"Business IP Contracts"). The RSUI Owned Intellectual Property, RSUI Affiliate
Owned Intellectual Property, the Non-Owned Intellectual Property and Business IP
Contracts are collectively referred to herein as the "Business Intellectual
Property".
(b) All Computer Software included in the RSUI
Owned Intellectual Property (collectively, the "Proprietary Software") was
developed either by: (i) RIC or employees of RIC within the scope of their
employment, (ii) third parties as "works-made-for-hire", as that term is defined
under Section 101 of the United States copyright laws, for RIC to written
agreements, or (iii) independent contractors who have assigned their right,
title and interest in and to such Proprietary Software to RIC pursuant
26
to written agreements. Royal & SunAlliance is the sole and exclusive owner of
the trade name and Trademark "RSUI" (the "RSUI ▇▇▇▇") and United States
Trademark Registration No. 2,525,163 (the "▇▇▇▇ Registration"). RSUI is the sole
and exclusive owner of all RSUI Owned Intellectual Property. Except for (x) the
rights granted by RIC to RSUI with respect to the Proprietary Software and (y)
the rights granted by Royal & SunAlliance to RSUI with respect to the RSUI ▇▇▇▇,
neither RIC, Royal & SunAlliance nor RSUI has granted to any Person any rights
in or to any of the RSUI Owned Intellectual Property or RSUI Affiliate Owned
Intellectual Property.
(c) The RSUI Owned Intellectual Property, RSUI
Affiliate Owned Intellectual Property and, to the Knowledge of Seller, the
Non-Owned Intellectual Property, is valid and enforceable and has not been
cancelled, forfeited, expired or abandoned. There are no Actions or, to the
Knowledge of Seller, threatened Actions in which the validity or enforceability
of the RSUI Owned Intellectual Property, RSUI Affiliate Owned Intellectual
Property or, to the Knowledge of Seller, the Non-Owned Intellectual Property,
has been or is being challenged, and neither RSUI nor any of its Affiliates has
received notice from any Person asserting a basis for such a challenge.
(d) Except as set forth on Schedule 4.15(d), and
except for services to be provided under the Ancillary Agreements, RSUI owns, or
otherwise has the valid right to use through an Intellectual Property Contract
listed on Schedule 4.15(a), and at the Closing hereunder will own or have such
valid right to use, any and all Intellectual Property that is reasonably
necessary to carry on the Business as presently conducted in all respects, free
and clear of any Lien, royalty or other payment obligations (except for
royalties or payments payable in respect of off-the-shelf Computer Software at
standard commercial rates or any other regularly scheduled payment payable under
any such Intellectual Property Contract) and otherwise on commercially
reasonable terms. Except as set forth on Schedule 4.15(d), RSUI's ownership of
or valid rights to use such Intellectual Property that is reasonably necessary
to the conduct of the Business shall not, in each case of ownership or
possession of valid rights, be adversely affected as a result of the Closing and
the consummation of the transactions contemplated hereby.
(e) Seller has made available to Purchaser
complete copies of all Business IP Contracts except for those Business IP
Contracts listed on Schedule 9.1(c). Each of the Business IP Contracts is a
valid and binding obligation of the parties thereto and is in full force and
effect and enforceable against the parties thereto in accordance with its terms.
To Seller's Knowledge, neither RSUI nor any third party is in material breach or
default under any of the Business IP Contracts.
(f) Neither RSUI nor the Business has violated
or infringed, or currently violates or infringes, upon the Intellectual Property
rights of any third party, and neither RSUI nor any of its Affiliates has
received any notice of any such violation or infringement. There are no Actions
or claims pending, instituted, threatened or asserted in writing against RSUI or
any of its Affiliates alleging any violation or infringement by RSUI or the
Business of any Intellectual Property rights of any third party.
27
(g) No Actions or claims in which RSUI or any of
its Affiliates alleges that any third party is infringing upon, or otherwise
violating, any Business Intellectual Property are pending, and none have been
served, instituted or asserted by RSUI or any of its Affiliates, nor are any
Actions threatened alleging any such violation or infringement.
(h) The Proprietary Software operated by and on
behalf of RSUI and the Business is free of material defects and is in all
material respects in reasonable and usable operating condition. RSUI has taken
commercially reasonable steps to provide for the back-up and recovery of
critical business data that is in electronic form in the event of a disaster or
systems failure.
Section 4.16 Material Business Contracts.
(a) Schedule 4.16(a) sets forth a true, correct
and complete list of all of the following contracts in effect as of the date
hereof (excluding the RSUI-Produced Insurance Contracts, the Third Party
Reinsurance Contracts, agreements or arrangements with respect to Producers (as
defined in Section 5.2(b) below), and contracts or agreements relating to
Business Intellectual Property) which relate principally to the Business, or to
which RSUI is a party or by which any of the assets or properties of RSUI are
bound or subject, as each such contract may have been amended, modified or
supplemented (collectively, the "Material Business Contracts"):
(i) material partnership or joint
venture contracts;
(ii) contracts containing any covenant
or provision limiting the freedom or ability of any Person to compete
with the Business following the Closing;
(iii) contracts involving amounts in
excess of $50,000, 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 $50,000 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
28
properties or (B) for the grant to any Person (excluding RSUI) of any
option or preferential rights to purchase any assets or properties;
(vi) contracts (other than employment
contracts) with any current or former officer, director, shareholder,
employee, consultant, agent or other representative or, to the
Knowledge of Seller, with an entity in which any of the foregoing is a
controlling person;
(vii) contracts pursuant to which there
is either a current or future obligation of RSUI to make payments in
excess of $50,000 in any twelve-month period (other than contracts
relating to investments in the ordinary course of business and other
than leases of real property);
(viii) contracts under which RSUI agrees
to indemnify any Person other than contracts entered into in the
ordinary course of business which are not otherwise Material Business
Contracts;
(ix) contracts pursuant to which any
Person has been granted any Lien, other than a Permitted Lien, on any
assets or properties of RSUI; and
(x) all written contracts of Seller or
any of its Affiliates for the deferred payment of the purchase price in
respect of any Acquired Assets, to the extent such contract is material
to the Business.
(b) Except for the consent identified on
Schedule 4.16(b) (the "▇▇▇▇▇▇▇ Oaks Consent"), no Material Business Contract
requires any consent, approval, waiver or authorization by any third party for
the consummation of the transactions contemplated by this Agreement or any
Ancillary Agreement.
(c) Seller has made available to Purchaser true,
correct and complete copies of all of the Material Business Contracts. Each of
the Material Business Contracts is a valid and binding obligation of Seller,
RSUI, or such other Affiliate of Seller as may be party thereto. Except as set
forth in Schedule 4.16(c), neither Seller, RSUI nor any other Affiliate of
Seller party thereto is in material breach or violation of, or default under,
any of the Material Business Contracts.
Section 4.17 Intercompany Agreements; Transactions with
Affiliates; Intercompany Accounts.
(a) Schedule 4.17(a) contains a list of all
contracts or other agreements (other than contracts or agreements which relate
to the Excluded Assets and/or Retained Liabilities) in effect as of the date
hereof between Seller or any of its Affiliates (other than RSUI), on the one
hand, and RSUI, on the other hand (collectively, "Intercompany Agreements").
(b) Except as set forth in Schedule 4.17(b),
neither (i) any officer or director of Seller or any officer or director of an
Affiliate of Seller (including
29
RSUI) nor, to the Knowledge of Seller, any member of any such Person's immediate
family or any entity controlled by one or more of the foregoing, nor (ii) Seller
or any Affiliate of Seller (other than RSUI): (A) is a party to any transaction
with RSUI or relating to the Business or the Acquired Assets which involves
payments of more than $20,000 per year 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
Seller, owns, directly or indirectly, any material interest in, or is an officer
or director of, any Person that is a competitor of the Business; or (C) has any
claim whatsoever against, or owes any amounts to, RSUI, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits,
reimbursement of ordinary travel and business expenses and similar matters. The
contracts and agreements set forth on Schedule 4.17(b) are herein referred to as
the "Affiliate Agreements".
(c) Except as set forth on Schedule 4.17(c) and
except for obligations and agreements to be performed pursuant to this
Agreement, the Ancillary Agreements and the Landmark Purchase Agreement, there
are no contracts or other agreements or arrangements between Seller or any of
its Affiliates (other than RSUI) and to which RSUI is a party or by which any of
the properties or assets of RSUI would be bound after the Closing.
Section 4.18 Insurance Coverage. Schedule 4.18 contains a true
and complete list of all policies of insurance currently maintained relating to
the assets, properties, business, operations, employees, officers or directors
of RSUI which (i) have been issued to RSUI or (ii) are held by Seller or any of
its Subsidiaries (other than RSUI) for the benefit of RSUI showing the policy
type, policy number, the expiration date and coverage for each policy
(collectively the "Insurance Policies").
Section 4.19 Books and Records. The Books and Records (i) are
complete and accurate in all material respects and (ii) have been maintained in
accordance with RSUI's customary business practices and with Applicable Law.
Seller has heretofore made available to Purchaser complete and correct copies of
the minute books of RSUI for its inspection.
ARTICLE V
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS
Subject to Section 15.1 hereof, Seller hereby represents and
warrants to Purchaser as of the date of this Agreement (except if another date
is specified in the representation or warranty), that:
Section 5.1 RSUI-Produced Insurance Contracts. All application
forms and policy forms used in underwriting the In Force RSUI-Produced Insurance
Contracts for admitted business are (i) in material compliance (and at their
respective dates of issuance were in material compliance) with Applicable Law,
(ii) on forms approved by
30
the insurance regulatory authority of the jurisdiction in which they were issued
or (iii) on forms which have been filed with and not objected to by such
authorities within the period provided for objection and any rates or rules with
respect to such In Force RSUI-Produced Insurance Contracts required to be filed
or approved by such applicable insurance regulatory authorities have been so
filed or approved. All such application forms, forms of insurance policies and
rates or rules are utilized in compliance in all material respects with
Applicable Law.
Section 5.2 Producer Relationships.
(a) Schedule 5.2(a)(i) lists the standard form
of agreement currently being utilized by RSUI with respect to the insurance
producers of the RSUI-Produced Insurance Contracts (the "Producer Agreement").
Except as set forth in Schedule 5.2(a)(ii), all of the contracts currently in
effect between RSUI and a producer of RSUI-Produced Insurance Contracts are in
all material respects in the form of the Producer Agreement.
(b) Schedule 5.2(b) sets forth a list of the top
ten producers of RSUI-Produced Insurance Contracts during the year ended
December 31, 2002 (the "Major Producers"). As of the date of this Agreement, no
Major Producer has given written notice (including by electronic transmission)
to RSUI that it intends to terminate its Producer Agreement with RSUI. To the
Knowledge of Seller, each producer of In Force RSUI-Produced Insurance Contracts
with which RSUI has a written agreement (a "Producer") is duly licensed (to the
extent that such licenses are required) in each jurisdiction in which the
Producer places or sells insurance on behalf of RSUI, and each such Producer is
duly authorized and appointed by RSUI pursuant to Applicable Law, except for
failures of such Producers to be so authorized and appointed as would not
adversely affect the Business. Except as set forth in Schedule 5.2(b), RSUI is
not in material breach or violation of, or default under, any of its agreements
with Producers. To the Knowledge of Seller, no Producer is the subject of, or
party to, any disciplinary action or proceeding under any Applicable Law. Except
as otherwise set forth in Schedule 5.2(b), since January 1, 2003, no Producer
who individually accounted for more than 5%, and no Producers who in the
aggregate accounted for more than 10%, of the aggregate gross written premiums
of the RSUI-Produced Insurance Contracts for the year ended December 31, 2002
has given written notice of termination or, to the Knowledge of Seller,
threatened termination; provided, however, that no terminations or threatened
terminations by Producers subsequent to the public announcement of the purchase
of RSUI by Purchaser which terminations or threatened terminations result
primarily from the identity of Purchaser or from actions taken by Purchaser
shall be counted toward the foregoing 5% and 10% limitations. Except as set
forth on Schedule 5.2(b), there is no dispute pending or, to the Knowledge of
Seller, threatened against RSUI by any Producer.
(c) Except as set forth in Schedule 5.2(c), RSUI
has no agency contracts, third party administration contacts or other similar
arrangements or commitments, or amendments, supplements or modifications
thereto, under which an
31
independent party has authority to perform underwriting analysis and issue
insurance policies on behalf of RSUI or otherwise bind RSUI without prior
approval by RSUI.
Section 5.3 Third Party Reinsurance Contracts.
(a) Schedule 5.3(a) sets forth a true and
complete list of all reinsurance agreements entered into with Unaffiliated
Reinsurers on a treaty basis by any of the Royal Insurer Affiliates as cedent in
relation to the In Force RSUI-Produced Insurance Contracts (the "Schedule 5.3(a)
Contracts"). The Schedule 5.3(a) Contracts, together with all facultative
reinsurance agreements entered into by any of the Royal Insurer Affiliates as
cedents in relation to the In Force RSUI-Produced Insurance Contracts, are
referred to herein collectively as the "Third Party Reinsurance Contracts".
Seller has separately provided to Purchaser (i) a schedule identifying the
participants in each of the Schedule 5.3(a) Contracts and the level of
participation by each such participant (the "Reinsurance Schedule"), (ii) a copy
of the Cat Cover and (iii) a copy of the Terrorism Treaty. Seller and Purchaser
have separately delivered to one another a list of acceptable reinsurers (the
"Acceptable Reinsurers"). The parties hereto acknowledge and agree that none of
the Corporate Treaties (as defined below) shall be included in the definition of
Third Party Reinsurance Contracts. The parties hereto further acknowledge and
agree that none of the benefits or the burdens of any of the Corporate Treaties
as they relate to the In Force RSUI-Produced Insurance Contracts shall, directly
or indirectly, inure to Purchaser or any of its Affiliates pursuant to this
Agreement or any of the Ancillary Agreements.
(b) Except as set forth in Schedule 5.3(b), or
as expressly contemplated hereunder, none of the Royal Insurer Affiliates or any
reinsurer under any Third Party Reinsurance Contract has given any notice of
termination with respect to any such arrangement or treaty, and there is no
dispute under any such arrangement or treaty regarding the liability for any
claim under the In Force RSUI-Produced Insurance Contracts against any of the
Royal Insurer Affiliates.
(c) For purposes of this Agreement, "Corporate
Treaties" shall mean those treaties purchased for the benefit of the Royal
Insurer Affiliates and their Affiliates, other than the Cat Cover, the Terrorism
Treaty and the Schedule 5.3(a) Contracts. The term "Corporate Treaties" shall
include, without limitation, the reinsurance treaties set forth in Schedule
5.3(c).
(d) Each of the Third Party Reinsurance
Contracts is a valid and binding obligation of the Royal Insurer Affiliate party
thereto. Each of the Third Party Reinsurance Contracts is in full force and
effect enforceable against the parties thereto in accordance with its terms.
Except as set forth in Schedule 5.3(d), none of the Royal Insurer Affiliates
party thereto is in material breach or violation of, or default under, any of
the Third Party Reinsurance Contracts, and, to the Knowledge of Seller, no
condition or state of facts exists that, with notice or the passage of time, or
both, would constitute a default by the Royal Insurer Affiliate party thereto.
32
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as of the date of
this Agreement (except if another date is specified in the representation or
warranty) that:
Section 6.1 Organization and Standing. Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of Delaware and has all requisite power and authority to carry on its
business as now being conducted. Purchaser is a "United States Person" within
the meaning of Code Section 7701(a)(30).
Section 6.2 Authority. Purchaser has all requisite power and
authority to enter into and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Purchaser has
all requisite power and authority to execute and deliver the Ancillary
Agreements to which it is a party, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by Purchaser of
the transactions contemplated hereby, and the execution, delivery and
performance of the Ancillary Agreements to which Purchaser is a party and the
consummation of the transactions contemplated thereby, have been duly and
validly authorized by all necessary action on the part of Purchaser and no other
proceedings on the part of Purchaser are necessary to authorize the execution,
delivery and performance of this Agreement, the Ancillary Agreements to which
Purchaser is a party or the consummation of any of the transactions contemplated
hereby or thereby. This Agreement has been duly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery of this
Agreement by Seller, constitutes a legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms subject
only to the Bankruptcy and Equity Exception. Each Affiliate of Purchaser which
is a party to any Ancillary Agreement has or on the Closing Date will have all
requisite power and authority to execute and deliver the Ancillary Agreements to
which it is a party, to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Ancillary Agreements and the consummation of the transactions contemplated
thereby, have or on the Closing Date will have been duly and validly authorized
by all necessary action on the part of any Affiliate of Purchaser which is a
party thereto and no other proceedings on the part of any of the Affiliates of
Purchaser will be necessary to authorize the execution, delivery and performance
of such Ancillary Agreements or the consummation of any of the transactions
contemplated thereby. On the Closing Date, the Ancillary Agreements to which
Purchaser and each of its Affiliates is a party will have been duly executed and
delivered by Purchaser and each such Affiliate and, assuming the due
authorization, execution and delivery of the Ancillary Agreements by each of the
other Persons party thereto, will constitute legal, valid and binding
obligations of Purchaser and any of its Affiliates party thereto, enforceable
against each such Person in accordance with their terms subject only to the
Bankruptcy and Equity Exception.
33
Section 6.3 Noncontravention.
(a) Except as set forth in Schedule 6.3(a), the
execution, delivery and performance of this Agreement by Purchaser does not,
and, as of the Closing Date, the execution, delivery and performance of the
Ancillary Agreements to which it is a party, and the consummation of the
transactions contemplated by this Agreement and such Ancillary Agreements, will
not, conflict with, or result in any breach, violation, impairment or revocation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to the creation of a Lien, a right of termination, cancellation, revocation
or acceleration of any obligation or loss of a benefit under (i) the certificate
of incorporation or bylaws (or comparable organizational documents) of Purchaser
and the certificate of incorporation and bylaws (or comparable organizational
documents) of any Affiliate of Purchaser which is a party to any of the
Ancillary Agreements, (ii) any loan or credit agreement, note, mortgage,
indenture, lease, material agreement, concession, franchise, contractual license
or similar authorization applicable to Purchaser or any Affiliate of Purchaser
which is a party to the Ancillary Agreements or by or to which any of them or
their respective properties or assets may be bound or subject, (iii) subject to
the governmental filings and other matters referred to in Section 6.3(b) below,
any Applicable Law applicable to Purchaser or any Affiliate of Purchaser which
is a party to the Ancillary Agreements or to which their respective properties
or assets may be bound or subject, (iv) any order, writ, judgment, injunction,
award, decree, law, statute, ordinance, rule or regulation of any Governmental
Entity or any agreement with, or condition imposed by, any Governmental Entity,
in each case, which is binding upon Purchaser or any Affiliate of Purchaser
which is a party to the Ancillary Agreements or their respective properties or
assets or (v) any Permit, other than, in the case of clauses (ii), (iii), (iv),
and (v), any such conflicts, violations, impairments, revocations, defaults,
Liens, rights or losses which would not adversely affect the ability of
Purchaser or any of its Affiliates which is a party to the Ancillary Agreements
to execute and deliver this Agreement or the Ancillary Agreements, to perform
its obligations hereunder and thereunder or to consummate the transactions
contemplated hereby and thereby.
(b) Except as set forth in Schedule 8.5(a), no
consent, approval, license, order or authorization of, action by or in respect
of, or registration, declaration or filing with, or notice to, any Governmental
Entity or any other Person is required or necessary to be obtained, made or
given by Purchaser or any Affiliate of Purchaser which is a party to the
Ancillary Agreements in connection with (i) the execution and delivery of this
Agreement and the Ancillary Agreements, (ii) the performance by Purchaser of its
obligations hereunder and thereunder and (iii) the consummation by Purchaser or
any of its Affiliates of the transactions contemplated hereby and thereby.
Section 6.4 Litigation. There is no Action pending, or, to the
Knowledge of Purchaser or any of its Affiliates which is a party to any
Ancillary Agreement, threatened, against Purchaser or any of its Affiliates
which is a party to any Ancillary Agreement or their respective assets or
properties, by or before any court, other Governmental Entity or arbitrator,
other than those which would not prevent or materially delay Purchaser or any of
its Affiliates which is a party to any Ancillary Agreement from
34
consummating the transactions contemplated by this Agreement and the Ancillary
Agreement.
Section 6.5 Purchase of the RSUI Shares for Investment.
(a) Purchaser is acquiring the RSUI Shares
solely for its own account for investment and not with the view to, or for
resale in connection with, any distribution thereof in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any other domestic
or foreign securities law. Purchaser acknowledges that the RSUI Shares are not
registered under the Securities Act and may not be transferred or sold except
pursuant to an applicable exemption therefrom.
(b) Purchaser is an accredited investor within
the meaning of Rule 501 of the Securities Act, has the financial ability to bear
the economic risk of the investment in the RSUI Shares, can afford to sustain a
complete loss of such investment and has no need for liquidity in the investment
in the RSUI Shares.
(c) Purchaser acknowledges that its
representations and warranties contained herein are being relied on by Seller as
a basis for an exemption of the purchase of the RSUI Shares, if any, from
registration requirements of the Securities Act and any applicable state
securities laws.
Section 6.6 Sufficient Funds and Balance Sheet Support.
Purchaser has, or will at the Closing have, sufficient funds available (through
existing credit arrangements or otherwise) to pay the Purchase Price and all
fees and expenses related to the transactions contemplated by this Agreement and
the Ancillary Agreements, and to capitalize AIHL Insurance Co. in accordance
with the provisions of Section 9.7 hereof. Notwithstanding anything to the
contrary in this Agreement or in any of the Ancillary Agreements, Purchaser
acknowledges and agrees that its obligation to effect the transactions
contemplated by this Agreement and the other Ancillary Agreements is not subject
to the availability to Purchaser or any of its Affiliates of any reinsurance,
debt or equity or other financing in any amount whatsoever.
Section 6.7 Brokers and Finders. Except for ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
Co., Inc., the fees and expenses of which will be paid by Purchaser (the
"Purchaser's Fee"), no Investment Broker is entitled to any broker's, finder's,
financial advisor's or similar fee or commission in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements based
upon arrangements made by or on behalf of Purchaser or any of its Affiliates.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
RELATING TO AIHL INSURANCE CO.
Purchaser hereby represents and warrants to Seller that, as of
the Closing Date (except if another date is specified in the representation or
warranty):
Section 7.1 Organization and Standing. AIHL Insurance Co. will
be a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and will have all the
requisite power and authority to carry on its business as then being conducted.
AIHL Insurance Co. is duly qualified or licensed to do business and will be in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business or the ownership, leasing or operation of its properties makes
such qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing would not
adversely affect AIHL Insurance Co. Purchaser will make available to Seller
prior to the Closing Date true, correct and complete copies of the certificate
of incorporation and bylaws of AIHL Insurance Co.
Section 7.2 Authority. As of the Closing Date, AIHL Insurance
Co. will have all requisite power and authority to execute and deliver the
Ancillary Agreements to which it is a party, to perform its obligations
thereunder and to consummate the transactions contemplated thereby. The
execution, delivery and performance by AIHL Insurance Co. of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated thereby, will have been duly and validly authorized by all
necessary action on the part of AIHL Insurance Co. and no other corporate
proceedings on the part of AIHL Insurance Co. will be necessary to authorize the
execution, delivery and performance of such Ancillary Agreements or the
consummation of any of the transactions contemplated thereby. The Ancillary
Agreements to which AIHL Insurance Co. will be a party will have been duly
executed and delivered by AIHL Insurance Co. and, assuming the due
authorization, execution and delivery of such Ancillary Agreements by each of
the other parties thereto, will constitute legal, valid and binding obligations
of AIHL Insurance Co., enforceable against AIHL Insurance Co. in accordance with
their terms subject only to the Bankruptcy and Equity Exception.
Section 7.3 Noncontravention.
(a) Except as set forth in Schedule 7.3, as of
the Closing Date, the execution, delivery and performance of the Ancillary
Agreements to which AIHL Insurance Co. is a party will not, and the consummation
of the transactions contemplated by such Ancillary Agreements will not, conflict
with, or result in any breach, violation, impairment or revocation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to the creation of a Lien, a right of termination, cancellation, revocation or
acceleration of any obligation or loss of a benefit under (i) the certificate of
incorporation and bylaws (or comparable organizational documents) of AIHL
Insurance
36
Co., (ii) any loan or credit agreement, note, mortgage, indenture, lease,
material agreement, concession, franchise, contractual license or similar
authorization applicable to AIHL Insurance Co. or by or to which any of its
properties or assets may be bound or subject, (iii) any Applicable Law
applicable to AIHL Insurance Co. or to which its properties or assets may be
bound or subject, or (iv) any order, writ, judgment, injunction, award, decree,
law, statute, ordinance, rule or regulation of any Governmental Entity or any
agreement with, or condition imposed by, any Governmental Entity, in each case,
which is binding upon AIHL Insurance Co. or its properties or assets other than,
in the case of clauses (ii), (iii) and (iv), any such conflicts, violations,
impairments, revocations, defaults, Liens, rights or losses which would not
adversely affect the ability of AIHL Insurance Co. to reinsure new business to
be underwritten by RSUI or to execute and deliver the Ancillary Agreements to
which it is a party, to perform its obligations thereunder or to consummate the
transactions contemplated thereby.
Section 7.4 Permits. Except as set forth in Schedule 7.4, at
the Closing Date, AIHL Insurance Co. will hold (i) all Insurance Permits
necessary to reinsure new business to be underwritten by RSUI and otherwise to
perform its obligations under each Ancillary Agreement to which it is a party
and (ii) all Insurance Permits necessary for the conduct of its business in each
of the jurisdictions in which it conducts or operates such business as then
conducted (collectively, the "AIHL Insurance Co. Permits"), and all such AIHL
Insurance Co. Permits will be valid and in full force and effect. At the Closing
Date, AIHL Insurance Co. will not be subject to any agreement or understanding
with any Governmental Entity which (x) restricts its ability to reinsure new
business to be underwritten by RSUI or otherwise to perform its obligations
under each Ancillary Agreement to which it is a party or (y) requires AIHL
Insurance Co. to take, or refrain from taking, any action relating to the
foregoing otherwise permitted by Applicable Law.
Section 7.5 Compliance with Applicable Law. AIHL Insurance Co.
will be in compliance with (a) the terms of its certificate or articles of
incorporation, bylaws or other charter or organization documents and (b) all
Applicable Laws, except, in the case of clause (b), where the failure to comply
would not materially adversely affect the ability of AIHL Insurance Co. to
execute and deliver the Ancillary Agreements, to perform its obligations
thereunder, or to consummate the transactions contemplated thereby.
ARTICLE VIII
GENERAL COVENANTS
Section 8.1 Conduct of Business Pending the Closing.
(a) Except as set forth in Schedule 8.1(a),
except as contemplated by this Agreement or by any of the Ancillary Agreements
or by the Landmark Purchase Agreement, and except with the written consent of
Purchaser (which consent shall not be unreasonably withheld or delayed), during
the period from the date hereof to the Closing Date, Seller shall cause RSUI and
each other Affiliate of Seller (provided, however, with respect to sub clauses
(i) through (iii) of this Section 8.1(a),
37
only to the extent that the conduct of Affiliates of Seller other than RSUI
relate to the Business) to (i) use commercially reasonable efforts to preserve
intact its business organizations and Permits, to keep available the services of
its officers and employees, and to maintain its relationships with and the
goodwill of its agents, brokers, customers, suppliers, regulators, reinsurance
intermediaries and other Persons having business dealings with RSUI or its
Affiliates in connection with the Business, (ii) conduct the Business in the
ordinary course consistent with past practice, (iii) maintain its books, records
and accounts in the usual manner consistent with past practice and (iv) maintain
and keep its properties and equipment relating to the Business in the ordinary
course of business consistent with past practice.
(b) Without limiting the generality of the
foregoing, except as set forth in Schedule 8.1(a), except as contemplated by
this Agreement or by any of the Ancillary Agreements or by the Landmark Purchase
Agreement, and except with the written consent of Purchaser (which consent shall
not be unreasonably withheld or delayed), during the period from the date hereof
to the Closing Date:
(i) neither Seller nor any of its
Affiliates (including RSUI) shall (A) enter into, renew, terminate,
fail to renew, fail to perform any obligations under, waive or release
any rights under or amend in any material respect any Material Business
Contract or Business IP Contract, (B) enter into any new contract that
would be a Material Business Contract, (C) enter into any new contract
that would be an Intellectual Property Contract which would directly
impact or materially relate to RSUI or the operation of the Business,
(D) enter into any other new contract that would be material to RSUI or
the operation of the Business, including, without limitation, contracts
relating to the implementation of any new systems applications
affecting RSUI or the Business, (E) fail to maintain in effect any
contract or agreement for the maintenance or support of any software or
equipment used by RSUI or the Business, or (F) exercise any option
under any lease relating to leased property used by RSUI or the
Business;
(ii) neither Seller nor any of its
Affiliates (including RSUI) shall acquire or dispose of any asset
relating to RSUI or the Business or that presently does or would at the
Closing constitute part of the Acquired Assets, in each case, other
than acquisitions or dispositions in the ordinary course of business;
(iii) Seller shall not permit RSUI to use
its own funds to pay, discharge or satisfy any claims, liabilities or
obligations associated with the Business (absolute, asserted or
unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business, and Seller shall
not make any capital contribution to RSUI except in the form of cash;
(iv) Seller shall not permit RSUI to
incur any indebtedness for borrowed money or guarantee such
indebtedness of another or make any loans or advances or make any
capital contributions to, or equity investments in, any other Person or
issue or sell any debt securities, other than
38
short-term indebtedness under existing lines of credit in the ordinary
course of business;
(v) Seller shall not permit RSUI to
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;
(vi) Seller shall not permit RSUI to
acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization
or assets comprising a business or make any material investment, either
by purchase of stock or other securities, or contribution to capital,
in any case, in any material amount of property or assets, in or of any
other Person;
(vii) neither Seller nor any of its
Affiliates (including RSUI) shall make any material change in the
underwriting policies or claims handling practices used by RSUI or any
of the Royal Insurer Affiliates in connection with the operation of the
Business as conducted on the date hereof, except as required by
Applicable Law;
(viii) neither Seller nor any of its
Affiliates (including RSUI) shall permit or allow any of the assets or
properties of RSUI or the Acquired Assets to become subject to any
Liens, except Permitted Liens;
(ix) Seller shall not permit RSUI to
amend or modify its certificate or articles of incorporation, bylaws or
other charter or organization documents;
(x) Seller shall not permit RSUI to
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;
(xi) Seller shall not permit RSUI to
adopt a plan of complete or partial liquidation, dissolution,
rehabilitation, merger, consolidation, restructuring, recapitalization,
redomestication or other reorganization;
(xii) Seller shall not permit RSUI to
purchase or sell securities or other investments, or invest or reinvest
income and proceeds in
39
respect thereof, other than in the ordinary course of business and in
accordance with Applicable Law;
(xiii) Seller shall not permit RSUI to
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 $50,000 individually or $250,000 in the aggregate;
(xiv) Seller shall not permit RSUI to
enter into any managing general agency contracts, third party
administration contracts or other similar arrangements or commitments,
or amendments, supplements or modifications thereto relating to the
Business with any independent third party under which such independent
third party has authority to perform underwriting analysis and issue
insurance or reinsurance policies on behalf of RSUI or otherwise bind
RSUI without prior approval by RSUI;
(xv) neither Seller nor any of its
Affiliates (including RSUI) shall take any action that would result in
any of the conditions to Closing set forth in this Agreement not being
satisfied;
(xvi) Seller shall not permit RSUI to
make any material change in its accounting methods or practices or make
any material change in depreciation or amortization policies or rates
adopted by it, except such changes as are required by GAAP or SAP;
(xvii) Seller shall not permit RSUI to,
directly or indirectly, make any payment, discharge or satisfaction of
any liability of RSUI 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
RSUI Financial Statements or the Closing Balance Sheet;
(xviii) neither Seller nor any of its
Affiliates (including RSUI) shall assign, license, sublicense, abandon
or fail to maintain any Business Intellectual Property except as
provided and expressly set forth in Section 9.1(a) herein; provided,
however, that this provision shall not apply to any Royal Group
Intellectual Property other than the RSUI ▇▇▇▇ and the ▇▇▇▇
Registration; and, provided, further, that for clarification purposes,
this provision shall not apply to any Business IP Contracts that do not
directly impact or materially relate to the Business; and
(xix) neither Seller nor any of its
Affiliates (including RSUI) shall, nor shall Seller permit RSUI to, as
applicable, agree in writing or otherwise to take any of the actions
described above in clauses (i) through (xviii) of this Section 8.1(b).
40
Section 8.2 Exclusivity.
(a) From the date of this Agreement through the
Closing, none of Seller or its Affiliates, or their respective officers,
employees, representatives or agents will, directly or indirectly, solicit,
encourage or initiate any negotiations or discussions with, or provide any
information to, or otherwise cooperate in any manner with, any Person or group
of Persons (other than Purchaser and its Affiliates) concerning any direct or
indirect sale or other disposition of all or any portion of the Business.
(b) Promptly after execution of this Agreement,
Seller shall, and shall cause each of its Affiliates to, use its commercially
reasonable efforts to pursue, pursuant to the terms of any confidentiality
agreements with third parties, the return from (or destruction by) all third
parties and their representatives of all confidential information provided to
them in connection with or concerning the sale of the Business. Seller agrees,
upon Purchaser's written request and at Purchaser's expense, to use commercially
reasonable efforts to enforce any agreements made by third parties pursuant to
confidentiality agreements entered with Seller to treat as confidential
information any non-public information concerning RSUI and the Business provided
to such third parties under such confidentiality agreements; provided, that
Purchaser shall indemnify Seller and hold Seller harmless from any Damages
incurred or suffered by Seller as a result of actions taken by Seller pursuant
to such request.
(c) From the date of this Agreement through the
Closing, neither Purchaser and its Affiliates, on the one hand, nor Seller and
its Affiliates, on the other hand, shall take, nor agree to commit to take, any
action that would impede the ability of Seller or Purchaser, as applicable, to
consummate the transactions contemplated by this Agreement, the Ancillary
Agreements and the Landmark Purchase Agreement.
Section 8.3 Pre-Closing Access and Transition Matters.
(a) Prior to the Closing Date, Purchaser shall
be entitled, through its officers, employees, counsel, accountants, actuaries,
consultants and other representatives, to make such further investigation of the
assets, liabilities, business and operations of RSUI and the Business, and to
reasonable access to the Books and Records, Claims Histories (as defined in
Section 8.4 below), contracts, properties, facilities, accounts, actuaries,
consultants, advisors, management and personnel of RSUI and the Business as
Purchaser may reasonably request in connection with the transactions
contemplated by this Agreement, any of the Ancillary Agreements or the Landmark
Purchase Agreement. Any investigation, examination or interview by Purchaser of
RSUI Employees or access pursuant to any of the provisions of this Section
8.3(a) shall be conducted or occur at reasonable times during regular business
hours upon reasonable prior notice. Each of the parties hereto and its employees
and representatives shall cooperate with the other's employees and
representatives, as the case may be, in connection with such review and
examination. Any such investigation, examination or interview shall be subject
to all applicable legal limitations (including attorney-client and work product
privileges, confidentiality and antitrust and fair trade limitations). No
investigation or review by Purchaser or any of its representatives described
above shall
41
affect or be deemed to modify any of the representations, warranties, covenants
or agreements of Seller set forth in this Agreement, the Ancillary Agreements,
the Landmark Purchase Agreement, the Seller Disclosure Schedules and the other
schedules and exhibits hereto and thereto; it being understood that,
notwithstanding any right of Purchaser and its representatives to fully
investigate the affairs of RSUI and the Business, and notwithstanding any
knowledge of facts determined or determinable by Purchaser and its
representatives pursuant to any such investigation or right of investigation,
Purchaser has the right to rely fully upon the representations, warranties,
covenants and agreements of Seller contained in this Agreement, the Ancillary
Agreements, the Seller Disclosure Schedules and the other schedules and exhibits
hereto and thereto.
(b) Prior to the Closing Date, Seller shall be
entitled, through its officers, employees, counsel, accountants, actuaries,
consultants and other representatives, to make such further investigation of the
assets, liabilities, business and operations of AIHL Insurance Co., and to
reasonable access to the Books and Records, Claims Histories, contracts,
properties, facilities, accounts, actuaries, consultants, advisors, management
and personnel of AIHL Insurance Co. as Seller may reasonably request in
connection with the Quota Share Reinsurance Agreements and Administrative
Services Agreements. Any investigation, examination or interview by Seller of
employees of AIHL Insurance Co. or access pursuant to any of the provisions of
this Section 8.3(b) shall be conducted or occur at reasonable times during
regular business hours upon reasonable prior notice. Each of the parties hereto
and its employees and representatives shall cooperate with the other's employees
and representatives, as the case may be, in connection with such review and
examination. Any such investigation, examination or interview shall be subject
to all applicable legal limitations (including attorney-client and work product
privileges, confidentiality and antitrust and fair trade limitations).
(c) Any such investigation, examination or
interview pursuant to Section 8.3(a) and Section 8.3(b) shall be subject to the
terms and conditions of the letter agreement, dated December 5, 2002, between
Purchaser and Seller (as the same may be amended, the "Confidentiality
Agreement") and shall be subject to all other legal limitations (including
attorney-client and work product privileges, confidentiality and antitrust and
fair trade limitations). Each of the parties hereto shall cooperate in
implementing the provisions of this Section 8.3 so as to not unreasonably
interfere with the business operations of RSUI, the Royal Insurer Affiliates,
Seller, or AIHL Insurance Co.
Section 8.4 Post-Closing Access.
(a) Following the Closing Date, Seller and the
Royal Insurer Affiliates shall (i) allow the employees and representatives of
Purchaser, upon reasonable prior notice and during regular business hours, the
right, at Purchaser's expense, to examine and make copies of any Books and
Records relating to the Business which were retained by Seller or any of its
Subsidiaries for any reasonable purpose relating to the Business, including,
without limitation, the preparation or examination of, or dispute relating to,
Purchaser's Tax Returns, regulatory filings and financial statements and the
42
conduct of any litigation or regulatory dispute, whether pending or threatened,
concerning the conduct of the Business prior to the Closing Date and (ii)
maintain such Books and Records for Purchaser's examination and copying for a
period of not less than ten (10) years following the Closing Date, provided that
after such period Seller shall provide Purchaser with at least twenty (20)
Business Days' written notice prior to destroying or otherwise disposing of any
such Books and Records, at which time and at the option and expense of
Purchaser, Seller shall deliver such Books and Records to Purchaser rather than
destroying the same. In addition, following the Closing Date, Seller and the
Royal Insurer Affiliates shall provide the employees and representatives of
Purchaser, upon reasonable prior notice and during regular business hours, the
right, at Purchaser's expense, to examine and make copies of the claims
histories maintained by Seller and/or the Royal Insurer Affiliates in respect of
business underwritten by RSUI for the Royal Insurer Affiliates (the "Claims
Histories"). For purposes of clause (ii) of the preceding sentence and for
purposes of the last sentence of this Section 8.4(a), the term "Books and
Records" shall be deemed to include the Claims Histories. Access to such Books
and Records shall be at Purchaser's expense and may not unreasonably interfere
with Seller's or any of its Subsidiaries' (or any of their successors') business
operations.
(b) Following the Closing Date, Purchaser shall
(i) allow Seller and the Royal Insurer Affiliates, upon reasonable prior notice
and during regular business hours, through its employees and representatives,
the right, at the expense of Seller, to examine and make copies of the Books and
Records transferred to Purchaser at the Closing for any reasonable business
purpose relating to any of their respective businesses, including, without
limitation, the preparation or examination of the Closing Financial Data, Tax
Returns, regulatory filings and financial statements or the conduct of any
litigation or regulatory dispute, whether pending or threatened, and (ii)
subject to any record retention requirements set forth in the Administrative
Services Agreements, maintain such Books and Records for examination and copying
by Seller and its Subsidiaries for a period of not less than ten (10) years
following the Closing Date; provided that after such period Purchaser shall
provide Seller with at least twenty (20) Business Days' written notice prior to
destroying or disposing of any such Books and Records at which time and at the
option and expense of Seller, Purchaser shall deliver such Books and Records to
Seller, rather than destroying the same. Access to such Books and Records shall
be at Seller's expense and may not unreasonably interfere with Purchaser's or
any of its Affiliates' (or any of their successors') business operations.
Section 8.5 Governmental Entity Consents and Filings; Rating
Agencies.
(a) Schedule 8.5(a) sets forth all consents,
approvals and agreements of all Governmental Entities necessary to authorize,
approve or permit the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements. The parties hereto shall (i) cooperate
and use their respective reasonable best efforts to obtain all such consents,
approvals and agreements at the earliest possible time hereafter, (ii) as
promptly as practicable hereafter, file or submit, or cause to be filed or
submitted, to all Governmental Entities all notices, applications, documents and
other materials necessary in connection with the consummation of such
transactions and (iii)
43
use their respective reasonable best efforts to respond as promptly as
practicable to all inquiries received from all Governmental Entities for
additional information or documentation in connection with such transactions.
Seller and Purchaser shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement or any
Ancillary Agreement which constitutes a reasonable likelihood that any requisite
regulatory approval will not be obtained or that receipt of any such approval
will be materially delayed. Seller and Purchaser shall furnish to the other such
necessary information and reasonable assistance as the other may reasonably
request in connection with its preparation of necessary filings or submissions
to any Governmental Entity. Seller and Purchaser shall provide the other with
copies of all filings and submissions with Governmental Entities and shall
provide the other with a reasonable opportunity to comment upon all such draft
copies. For purposes of this Agreement, the covenant of the parties to use their
"reasonable best efforts" shall not require any party to agree to limit in any
material respect the conduct of its business or to divest itself of any material
assets or properties.
(b) Schedule 8.5(b) sets forth all filings or
submissions to all Governmental Entities to be filed or submitted in connection
with the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements. The parties hereto agree to use reasonable best efforts to
file or submit, or cause to be filed or submitted, as promptly as practicable
hereafter, all notices, applications, documents and other materials listed on
Schedule 8.5(b). The failure to obtain regulatory approval with respect to the
filings and submissions set forth on Schedule 8.5(b) shall not be considered a
material failure which would otherwise delay or prevent the consummation of the
Closing.
(c) Seller agrees to provide, and to cause its
Affiliates (including RSUI) to provide, to Purchaser such reasonable assistance
as may be requested by Purchaser to allow Purchaser to obtain a rating from A.M.
Best Company, Inc. for the insurance entities into which business underwritten
by RSUI will be placed after the Closing.
(d) Seller agrees to cause its Affiliates
(including RSUI and Landmark) to use their best efforts to obtain as soon as
practicable after the date of execution of this Agreement all required Insurance
Permits as may be necessary to allow Landmark to write insurance business on a
non-admitted basis in all states other than the State of Oklahoma. The failure
to obtain any such Insurance Permits shall not be considered a material failure
which would otherwise delay or prevent the consummation of the Closing.
Section 8.6 Non-Governmental Consents.
(a) Seller and Purchaser shall cooperate and use
commercially reasonable efforts to obtain as promptly as practicable following
the date hereof all approvals, consents, waivers or authorizations of
non-governmental Persons necessary to permit consummation of the transactions
contemplated by this Agreement and the
44
Ancillary Agreements, all of which consents are listed on either Schedule
8.6(a)(i) or 8.6(a)(ii), including any required approvals, consents, waivers or
authorizations with respect to (A) the assignment or transfer of rights under
any Material Business Contracts and (B) an assignment or sublicense of any
Business Intellectual Property, except as otherwise provided in Section 9.2(b).
Seller is responsible to obtain consents set forth on Schedule 8.6(a)(i).
Purchaser is responsible to obtain consents set forth on Schedule 8.6(a)(ii).
The out-of-pocket costs and expenses incurred in obtaining such consents shall
be borne by Seller, in the case of the Schedule 8.6(a)(i) consents, and by
Purchaser, in the case of the Schedule 8.6(a)(ii) consents. Purchaser shall be
entitled to participate in any negotiation with any Person whose consent is
required in connection with the assignment or sublicensing or other transfer of
any Material Business Contract or Acquired Intellectual Property and the rights
and obligations thereunder.
(b) Pending obtaining any required consent,
approval, waiver or authorization with respect to a Material Business Contract,
the parties shall cooperate with each other to effect mutually agreeable,
reasonable and lawful arrangements designed to provide Purchaser or its
designated Affiliates with (A) the economic and operational equivalents that
would have been realized by Purchaser or its designated Affiliates had the
applicable Material Business Contract been assigned, subleased or transferred to
Purchaser or its designated Affiliates at Closing or (B) to the extent that such
economic and operational equivalent cannot be provided through Seller or one of
its Affiliates, alternative third party contractual arrangements, which
arrangements shall be determined by Purchaser in its reasonable discretion to be
acceptable. Once consent, approval, waiver or authorization for the assignment,
sublease or transfer of any such Material Business Contract not assigned,
subleased or transferred at the Closing is obtained, Seller shall, and shall
cause the appropriate Affiliate of Seller to, assign, sublease or transfer
promptly such Material Business Contract to Purchaser or its designated
Affiliate. In the event that any such Material Business Contract cannot be
assigned, subleased or transferred or the benefits of use of any such Material
Business Contract cannot be provided to Purchaser or its designated Affiliates
within a reasonable period of time following the Closing, then Purchaser, or its
designated Affiliates on the one hand, and Seller and its Affiliates, on the
other hand, shall enter into such arrangements (including servicing, subleasing,
subcontracting or occupancy) that will provide Purchaser or its designated
Affiliates with (A) the economic and operational equivalents that would have
been realized by Purchaser or its designated Affiliates had the applicable
Material Business Contract been assigned, subleased or transferred to Purchaser
or its designated Affiliates at Closing or (B) to the extent that such economic
and operational equivalent cannot be provided through Seller or one of its
Affiliates, alternative third party contractual arrangements which arrangements
shall be determined by Purchaser in its reasonable discretion to be acceptable.
Without limitation of the foregoing, Seller agrees to indemnify Purchaser and
its Affiliates and to hold Purchaser and its Affiliates harmless from any
Damages incurred or suffered by Purchaser or any of its Affiliates (including
RSUI) as a result of the failure to obtain the ▇▇▇▇▇▇▇ Oaks Consent.
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Section 8.7 Further Assurances.
(a) Upon the terms and subject to the conditions
herein provided, until the Closing Date each of the parties hereto shall use
commercially reasonable efforts to take, or cause to be taken, all actions or
do, or cause to be done, all things or execute any documents necessary, proper
or advisable under Applicable Law to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) On and after the Closing Date, Seller, as
reasonably requested from time to time by Purchaser, and Purchaser, as
reasonably requested from time to time by Seller, shall take all reasonably
appropriate action and execute any additional documents, instruments or
conveyances of any kind (but which shall not, however, contain any additional
representations or warranties) which may be necessary to carry out any of the
provisions hereof or of any Ancillary Agreement, including, without limitation,
putting Purchaser in full possession and operating control of the Acquired
Assets and causing Purchaser to have full unencumbered ownership of all of the
RSUI Shares.
Section 8.8 Expenses. Except as otherwise expressly provided
in this Agreement, in any of the Ancillary Agreements or with the Landmark
Purchase Agreement, the parties to this Agreement shall bear their respective
costs and expenses incurred in connection with the preparation, execution and
performance hereof and thereof and the transactions contemplated hereby and
thereby, including, without limitation, all fees and expenses of agents,
representatives, counsel, investment bankers, actuaries and accountants;
provided, however, that Seller and Purchaser shall share equally the cost of all
filing fees in connection with all filings by any of the parties hereto or their
respective Affiliates with Governmental Entities (including the Federal Trade
Commission and the Antitrust Division under the HSR Act). The out of pocket
costs and expenses incurred in connection with obtaining required approvals,
consents, waivers or authorizations of non-governmental Persons will be
allocated as provided in Section 8.6(a) above.
Section 8.9 Public Announcements. After the execution of this
Agreement and through the Closing Date, the parties hereto shall consult with
each other prior to making any public announcements which relate to the
transactions contemplated by this Agreement or any of the Ancillary Agreements
and give the other reasonable opportunity to review and comment on such public
disclosure in advance of its release. Notwithstanding anything to the contrary
contained in this Agreement or the Confidentiality Agreement, the parties (and
each employee, representative, or other agent of the parties) may disclose to
any and all persons, without limitation of any kind, the tax treatment and any
facts that may be relevant to the tax structure of the transaction, beginning on
the earliest of (i) the date of the public announcement of discussions relating
to the transaction, (ii) the date of public announcement of the transaction, or
(iii) the date of the execution of this agreement (with or without conditions)
to enter into the transaction, provided, however, that neither party (nor any
employee, representative or other agent thereof) may disclose any information
that is not necessary to understanding
46
the tax treatment and any facts that may be relevant to the tax structure of the
transaction (including the identity of the parties and any information that
could lead another to determine the identity of the parties), or any other
information to the extent that such disclosure could result in a violation of
any federal or state securities law.
Section 8.10 Notice of Adverse Developments. From the date
hereof through the Closing Date (i) Seller shall notify Purchaser promptly of
the occurrence of any event, condition or circumstance of which Seller has
Knowledge that would jeopardize the fulfillment of any condition to the Closing
and (ii) Purchaser shall notify Seller promptly of the occurrence of any event,
condition or circumstance of which Purchaser has Knowledge that would jeopardize
the fulfillment of any condition to the Closing. No disclosure by any party
pursuant to this Section 8.10, however, shall be deemed to amend or supplement
the Seller Disclosure Schedules or the Purchaser Disclosure 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, Seller shall promptly notify
Purchaser of any Action of the type required to be described in Schedules 2.4,
3.5 or 4.10 hereof that is commenced or, to its Knowledge, threatened after the
date hereof.
Section 8.11 Policy Form, Rate and Rule Filings.
(a) As soon as practicable after the date of
this Agreement, Purchaser shall cause AIHL Insurance Co. to file or submit, or
cause to be filed or submitted, to the insurance regulatory entities in all
applicable states, applications, documents and other materials necessary in
connection with obtaining all policy form, rate and rule filings necessary to
enable AIHL Insurance Co. to issue in its own name contracts or policies similar
to the RSUI-Produced Insurance Contracts. Purchaser agrees it shall cause AIHL
Insurance Co. to use its best efforts to obtain all necessary policy form, rate
and rule filings as soon as practicable after the Effective Date (as such term
is defined in the Quota Share Reinsurance Agreements) and in any event by the
first anniversary of the Effective Date.
(b) Seller agrees to use its best efforts to
cooperate with, or cause its Affiliates to use their best efforts to cooperate
with, AIHL Insurance Co. in obtaining all policy form, rate and rule filings
necessary to enable AIHL Insurance Co. to issue in its own name contracts or
policies similar to the RSUI-Produced Insurance Contracts.
Section 8.12 Intercompany Balances.
(a) Except as set forth in Schedule 8.12(a),
Seller shall cause all intercompany accounts receivable or payable (whether or
not currently due or payable) between (x) RSUI, on the one hand, and (y) Seller
or any of its Affiliates, or any of the officers or directors of any of Seller
or any of its Affiliates (other than RSUI or any of the officers or directors of
RSUI), on the other hand, to be settled in full (without any premium or penalty)
at or prior to the Closing, and such settlements shall be reflected in
47
the Closing Balance Sheet. At or prior to the Closing, Seller shall advise
Purchaser as to the amounts of all such intercompany accounts and the method of
settlement thereof. Except as set forth on Schedule 8.12(a), effective at or
prior to Closing, all Intercompany Agreements shall be terminated and discharged
in accordance with their terms, without any further liability or obligation
thereunder.
(b) From and after the Closing, except as set
forth on Schedule 4.17(c) or as fully reflected or reserved against in the
Closing Balance Sheet, and except for obligations and agreements to be performed
pursuant to this Agreement, the Ancillary Agreements and the Landmark Purchase
Agreement, (i) none of RSUI, on the one hand, and Seller and its Affiliates, on
the other hand, shall be subject to any further obligation or liability to the
other of any nature whatsoever, under any Intercompany Agreement or otherwise,
and (ii) none of Purchaser and its Affiliates (including RSUI), on the one hand,
and Seller and its Affiliates, on the other hand, shall be subject to any
further obligation or liability to the other of any nature with regard to the
Business.
Section 8.13 Affiliate Agreements. All Affiliate Agreements
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 Purchaser.
Section 8.14 Insurance Matters. Purchaser acknowledges that
RSUI's insurance coverage will be terminated effective as of the Closing Date.
Seller agrees to cooperate with Purchaser in obtaining, at the expense of
Purchaser, replacement insurance coverage to provide insurance coverage to RSUI
effective as of the Closing Date. Without limiting the generality of the
foregoing, Seller shall provide such information, and cause RSUI and any other
Affiliate of Seller, as may be appropriate, to complete and execute such
applications, as may be reasonably necessary to arrange for such replacement
insurance coverage.
Section 8.15 Resignation of RSUI Directors. Seller shall cause
each of the directors of RSUI set forth in Schedule 8.15 to submit their letters
of resignation effective as of the Closing Date.
Section 8.16 Disposition of Business. Prior to the Closing,
neither Purchaser nor any Affiliate of Purchaser shall publicly announce any
proposal or intention to sell, transfer or otherwise restructure (including, by
way of merger, consolidation, exchange, business combination or any other
transaction) directly or indirectly, any or all of the Acquired Assets or the
Business.
Section 8.17 Transfer of Excluded Assets, Excluded Contracts
and Retained Liabilities. Subject to Sections 9.1 and 9.2, to the extent
practicable, Seller shall cause all of the Excluded Assets, the Excluded
Contracts and the Schedule 1.3(c) Liabilities to be transferred by RSUI to
Seller and/or its Affiliates, or otherwise disposed of, liquidated or discharged
prior to Closing, upon terms and pursuant to instruments reasonably satisfactory
to Purchaser. Such transfers, dispositions, liquidations or other discharges of
the Excluded Assets, the Excluded Contracts and the Schedule 1.3(c)
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Liabilities shall be reflected in the Closing Balance Sheet. To the extent
necessary, Purchaser shall cooperate with Seller to transfer such Excluded
Assets, Excluded Contracts and Schedule 1.3(c) Liabilities to Seller, including
promptly notifying and delivering to Seller any such Excluded Assets if
discovered or received by Purchaser subsequent to the Closing Date.
Section 8.18 Indemnification of Brokerage. Seller agrees to
pay the Seller's Fee and to indemnify and hold harmless 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 RSUI, the Seller or any of its
Subsidiaries in connection with the transactions contemplated hereby, and to
bear the cost of legal expenses incurred in defending against any such claim.
Purchaser agrees to pay the Purchaser's Fee and to indemnify and hold harmless
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 Purchaser or
any of its Affiliates in connection with the transactions contemplated hereby,
and to bear the cost of legal expenses incurred in defending against any such
claim.
Section 8.19 Interim Financial Statements. From the date
hereof until the Closing Date, as soon as practicable after they become
available, Seller shall deliver to Purchaser true and complete copies the
quarterly or annual GAAP financial statements relating to RSUI for each
quarterly or annual period ending on or after the date hereof. All such GAAP
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 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.
Section 8.20 Corporate Records. At or prior to the Closing,
Seller shall deliver to RSUI 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 Income Tax Returns,
records and worksheets relating to Taxes, as well as any Tax closing or
settlement agreements and any Tax examinations or similar reports, but excluding
any such records that are part of any consolidated, combined, unitary or similar
Tax Return except to the extent solely related to RSUI), files, personnel
records, policy forms, stationery, software, data, documents and properties of
RSUI that are in the possession of any of Seller or its other Affiliates.
Section 8.21 Instruments. Except as specifically provided
elsewhere herein, any monies, checks, drafts, money orders, postal notes and
other instruments received after the Closing by Seller or any of its Affiliates
in payment of any amounts due RSUI (other than amounts due with respect to
Taxes) shall be held in trust therefor and, forthwith after receipt by Seller or
such Affiliates thereof, be transferred and delivered by Seller and such
Affiliates to RSUI and any such instruments made payable to Seller or such
Affiliates when so delivered shall bear all endorsements required to effectuate
the transfer of the same to RSUI.
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Section 8.22 Cooperation. (a) From and after the Closing Date,
Purchaser agrees to cause RSUI (including its directors, officers and employees
and former directors, officers and employees who are employees of Purchaser or
any of its Affiliates) to assist, cooperate and voluntarily participate in the
defense of any legal or regulatory action brought against Seller (or any
Affiliate of Seller) by any third party with regard to the businesses of Seller
or any of its Affiliates as to which any such director, officer or employee has
independent knowledge. Seller agrees to reimburse Purchaser for any
out-of-pocket costs and expenses incurred by Purchaser or any of its Affiliates
in connection with providing such assistance.
(b) From and after the Closing Date, Seller
agrees on behalf of itself and its Affiliates (including directors, officers and
employees and former directors, officers and employees who are employees of
Seller or any of its Affiliates) to assist, cooperate and voluntarily
participate in the defense of any legal or regulatory action brought against
Purchaser, RSUI, AIHL Insurance Co. or any other Affiliate of Purchaser by any
third party with regard to the businesses of Purchaser or any of its Affiliates
as to which any such director, officer or employee has independent knowledge.
Seller agrees to reimburse Purchaser for any out-of-pocket costs and expenses
incurred by Purchaser or any of its Affiliates in connection with providing such
assistance.
ARTICLE IX
ADDITIONAL COVENANTS
Section 9.1 Trademarks; Change of Corporate Names.
(a) On or prior to the Closing Date, Seller
shall cause Royal & SunAlliance to execute such instruments, in form and
substance reasonably satisfactory to Purchaser, assigning to RSUI all right,
title and interest in and to the RSUI ▇▇▇▇, excluding the ▇▇▇▇ Registration
(such instruments, the "Service ▇▇▇▇ Assignment"). Within (3) days following the
Closing, Seller shall cause Royal & SunAlliance to cancel the ▇▇▇▇ Registration
by filing an instrument of express abandonment with the United States Patent and
Trademark Office. On and after the Closing Date, Seller shall, and shall cause
its Affiliates, as reasonably requested by Purchaser, to execute any additional
documents, instruments or conveyances which may be necessary in order for RSUI
or its successor to register the RSUI ▇▇▇▇ with the United States Patent and
Trademark Office (and similar authorities in other jurisdictions) so long as the
subject matter of such registrations does not incorporate the name "Royal" or
the navigator or half-navigator design elements currently used by Royal Insurer
Affiliates.
(b) Change of Corporate Name. As promptly as
practicable following the Closing, but in no event later than six (6) months
following the Closing Date, Purchaser shall, and shall cause its Affiliates to,
cause RSUI to make appropriate filings with all Governmental Entities and any
other applicable registries to change the legal name and any tradename of RSUI
to a name that does not include "Royal", "RSA" or anything confusingly similar
thereto. Seller agrees that the foregoing shall not be
50
deemed to prohibit RSUI or any of its Affiliates from adopting a new name that
allows for continued use of the acronym "RSUI" or from using "RSUI" in its
corporate name.
(c) Intellectual Property. For the avoidance of
doubt, except as provided in Sections 9.1 or 9.2 or as otherwise provided in any
of the Ancillary Agreements, the parties hereto agree that Purchaser is not
purchasing, acquiring or otherwise obtaining any right, title or interest in, to
or under (i) any Intellectual Property, proprietary Computer Software and IP
Licenses owned by Seller set forth in Schedule 9.1(c) hereto (collectively, the
"Royal Group Intellectual Property"), whether directly or indirectly as a result
of Purchaser's acquisition of the RSUI Shares, or (ii) except as expressly
provided for hereunder or in the Ancillary Agreements (including indirectly as a
result of Purchaser's acquisition of the RSUI Shares), any other Intellectual
Property, including, but not limited to, the names "Royal", "Royal Specialty
Underwriting Inc.", Navigator Logo or any Trademark related thereto or employing
the words "Royal" and "Royal Specialty Underwriting Inc." or any part or
variation thereof or any confusingly similar Trademark. Seller agrees that the
foregoing shall not be deemed to prohibit RSUI or any of its Affiliates from
adopting a new name that allows for continued use of the acronym "RSUI" or from
using "RSUI" or "Specialty Underwriting" in its corporate name.
Section 9.2 Other Intellectual Property Matters.
(a) As promptly as practicable following the
date hereof, Seller shall use its commercially reasonable efforts (i) to assist
Purchaser in obtaining new licenses for RSUI's benefit and use following the
Closing of all of the Intellectual Property licensed from a third party that is
listed in Schedule 4.15(a), and (ii) in the event that Purchaser is unable,
despite its commercially reasonable efforts and Seller's assistance, to obtain
any rights to such Intellectual Property prior to the Closing, to enter or
assist Purchaser in entering into any reasonable lawful arrangement designed to
provide RSUI or its designated Affiliates (1) with the benefits of Seller's
license of such Intellectual Property or (2) with economic and operational
equivalents to said Intellectual Property or (3) with alternative third party
contractual arrangements, which arrangements shall be determined by Purchaser in
its reasonable discretion to be acceptable, and shall cause Purchaser to bear
the costs and obligations applicable to RSUI or its designated Affiliates for
their use under Seller's license, the portion of the economic and operational
equivalent attributable to RSUI or its designated Affiliates or the alternative
third party contractual arrangements, whichever is applicable.
(b) In the event that, following the Closing,
Purchaser or Seller identifies additional Intellectual Property (including,
without limitation, Computer Software or Trade Secrets) that is owned or
controlled by Seller and is necessary for the conduct of the Business, Seller
shall, or shall cause its applicable Affiliates, to enter into a license, in
form and substance reasonably satisfactory to both parties, granting RSUI a
non-exclusive, royalty-free license to use such Intellectual Property in
connection with the Business under terms that are, where appropriate, consistent
with those contained in the Administrative Services Information Technology
License.
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(c) Seller on its own behalf and/or on behalf of
its Affiliates hereby grants RSUI and its Affiliates the limited, perpetual
right to use the form and content of the "Big Shield form" (the "Form") on a
non-exclusive basis in connection with the offering and sale of insurance
products and services in accordance with practices current as of the Closing
Date, as necessary regulatory forms, and in other ways customary to the trade;
provided, however, that neither RSUI nor any of its Affiliates shall have any
right to use the "Big Shield" trademark; and provided, further, that the Form
and the content of the Form are provided on an "as is" basis and without
representations or warranties of any kind. The rights granted under this Section
9.2(c) shall not be transferable without Seller's prior written consent except
for assignments made in connection with a merger, reorganization, sale or other
transfer of all or substantially all of the assets or business of RSUI.
Section 9.3 Noncompetition and Nonsolicitation by Seller.
(a) Except as provided in Sections 9.3(c) and
9.3(d) below, for a period of two (2) years following the Closing Date (the
"Non-Compete Period"), neither Seller nor any of its Affiliates shall (for their
own account or for the benefit of any other Person without the prior written
consent of Purchaser), directly or indirectly, as a principal or solely or
jointly with others, or as stockholders, partners, members or other owners in or
of any Person, (i) underwrite any RSUI-Produced Insurance Contract (provided,
however, that Seller and its Affiliates shall not be prohibited by this Section
9.3(a)(i) from underwriting any RSUI-Produced Insurance Contract if RSUI has
tendered written notice of non-renewal of such RSUI-Produced Insurance Contract
and RSUI has not offered to place the subject contract either in an insurance
company affiliated with Purchaser or with a Royal Insurer Affiliate), or (ii)
accept any risk in the United States placed through a wholesale broker for a
policy of insurance of a type underwritten by RSUI as of the Closing Date.
(b) Except as provided in Sections 9.3(c) and
9.3(d) below, Seller further agrees that, during the Non-Compete Period, neither
it nor any of its Affiliates shall underwrite in the United States any policies,
binders and contracts of insurance that provide monoline coverage for the
following types of insurance: (i) directors and officers liability; (ii)
professional liability; and (iii) excess umbrella liability.
(c) Notwithstanding anything to the contrary
contained in this Agreement or in any Ancillary Agreement, Purchaser
acknowledges and agrees that Seller and its Affiliates have been issuing, and
during the Non-Compete Period shall be permitted to continue to issue, (i)
through its retail distribution channel, policies, binders and contracts for the
following types of insurance: (A) property; (B) inland marine; and (C) general
liability, (ii) policies, binders and contracts for errors and omissions
insurance for architects and engineers underwritten by Design Professional
Insurance Company (DPIC), a business unit of Seller, and (iii) umbrella
policies, binders and contracts of insurance written by Seller or any of its
Affiliates that are in excess of Seller's or such Affiliate's own primary
policies, provided and to the extent that such actions described in clauses (i),
(ii) and (iii) above do not involve any use of the Books and Records.
52
(d) The restrictions in paragraphs (a) and (b)
of this Section 9.3 shall not prevent Seller or any of its Affiliates during the
Non-Compete Period from:
(i) arranging or underwriting cover for
any client of Seller or any Affiliate or Network Partner as part of a
multinational insurance program which is administered from a territory
or territories outside the United States;
(ii) carrying on inwards reinsurance
business (provided that neither Seller nor any Affiliate will enter
into reinsurance arrangements solely for the purpose of defeating the
effect of the restrictions set forth in paragraphs (a) and (b) of this
Section 9.3);
(iii) holding or acquiring for investment
purposes only any interest in securities of a Person which are listed
or quoted or traded on any generally recognized market, provided that
such securities amount to less than ten percent (10%) of the
outstanding securities of such Person and carry less than ten percent
(10%) of the voting rights attaching to the outstanding securities of
that Person; and
(iv) underwriting any type of insurance
contracts which are not being underwritten by RSUI as of the Closing
Date; and
(v) purchasing an entity or group of
entities (an "Acquired Entity") that competes in the wholesale market
with the Business (a "Competing Business") as conducted on the date
hereof, so long as:
(A) the gross revenues of the Competing Business
do not exceed 15% of the gross revenues of the Acquired Entity
during the most recent fiscal year of the Acquired Entity
ended before the date of acquisition of the Acquired Entity;
and
(B) Seller takes appropriate safeguards to
further the intent of this Section 9.3, including implementing
procedures to ensure that no disclosure of any information
relating primarily to the Business is made or otherwise
becomes available to the Competing Business or to the Acquired
Entity.
(e) During the Non-Compete Period, none of
Seller or its Affiliates shall solicit or hire any Transferred Employee without
the prior written consent of Purchaser; provided, however, that nothing in this
Section 9.3(e) shall prohibit Seller or any of its Affiliates from hiring any
Transferred Employee whose employment has been terminated by Purchaser or an
Affiliate of Purchaser, as applicable, where none of Seller or its Affiliates
has solicited such Transferred Employee for employment prior to the date of the
termination of such Transferred Employee by Purchaser or its Affiliate, as
applicable. (For purposes of this Section 9.3(e), prior to January 1, 2004,
references to "Transferred Employees" shall be deemed to be references to RSUI
Employees and New
53
Hires as defined in Section 11.1 below). In the event that Purchaser has
Knowledge of any solicitation in violation of this Section 9.3(e), Purchaser
shall promptly notify Seller.
(f) The parties to this Agreement acknowledge
that the type and periods of restriction imposed in the provisions of this
Section 9.3 are fair and reasonable and are reasonably required for the
protection of the parties. If any of the restrictions or covenants in paragraphs
(a), (b), (c) (d), or (e) of this Section 9.3 are hereafter construed to be
invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions.
(g) Seller agrees that the covenants in this
Section 9.3 are for the benefit of Purchaser and its Affiliates (including
RSUI).
(h) Seller agrees that, at no time after the
Closing Date, will it or any of its Affiliates (i) itself use for the purpose of
competing with the Business of RSUI any confidential information of RSUI or the
Business obtained by it while Seller was a stockholder of RSUI and an owner of
the Business (the "RSUI Confidential Information"), or (ii) disclose to any
Person any RSUI Confidential Information; provided, however, that this clause
(ii) shall not preclude the disclosure of such RSUI Confidential Information if
(A) disclosure of such RSUI Confidential Information is in the reasonable
opinion of a Royal Insurer Affiliate necessary in the conduct of its business;
(B) disclosure of such RSUI Confidential Information is reasonably required by
Seller or any of its Affiliates in connection with the performance by Seller and
its Affiliates of their obligations under the Employee Leasing Agreement or
under any other Ancillary Agreement; (C) disclosure of such RSUI Confidential
Information shall be required by Applicable Law or order of any Governmental
Entity, (D) disclosure of such RSUI Confidential Information is, in the
reasonable judgment of Seller or an Affiliate of Seller, required in connection
with any claim against or involving Seller or any of its Affiliates or (E) such
RSUI Confidential Information is publicly available (other than RSUI
Confidential Information known generally to the public as a result of a
violation of this Section 9.3(h) by Seller or any of its Affiliates) or is known
or subsequently developed by the Seller or any of its Affiliates outside of its
affiliation with RSUI or the Business from a source that is not prohibited from
disclosing such RSUI Confidential Information to Seller or any of its Affiliates
by a legal, contractual, fiduciary or other obligation to Purchaser or any of
its Affiliates (including RSUI).
(i) Seller agrees that a monetary remedy for a
breach of the agreements set forth in this Section 9.3 will be inadequate and
impracticable and further agrees that such a breach would cause Purchaser
irreparable harm, and that, in the event of such a breach, Purchaser shall be
entitled to such injunctive relief, including temporary restraining orders and
preliminary and permanent injunctions, as may be determined by a court of
competent jurisdiction.
(j) For purposes of this Section 9.3, "Network
Partner" means any insurance company that is not an Affiliate of Seller that
utilizes the Royal &
54
SunAlliance Insurance Group plc global network in order to write business for
its multinational clients.
Section 9.4 Ancillary Agreements; Other Closing Deliveries.
(a) Seller shall, and shall cause RSUI and each
of the Royal Insurer Affiliates to, execute and deliver at the Closing each of
the Ancillary Agreements to which it is a party and each other agreement,
document or instrument which is necessary to effect the transactions
contemplated by this Agreement or the Ancillary Agreements.
(b) Purchaser shall, and shall cause its
Affiliates to, execute and deliver at the Closing each of the Ancillary
Agreements to which it is a party and each other agreement, document or
instrument which is necessary to effect the transactions contemplated by this
Agreement or the Ancillary Agreements.
(c) Promptly following the date of this
Agreement, the parties hereto agree to negotiate in good faith the definitive
terms of the Transition Services Agreement.
(d) At the Closing, Seller shall deliver to
Purchaser: (i) evidence of compliance with the requirements of Section 8.12
regarding the settlement of intercompany balances and the termination of
Intercompany Agreements; (ii) evidence of compliance with the requirements of
Section 8.13 regarding the termination of Affiliate Agreements; (iii) a
certificate satisfying the requirements of Treasury Regulation Section
1.1445-2(b)2; (iv) the Closing RSUI Contract List; and (v) the Cat Cover
Endorsement.
Section 9.5 Updates to Seller Disclosure Schedules. Seller
shall use reasonable best efforts to provide in writing to Purchaser updates to
Schedule 11.1(a) (RSUI Employees) of the Seller Disclosure Schedules between the
date hereof and the Closing Date.
Section 9.6 The American Agency. From and after the Closing
Date, Purchaser agrees to provide, and to cause its Affiliates (including RSUI)
to provide, such reasonable assistance as may be requested from time to time by
Seller in connection with the proposed sale of The American Agency. Seller
agrees to reimburse Purchaser for any out-of-pocket costs and expenses incurred
by Purchaser or any of its Affiliates (including RSUI) in connection with
providing such assistance.
Section 9.7 Capitalization of AIHL Insurance Co. Prior to the
Closing, Purchaser will take such action as may be necessary to cause the
policyholders' surplus of AIHL Insurance Co. to be not less than $500,000,000 on
the Closing Date.
Section 9.8 Certain Matters.
(a) Purchaser agrees to take such action as may
be necessary to cause AIHL Insurance Co. to perform its obligations under the
Quota Share Reinsurance Agreements with regard to the collateralization of the
Trust provided for thereunder.
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Purchaser further agrees that, if the policyholders' surplus of AIHL Insurance
Co. reflected in any annual or quarterly statutory filing is less than
$300,000,000 as of the end of the period, Purchaser will, within ten Business
Days after the date of such statutory filing, take such action as may be
necessary to cause the policyholders' surplus of AIHL Insurance Co. to be not
less than $300,000,000.
(b) Purchaser and Seller agree that the
commitments of Purchaser made in Section 9.8(a) above shall be terminated on the
date of filing of AIHL Insurance Co.'s statutory statements for the year ended
December 31, 2004, or on the date of filing of AIHL Insurance Co.'s statutory
statements for a quarterly or annual period ended after December 31, 2004, if,
on such date, (i) AIHL Insurance Co. holds an A.M. Best Insurer's Financial
Strength rating of at least A-, without negative outlook or similar modifier,
(ii) the policyholders' surplus of AIHL Insurance Co. reflected in such
statutory filing is not less than $500,000,000, and (iii) (A) the sum of (x)
unearned premium reserves plus (y) loss and loss adjustment expense reserves
(including reserves for incurred but not reported claims) held by AIHL Insurance
Co. in respect of its obligations under the Quota Share Reinsurance Agreements,
taken as a whole (but, from and after the date of closing of the Landmark
Purchase Agreement, excluding unearned premium reserves and loss and loss
adjustment expense reserves held by AIHL Insurance Co. in respect of its
obligations under the Landmark Quota Share Reinsurance Agreement), does not
exceed 50% of the policyholders' surplus of AIHL Insurance Co. reflected in such
statutory filing and (B) Purchaser shall have delivered to Seller an opinion (in
the case of a statutory filing for an annual period) or a review (in the case of
a statutory filing for a quarterly period) prepared by a nationally recognized
independent actuarial firm supporting the reserves reflected in such statutory
filing. Purchaser further agrees that, until the commitments of Purchaser made
in Section 9.8(a) above are terminated upon fulfillment of the conditions for
such termination set forth in the immediately preceding sentence, Purchaser
shall not dividend or distribute (A) any shares of Purchaser's wholly owned
subsidiaries Capital Transamerica Corporation and Platte River Insurance Company
or any shares of Purchaser's indirect wholly owned subsidiaries Capital
Indemnity Corporation and Capital Specialty Insurance Corporation or (B) any
proceeds of the sale of any of Capitol Transamerica Corporation, Platte River
Insurance Company, Capitol Indemnity Corporation and/or Capitol Specialty
Insurance Corporation.
ARTICLE X
TAX MATTERS
Section 10.1 Transfer Taxes. All Transfer Taxes, if any,
arising out of or in connection with the transactions contemplated by this
Agreement shall be borne equally by Seller and Purchaser. The parties shall
cause all appropriate stock Transfer Tax stamps to be affixed to the certificate
or certificates representing the RSUI Shares so sold and delivered. Seller and
Purchaser shall reasonably cooperate in the preparation, execution and filing
of, all Tax Returns, applications or other documents regarding any Transfer
Taxes that become payable in connection with the sale of the Acquired Assets and
the Acquired Intellectual Property pursuant to this Agreement.
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Section 10.2 Tax Matters. Except as provided in Section 10.1
hereof:
(a) Parent or Seller shall file or cause to be
filed when due all Tax Returns that are required to be filed for any Pre-Closing
Tax Period by or with respect to RSUI, and, subject to Section 10.3 hereof,
shall remit (or cause to be remitted) any Taxes due in respect of such Tax
Returns. All such Tax Returns will be prepared in a manner consistent with the
past practice of Seller and RSUI.
(b) Purchaser shall file or cause to be filed
when due all Tax Returns that are required to be filed for any Post-Closing Tax
Period or any Straddle Period by or with respect to RSUI and, subject to
Sections 10.2(d) and 10.3 hereof, Purchaser shall remit (or cause to be
remitted) any Taxes due in respect of such Tax Returns.
(c) Purchaser shall cause RSUI to prepare in a
manner consistent with past practice of RSUI and to deliver to Parent or Seller,
all relevant Tax information relating to RSUI reasonably required to permit
Parent or Seller to file or cause to be filed when due all Tax Returns required
to be filed or caused to be filed by Parent or Seller pursuant to Section
10.2(a) of this Agreement.
(d) In the case of any Tax Return for any
Straddle Period, Purchaser shall provide Seller with copies of the completed Tax
Return for such taxable period and a schedule apportioning the Tax shown on such
Tax Return as between Seller and Purchaser and specifying the amount due to or
from Seller (all computed in accordance with Section 10.3 hereof), together with
such related work papers and other documents as Seller shall reasonably request,
no later than forty-five (45) days before the due date for the filing of such
Tax Return. Seller and its authorized representatives shall have the right to
review the Tax Return and schedule received from Purchaser pursuant to the terms
of this Section 10.2(d). Seller and Purchaser agree to consult each other and
resolve in good faith any issues arising under the terms of this Section 10.2(d)
as a result of the review of any such Tax Returns and schedule received from
Purchaser. If the parties agree upon the contents of the Tax Return and the
schedule, then the Tax Return shall be filed as so agreed and the amount of Tax,
if any, due from Seller shall be paid by Seller to Purchaser no later than two
(2) days prior to the date of filing of such Tax Return or the amount of Tax
due, if any, from Purchaser to Seller shall be paid by Purchaser to Seller no
later than three (3) days after the date of filing of such Tax Return. If the
parties are unable to resolve any dispute as to any Tax Return or accompanying
schedule within thirty (30) days after the provision of such Tax Return or
schedule to the Seller, the parties shall refer the dispute to an independent
mutually agreed upon nationally recognized accounting firm (the "Independent
Firm") to act as an arbitrator to resolve the disagreement prior to the due date
of the filing of such Tax Return. The Independent Firm's determination shall be
final and binding upon the parties, and all fees and expenses relating to the
engagement of the Independent Firm shall be shared equally by Seller and
Purchaser.
(e) Seller or Parent shall cause any Tax sharing
agreement or similar arrangement with respect to Taxes involving RSUI, on the
one hand, and Seller,
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Parent or any Affiliates of either, on the other hand, to be terminated
effective as of June 30, 2003, so that to the extent any such agreement or
arrangement relates to RSUI after June 30, 2003, none of RSUI, Seller, Parent
nor the Affiliates of any of them shall have any obligation thereunder to the
other, whether to make payment or otherwise, under any such agreement or
arrangement for any past, present or future period, which obligations shall be
governed solely by this Agreement.
(f) Except as otherwise expressly contemplated
by this Agreement, from the date hereof to and including the Closing Date,
neither Parent nor Seller without the prior written consent of Purchaser (which
consent shall not be unreasonably withheld, conditioned or delayed) will permit
RSUI to directly or indirectly (i) make, change or revoke, or permit to be made,
changed or revoked, any material election or method of accounting, with respect
to Taxes affecting RSUI for Post-Closing Tax Periods, or (ii) enter into, or
permit to be entered into, any closing or other agreement or settlement with
respect to Taxes of RSUI affecting or relating to Post-Closing Tax Periods.
Section 10.3 Computation of Tax Liabilities.
(a) For purposes of applying this Section 10.3,
when applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax
Period," "Straddle Period," or "Closing Date," (i) with reference to federal
Income Taxes, the term "Closing Date" as used in such definitions shall mean the
Closing Date, and (ii) with respect to all other Taxes, the term "Closing Date"
as used in such definitions shall mean June 30, 2003.
(b) The Seller will be responsible for all Taxes
attributable to Pre-Closing Tax Periods and the portion of any Straddle Period
ending on the Closing Date, and the Purchaser will be responsible for all Taxes
attributable to any Post-Closing Tax Period and the portion of any Straddle
Period beginning after the Closing Date. To the extent permitted or required by
Applicable Law or administrative practice, and for the purpose of allocating the
parties' responsibility for Taxes hereunder: (i) the taxable period of RSUI that
began on January 1 of the calendar year which includes the Closing Date shall be
treated as closing as of the close of business on the Closing Date;
notwithstanding the foregoing, (ii) all transactions not in the ordinary course
of business and properly allocable thereunder to the portion of the day after
the Closing Date shall be reported on Purchaser's consolidated United States
federal income Tax Return to the extent permitted by Treasury Regulation section
1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of
Purchaser or its Affiliates to the extent permitted by Applicable Law, (iii) 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 (iv) 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 that includes the Closing Date.
(c) For purposes of this Agreement, where it is
necessary to apportion between Seller and Purchaser the Tax liability of an
entity for a Straddle Period
58
(which is not treated under the immediately preceding sentence as closing on the
Closing Date), such liability shall be apportioned between the period deemed to
end at the close of the Closing Date, and the period deemed to begin at the
beginning of the day following the Closing Date on the basis of an interim
closing of the books, except that Taxes (such as real property Taxes) imposed on
a periodic basis, or that are imposed with respect to the portion of a Straddle
Period occurring after June 30, 2003, shall be allocated on a daily basis. In
determining Seller's liability for Taxes pursuant to this Agreement, Seller
shall be credited with the amount of estimated or actual Taxes paid by or on
behalf of RSUI on or prior to June 30, 2003 or paid on behalf of RSUI on or
prior to the Closing Date. To the extent that Seller's liability for Taxes of
RSUI for a Straddle Period is less than the amount of estimated or actual Taxes
previously paid by or on behalf of RSUI with respect to such Straddle Period,
Purchaser shall pay Seller the difference within three (3) days of the filing of
the Tax Return relating to such Tax. Parent, 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 Section 10.3.
Section 10.4 Seller's Indemnity for Taxes. Notwithstanding
anything contained in this Agreement to the contrary:
(a) Seller shall pay and shall indemnify and
hold harmless the Purchaser, RSUI and their respective Affiliates, successors
and permitted assigns from: (i) all liability for Taxes of RSUI for all
Pre-Closing Tax Periods and the Seller's portion of any Straddle Period (as
determined pursuant to Section 10.2(d) and 10.3 hereof), including any Income
Taxes incurred as a result of the distribution of the Excluded Assets to Seller
or an Affiliate thereof, and any liability of the Parent Group for additional
Taxes arising solely as a result of the Section 338 Elections if elected, as set
forth below; (ii) any additional Taxes of RSUI in any Post-Closing Period as the
result of the disallowance of any deduction pursuant to the application of
Section 280G of the Code for any compensation payment that is the result of the
breach of the representation in Section 4.14(l); (iii) all liability resulting
by reason of the several liability of RSUI pursuant to Treasury Regulations
Section 1.1502-6 or any similar provision of Applicable Law or by reason of RSUI
ever having been a member of any consolidated, combined or unitary group on or
prior to the Closing Date; and (iv) all Losses (as such term is defined in
Section 15.3) attributable to any misrepresentation or breach or non-performance
of warranty or agreement made by the Seller or the Parent in Section 4.13 or
this Article X.
(b) The representations and warranties of Seller
and the agreements of the parties contained in this Article X shall survive the
Closing and shall continue in full force and effect until thirty (30) days after
the expiration of the statute of limitations of the Tax to which the
representation, warranty or agreement relates. There shall be no limit on the
aggregate amount for which Seller shall be liable under Section 10.4(a) hereof
and no deductible shall apply.
Section 10.5 Assistance and Cooperation. After the Closing
Date, both Seller and Purchaser shall (and shall cause their respective
Affiliates to) in good faith cooperate with and assist the other in connection
with the preparation of any Tax Returns
59
(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 the reasonable out-of-pocket expenses
incurred in providing such assistance. In addition, neither party shall dispose
of any Tax workpapers, books or records relating to RSUI during the six-year
period following the Closing Date, and thereafter shall give the other party
written notice before disposing of such items and a reasonable opportunity to
copy or take possession of the same prior to their disposition. Each party shall
be free to dispose of such items after the expiration of the six-year period,
unless such other party provides notice within thirty (30) days of the
expiration of the six-year period that such other party intends to copy or take
possession of such items. Any information obtained pursuant to this Section 10.5
shall be held in strict confidence and shall be used solely in connection with
the reason for which it was requested.
Section 10.6 Refunds. Any Tax refund (including any interest
in respect thereof but net of any Tax imposed thereon) received by Purchaser or
its Affiliates, and any amounts credited against Tax to which Purchaser or any
of its Affiliates becomes entitled (including by way of any amended Tax
Returns), that relate to any taxable period, or portion thereof, ending on or
before the Closing Date shall be for the account of Seller, and Purchaser shall
pay over to Seller any such refund or the amount of any such credit within five
(5) days after receipt or entitlement thereto. Purchaser shall pay Seller
interest at the rate prescribed under section 6621(a)(1) of the Code, compounded
daily, on any amount not paid when due pursuant to the preceding sentence. For
purposes of applying this Section 10.6, the term "Closing Date" shall mean (i)
with reference to a refund of federal Income Taxes, (x) if no Section 338
Election is made, the Closing Date, and (y) if the Section 338 Election is made,
June 30, 2003, and (ii) with respect to a refund of all other Taxes, June 30,
2003.
Section 10.7 Contests. Notwithstanding anything to the
contrary contained in this Agreement:
(a) After the Closing Date, Purchaser shall
notify Seller in writing within ten (10) days of the date a claim is made or
threatened in writing by any Taxing Authority that, if successful, may
reasonably result in an indemnity payment by Seller under Section 10.4 (a "Tax
Claim"). Such notice shall contain factual information describing in reasonable
detail the nature and basis of such claim and the amount thereof, to the extent
known, and shall include copies of any notice or other document received from
any Taxing Authority in respect of any such asserted Tax liability. Failure by
Purchaser to give such notice to the Seller shall not relieve the Seller of any
liability that it may have on account of its indemnification obligation under
this Article X, except to the extent that the Seller is materially and adversely
prejudiced thereby in the defense of such Tax Claim; provided, however, that
irrespective of whether the Seller is materially or adversely prejudiced, Seller
shall be permitted to reduce any liability it may have on account of its
indemnification obligation under this Article X by the amount of Seller's
actual, out-of-pocket monetary damages that are caused by the Purchaser's
failure to timely give the notice required pursuant to this Section 10.7(a).
60
(b) Seller will have the right, at its option,
upon timely notice to 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 RSUI for a Straddle Period, which as described below, the parties
shall jointly control) with its own counsel, provided that Seller's notice
acknowledges Seller's indemnification liability for such claim. Seller's right
to control a Tax Claim will be limited to issues in respect of which amounts in
dispute would be paid by Seller or for which Seller would be liable pursuant to
Section 10.4. Costs of defending or contesting such Tax Claims are to be borne
by Seller unless the Tax Claim relates to a Straddle Period, in which event such
costs shall be fairly apportioned as described below. Purchaser and RSUI at
their own expense each shall cooperate with Seller in contesting any Tax Claim,
which cooperation shall include the retention and, upon 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, 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 RSUI or any
affiliated group (as defined in section 1504(a) of the Code) of which RSUI is a
member for any Post-Closing Tax Period without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld, conditioned or
delayed, and neither Seller, nor any Affiliate of Seller, shall file an amended
Tax Return that may increase the liability for Taxes of RSUI for any
Post-Closing Tax Period without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld, conditioned or delayed. Purchaser
and Seller shall jointly control all proceedings taken in connection with any
Tax Claims relating solely to a Straddle Period of RSUI 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. For purposes of this Section 10.7(b), when
applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax Period,"
"Straddle Period," or "Closing Date," (i) with reference to Tax Claims involving
federal Income Taxes, the term "Closing Date" as used in such definitions shall
be deemed to be the Closing Date, and (ii) with respect to Tax Claims involving
all other Taxes, the term "Closing Date" as used in such definitions shall be
deemed to be June 30, 2003.
Section 10.8 Post-Closing Actions which Affect Seller's
Liability for Taxes.
(a) Purchaser shall not allow or cause RSUI to
take, or fail to take, any action or omit to take any action after the Closing
Date as to which Seller has notified Purchaser in writing on or before the
Closing Date if the taking of such action or the failure to take such action
will increase the Taxes of RSUI for any Pre-Closing Tax Period provided that the
taking of such action or the failure to take such action does not materially
affect the conduct of the Business after the Closing Date.
(b) None of Purchaser or any Affiliate of
Purchaser shall (or shall cause or permit RSUI to) amend, refile or otherwise
modify any Tax Return relating
61
in whole or in part to RSUI with respect to any Pre-Closing Tax Period without
the prior written consent of Seller, which consent may be withheld in the sole
discretion of Seller.
(c) None of Purchaser or any Affiliate of
Purchaser shall (or shall cause or permit RSUI to) carryback for federal, state,
local or foreign Tax purposes to any Pre-Closing Tax Period or to the portion of
any Straddle Period ending before the Closing Date of RSUI, Seller, or any
Affiliate of Seller, any operating losses, net operating losses, capital losses,
tax credits or similar items arising in, resulting from, or generated in
connection with a taxable year of Purchaser or any Affiliate of Purchaser, or
portion thereof, ending on or after the Closing Date.
(d) For purposes of applying this Section 10.8,
when applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax
Period," "Straddle Period," or "Closing Date," (i) with reference to matters
involving federal Income Taxes, the term "Closing Date" as used in such
definitions shall be deemed to be the Closing Date, and (ii) with respect to
matters involving all other Taxes, the term "Closing Date" as used in such
definitions shall be deemed to be the Effective Date.
Section 10.9 Section 338(h)(10) Election.
(a) Within ninety (90) days of the Closing Date,
Purchaser shall furnish Seller with Purchaser's proposed allocation of the
Purchase Price among the RSUI Shares and the other transactions, rights and
obligations contemplated pursuant to this Agreement and the Ancillary
Agreements, the determination of the ADSP (as defined in applicable Treasury
Regulations under Section 338 of the Code) and the allocation of ADSP among the
assets of RSUI and other relevant items (the "Proposed Allocation"). Purchaser
and Seller each agree to consult in good faith with regard to the proposed
determination and the Proposed Allocation, provided that Seller shall accept
Purchaser's final determination of the ADSP and the Proposed Allocation to the
extent that they are reasonable and consistent with Applicable Law (which, when
accepted, shall become the "Final Allocation"). Within thirty (30) days after
the determination of the Final Allocation, Seller shall deliver to Purchaser a
schedule setting forth in reasonable detail the additional amount of cash
("Seller's Tax Cost") that Seller reasonably estimates is necessary to ensure
that the net proceeds derived by Seller from the sale of the RSUI Shares if the
Purchaser elects to make the elections provided for under Section 338(h)(10) of
the Code and any similar elections required to be, or treated as, made under any
applicable state or local Tax laws as a result of the federal election
(collectively, the "Section 338 Elections") is not less than the amount of net
proceeds Seller would have derived from the sale of the RSUI Shares in the
absence of the Section 338 Elections. The Seller's Tax Cost shall be computed
(1) on an after-Tax basis including, without limitation (A) any additional Taxes
imposed on the receipt of additional amounts or attributable to the allocation
of ADSP to anything other than the RSUI Shares and (B) if the Closing does not
take place on the Target Closing Date, any additional federal Income Taxes
(calculated for this purpose taking into account the deductibility of state
Income Taxes imposed on RSUI or the Parent Group in respect of the income
recognized by RSUI after June 30, 2003), and (2) on the basis such that the
after-Tax proceeds to Seller of the receipt of the Final Purchase Price plus the
Seller's Tax Cost equals the
62
amount of after-Tax proceeds the Seller would have received from the sale of the
RSUI Shares in exchange for the Final Purchase Price if the Section 338
Elections were not made and the entire Purchase Price was allocable solely to
the RSUI Shares. Purchaser and Seller each agree to consult in good faith with
regard to the determination and calculation of Seller's Tax Cost, provided that
Purchaser shall accept Seller's final determination of Seller's Tax Cost to the
extent that it is reasonable and consistent with Applicable Law (which, when
accepted, shall become the "Final Seller's Tax Cost").
(b) Within fifteen (15) days after the receipt
by Purchaser of the schedule of Final Seller's Tax Cost, Purchaser shall notify
Seller of Purchaser's decision as to whether to make the Section 338 Elections.
If Purchaser decides to make the Section 338 Elections, Seller agrees to (or to
cause Parent to, if applicable) join with Purchaser in making timely and
irrevocable Section 338 Elections, provided Seller receives the payment of Final
Seller's Tax Cost as provided in Section 10.9(c) hereof. If Purchaser decides to
make the Section 338 Elections, Purchaser shall be solely responsible for
preparing drafts of all forms, attachments and schedules necessary to effectuate
the Section 338 Elections, including, without limitation, IRS Form 8023 or
applicable successor form, and any similar forms or applicable successor forms
under applicable state or local income tax laws (the "Section 338 Forms"), and
Purchaser shall furnish a copy of the draft Section 338 Forms to Seller for
Seller's review and comment, which Seller agrees to do promptly. Seller shall,
and if required, Seller shall cause Parent to, cooperate in good faith with
Purchaser's preparation of the Section 338 Forms, and Seller agrees to promptly
provide (or cause Parent to promptly provide) to Purchaser true, correct and
complete information regarding Seller (or Parent or Parent Group, if applicable)
reasonably requested by Purchaser and necessary to complete the Section 338
Forms.
(c) Thereafter, Purchaser shall deliver to
Seller for execution by Seller (or Parent, if applicable) the final Section 338
Forms. Within five (5) days of delivering the final Section 338 Forms to Seller,
Purchaser shall pay to Seller (by wire transfer in U.S. Dollars of immediately
available funds to the bank account specified by Seller to Purchaser) an amount
equal to Final Seller's Tax Cost, and Seller (or Parent, if applicable) agrees
to and shall simultaneously execute and deliver to Purchaser the final Section
338 Forms.
(d) If Purchaser has paid to Seller Seller's
Final Tax Cost, then Seller agrees that Seller (i) shall, or shall cause Parent
to, report the acquisition of RSUI by Purchaser in a manner consistent with the
making of the Section 338 Elections (ii) shall not, and shall cause Parent and
each member of Parent Group not to, take a position in any Tax Return or audit
or any proceeding before any Taxing Authority or otherwise inconsistent with the
Section 338 Elections, including the determination of the ADSP and the Final
Allocation shown thereon, unless and to the extent required to do so pursuant to
a determination (as defined in Section 1313(a) of the Code or any similar state
or local law).
(e) Purchaser shall bear the costs and expenses
of preparing the Section 338 Forms and the Proposed and Final Allocations.
63
Section 10.10 Post-Effective Date Taxes. In the event that the
Closing Date occurs after the Effective Date, the parties agree that, for the
avoidance of doubt and in the event of any ambiguity in the interpretation or
application of this Agreement, this Article X shall be interpreted and applied
so that: (i) Seller shall be liable and responsible for (A) all Taxes of RSUI
attributable to all Tax periods ending on or before June 30, 2003, with respect
to any Tax period that begins before the Closing Date, (B) all Taxes of RSUI for
the portion of such Tax periods, if any, prior to and including June 30, 2003,
and (C) the United States federal Income Taxes imposed on Seller and
attributable to the taxable income of RSUI for all taxable periods ending on or
before the Closing Date; provided, however, that in the event the Section 338
Elections are elected, the foregoing shall not be construed to preclude the
Final Seller's Tax Cost from including the United States federal Income Taxes
imposed on Seller and attributable to the taxable income of RSUI for the Tax
period ending on the Closing Date; and (ii) Purchaser shall be liable and
responsible for (X) all Taxes of RSUI attributable to all Tax periods beginning
after June 30, 2003, with respect to any Tax period that begins before the
Closing Date, (Y) all Taxes (other than United States federal Income Taxes) of
RSUI for the portion of such Tax periods beginning after June 30, 2003, and (Z)
the United States federal Income Taxes attributable to the taxable income of
RSUI for all taxable periods beginning after the Closing Date.
ARTICLE XI
EMPLOYMENT MATTERS
Section 11.1 RSUI Employees.
(a) For the period from the Effective Date
through December 31, 2003 (the "Transition Period"), RSUI shall lease from RIC,
an Affiliate of Seller, pursuant to the Employee Leasing Agreement, the services
of the RSUI Employees identified on Schedule 11.1(a) and those persons who were
not employed by RIC on the Effective Date but who are hired at the request of
RSUI during the Transition Period (a "New Hire").
(b) Seller and Purchaser agree that Seller shall
pay to Purchaser, not less than five (5) Business Days prior to the date on
which the annual payments from the underwriting incentive pool and the incentive
compensation pool for calendar year 2003 are to be made to RSUI Employees in
accordance with the terms of the Annual Incentive Plan for RSUI Employees in
effect as of the Closing Date (the "2003 Bonus Payment"), a portion of the 2003
Bonus Payment (the "Seller Bonus Payment"). The Seller Bonus Payment shall be
determined as follows:
(i) a computation of the 2003 Bonus
Payment that would be due to RSUI Employees shall be made on a pro
forma basis which assumes that the performance levels achieved during
the first half of calendar year 2003 were replicated in the second half
of calendar year 2003 (the "Seller Performance Amount");
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(ii) a computation of the 2003 Bonus
Payment that would be due to RSUI Employees shall be made on a pro
forma basis which assumes that the performance levels achieved during
the second half of calendar year 2003 were replicated in the first half
of calendar year 2003 (the "Purchaser Performance Amount");
(iii) the 2003 Bonus Payment shall be
determined based upon actual results for the full calendar year 2003
and in accordance with the terms of the Annual Incentive Plan for RSUI
Employees in effect as of the Closing Date; and
(iv) the Seller Bonus Payment shall be
an amount equal to (A) (x) the Seller Performance Amount divided by (y)
the sum of the Seller Performance Amount plus the Purchaser Performance
Amount multiplied by (z) the 2003 Bonus Payment, less (B) $584,000.
(c) Purchaser shall cause RSUI or an Affiliate
of RSUI to offer employment on or before January 1, 2004, to each of the RSUI
Employees and New Hires who is actively employed by the Royal Indemnity as of
such date. The terms of such employment, for each such RSUI Employee and New
Hire, shall be substantially equivalent in base salary, bonus compensation, and
benefits in the aggregate to those provided on the Closing Date to such RSUI
Employee or those initially approved by RSUI in the case of any New Hire. Those
RSUI Employees and New Hires who accept such offer of employment shall be
referred to herein as "Transferred Employees".
(d) As of January 1, 2004, Seller will assign,
and RSUI or an Affiliate of RSUI will assume, the RSUI Employee Contract
identified on Schedule 11.1(d), provided the RSUI Employee becomes a Leased
Employee, except that neither RSUI nor an Affiliate of RSUI will assume, and
Seller will retain, all obligations relating to, and shall provide, the special
retirement benefits referred to in Section 4(d)(ii) of such RSUI Employee
Contract. Except as otherwise provided in this Agreement and in the RSUI
Employee Contract which RSUI assumes, nothing in this Agreement shall be
construed as limiting in any way the right of RSUI (or an Affiliate thereof) on
and after January 1, 2004, to terminate the employment of any Transferred
Employee, or to change his or her salary or wages or to modify benefits or other
terms and conditions of employment of any Transferred Employee to the extent
that any such change or modification is made in accordance with the normal
compensation and benefit plan practices of, and apply generally to similarly
situated employees or former employees of, RSUI and its Affiliates. Seller shall
not be responsible for and Purchaser agrees to cause RSUI to indemnify and hold
Seller harmless for any claim which is made for compensation or benefits under
any RSUI Employee Contract that RSUI so assumes, and which relates to any event
or condition which occurs or arises on or after January 1, 2004 (other than an
obligation specifically retained by Seller or an Affiliate of Seller).
(e) Except as otherwise expressly provided in
this Agreement, Purchaser shall cause RSUI to be responsible for, and shall
indemnify and hold harmless Seller and its Affiliates against, any actions,
claims or proceedings (including, but not
65
limited to claims alleged under Title VII of the Civil Rights Act of 1964)
brought by or on behalf of any Transferred Employee at any time with respect to
any event occurring or condition arising on or after the Effective Date;
provided, that RSUI shall not be obligated to indemnify and hold harmless Seller
and its Affiliates against any actions, claims or proceedings brought by or on
behalf of any Transferred Employee as a result of an act by RIC or a failure by
RIC to perform its obligations under the Employee Leasing Agreement, in each
case during the Transition Period.
(f) Purchaser shall take such action as may be
necessary to cause RSUI to bear responsibility for and to indemnify and hold
harmless Seller and its Affiliates against, any actions, claims or proceedings
brought by or on behalf of any RSUI Employee or New Hire who becomes a leased
employee in accordance with the Employee Leasing Agreement ("Leased Employee"),
and which relates to any event occurring or condition existing on or following
the Effective Date, other than as a result of an act of RIC or a failure by RIC
to perform its obligations under the Employee Leasing Agreement, in each case
during the Transition Period. Notwithstanding the foregoing, RSUI shall not be
responsible for, or obligated to indemnify and hold harmless Seller and its
Affiliates with respect to any actions, claims or proceeding for which RSUI (or
an Affiliate) is obligated to indemnify RIC under the Employee Leasing
Agreement.
(g) Seller shall be responsible for, and shall
indemnify and hold harmless Purchaser, RSUI and their Affiliates against, any
actions, claims or proceedings brought by or on behalf of any Leased Employee
which relates to any event occurring or condition existing prior to the Closing
Date.
(h) Seller agrees that from the date hereof
through January 1, 2004, neither Seller nor any of its Affiliates (including
RSUI) shall, except as contemplated by this Agreement or by any Ancillary
Agreement or with the consent of Purchaser (1) enter into any employment or
severance agreement with RSUI Employees or New Hires, (2) increase the benefits
payable to RSUI Employees or New Hires under severance or termination pay
policies or agreements in effect on the date hereof, other than as required by
Applicable Law, (3) adopt any new or amend any existing bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any RSUI Employee, other than to fully
vest all RSUI Employees in the Plans, or in the ordinary course of business or
as required by Applicable Law or this Agreement, (4) increase the compensation
or benefits of any director or officer of RSUI or any RSUI Employee other than
in the ordinary course of business and other than as required by Applicable Law,
(5) enter into any collective bargaining agreement or any other contract with
any labor union or association representing any RSUI Employee unless otherwise
required by applicable law, or (6) permit any RSUI Employee to be transferred,
or permit the services of any RSUI Employee to be shared with Seller or any
Affiliate of Seller other than in a manner consistent with present practice.
Section 11.2 RSUI Employee Benefits
66
(a) With respect to any RSUI Employee, no assets
of any Plan shall be transferred to Purchaser or to any plan of Purchaser. From
and after the Closing Date, neither RSUI nor any Affiliate of RSUI shall have
responsibility for, or any liability to make contributions to, the Plans.
(b) On and after January 1, 2004, Seller or its
Affiliates shall retain responsibility for, and shall provide all benefits
theretofore accrued under, the Plans, as required by the Plans and Applicable
Law to, any Transferred Employee. Seller shall cause each of the Pension Plan of
RIC, the Non Qualified Partnership Portfolio and the RIC Supplemental Executive
Retirement Plan to be amended effective as of Closing to treat each Transferred
Employee who is an employee as of Closing to be 100% vested in such Transferred
Employee's accrued benefit under such plan. Seller shall cause The Royal &
SunAlliance 401(k) Account and Savings Plan to be amended to the extent
necessary to permit a Transferred Employee to receive a distribution of his or
her account balance at any time after the date he or she becomes a Transferred
Employee. Notwithstanding the foregoing, Seller or its Affiliates shall retain
responsibility for, and shall continue to provide, retiree welfare benefits
accrued under the Plans for any Transferred Employee who, as of the Effective
Date, was eligible to retire and commence receiving retiree welfare benefits.
Retiree welfare benefits shall be provided to such Transferred Employees
commencing as of the date each such Transferred Employee terminates his or her
employment with RSUI or its Affiliates as if such Transferred Employee
terminated employment with RIC on such date, but with years of service credited
as of the Effective Date. This provision shall not in any manner limit the
ability of Seller to modify, amend or terminate its retiree medical plans for
any former employees of RIC, including Transferred Employees. Retiree benefits,
if any, to which a Transferred Employees is eligible under this Section, shall
be in the same form and amount provided to similarly situated employees of
Seller with the same service and age as the applicable Transferred Employee.
Section 11.3 Service Credit. Purchaser shall cause RSUI to
give the Transferred Employees full credit, for purposes of eligibility and
vesting, under any employee benefit plan, program or arrangement established by
RSUI or its Affiliates on or after January 1, 2004, for the Transferred
Employees' service with Seller and its Affiliates to the same extent recognized
by Seller and its Affiliates immediately prior to such date. To the extent
required under Applicable Law and to the extent Purchaser deems commercially
reasonable, Purchaser shall cause RSUI to waive all limitations as to
preexisting condition exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Transferred Employees
under any welfare benefit plans that such employees may be eligible to
participate in on and after January 1, 2004.
Section 11.4 Termination of Employment. Seller and its
Affiliates shall be responsible for, and assume all liabilities for, the payment
of all applicable severance benefits (and any other applicable similar benefit)
and for any and all notices or payments due pursuant to applicable requirements
of the Worker Adjustment and Retraining Notification Act (the "WARN Act") or any
similar state or local law ("WARN") arising out of, or relating to, any actions
taken on or prior to December 31, 2003 by the Seller
67
and its Affiliates with respect to Leased Employees. Purchaser shall cause RSUI
to reimburse Seller for the cost of such severance and/or WARN benefits in
accordance with the payment procedures for severance costs in the Employee
Leasing Agreement. The foregoing shall not require RSUI or any Affiliate to
reimburse Seller for any amount reimbursed or reimbursable to RIC under the
Employee Leasing Agreement. RSUI or its Affiliates shall be responsible for, and
assume all liabilities for, the payment of all applicable severance benefits
(and any other applicable similar benefit) and for any and all notices or
payments due pursuant to the WARN Act or any similar state or local law arising
out of, or relating to, any actions taken on or after January 1, 2004 by RSUI or
its Affiliates with respect to the Transferred Employees. RSUI or its Affiliates
shall be liable for any continuation coverage (including any penalties, excise
taxes or interest resulting from the failure to provide continuation coverage)
required by Section 4980B of the Code due to qualifying events which occur with
respect to Transferred Employees (or their dependents) after January 1, 2004.
Notwithstanding anything to the contrary contained herein, if RSUI or any of
their Affiliates terminates or causes the termination of the employment of any
Transferred Employee at any time within one year of the Effective Date, then,
unless such Transferred Employee's employment is terminated for cause (as
defined below), Purchaser shall cause RSUI or its Affiliates to pay to such
terminated Transferred Employee severance payments in an amount no less than the
severance benefit such Transferred Employee would have been entitled to if the
employee's job had been eliminated through layoff or reduction in force
immediately prior to the Closing Date. For these purposes, the term "cause"
shall mean (i) the failure or refusal of a Transferred Employee to substantially
perform the material duties of his or her employment with RSUI or any Affiliate,
(ii) the commission by the Transferred Employee of a crime involving moral
turpitude or that results in the loss, suspension or forfeiture of any license
or registration required by the Transferred Employee for the performance of his
or her duties, or (iii) the Transferred Employee's willful engagement in conduct
which is materially injurious to the business of RSUI or its Affiliates. A
Transferred Employee shall be deemed to have been terminated by RSUI or its
Affiliates without cause if he or she terminates employment because of a refusal
to accept an offer of employment by RSUI or an Affiliate at a business location
which is more than fifty miles from his or her present location of employment or
if his or her job duties or employment status are materially and adversely
altered by RSUI or an Affiliate, without his or her consent.
ARTICLE XII
REAL ESTATE MATTERS
Section 12.1 Real Property Used in the Business. RSUI does not
own any real property. All leased real property used in the Business is leased
to RSUI. With respect to the lease relating to the property in ▇▇▇▇▇▇▇ Oaks,
California, the parties hereto acknowledge such lease is guaranteed by RIC on
behalf of RSUI. Purchaser hereby agrees that it will cause AIHL Insurance Co. to
indemnify RIC for any payments it may make under the guaranty after the Closing;
provided, however, that Seller agrees neither Purchaser nor AIHL Insurance Co.
shall be obligated by this Section 12.1 or by the Substitution and
Indemnification Agreement to indemnify RIC for any payments
68
made by RIC after the Closing to the extent that such payments relate to Damages
arising from the failure to obtain the ▇▇▇▇▇▇▇ Oaks Consent or which otherwise
relate to matters for which Purchaser is entitled to indemnification pursuant to
the last sentence of Section 8.6(b).
ARTICLE XIII
CONDITIONS TO CLOSING
Section 13.1 Conditions of Purchaser and Seller to Closing.
(a) The respective obligations of Purchaser and
Seller to effect the Closing are subject to the satisfaction (or waiver by each
such Person) at or prior to the Closing of the conditions that (i) any waiting
period (and any extensions thereof) applicable to the consummation of the
Closing under the HSR Act shall have terminated or expired and (ii) all other
consents and approvals required from Governmental Entities for the consummation
of the Closing and the transactions contemplated hereby listed on Schedule
8.5(a) shall have been obtained and shall be in effect on the Closing Date.
(b) The respective obligations of Seller to
effect the Closing are further subject to the satisfaction (or waiver by Seller)
at or prior to the Closing of the following conditions:
(i) Purchaser shall have duly performed
and complied in all material respects with each covenant, agreement and
condition required by this Agreement to be performed or complied with
by Purchaser at or prior to the Closing (for the avoidance of doubt,
representations and warranties shall not be deemed to be covenants,
agreements or conditions for purposes of this clause (i));
(ii) 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 Acquired Assets; and no action or
proceeding before any court or regulatory authority, domestic or
foreign, (x) shall have been instituted or threatened by any
Governmental Entity or (y) shall have been instituted by any other
Person, which in either case seeks to prevent or delay the consummation
of the purchase and sale of the Acquired Assets or which challenges the
validity or enforceability of this Agreement, unless, in either case,
Purchaser agrees to fully indemnify in accordance with Article XV
hereof Seller and any Seller Indemnitee from any and all Losses
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 Purchaser pursuant to Article XV hereof
or a separate agreement of the Purchaser;
69
(iii) Seller shall have received a
certificate signed by the secretary of Purchaser certifying the
adoption of resolutions by the Board of Directors of Purchaser
authorizing the transactions contemplated hereby;
(iv) Seller shall have received a
certificate of a senior executive officer of Purchaser certifying as to
the fulfillment of the conditions set forth in Sections 13.1(b)(i)
hereof, including, without limitation, the fulfillment of the covenant
set forth in Section 9.7; and
(v) Seller shall have received copies
of the Ancillary Agreements duly executed by each party thereto that is
not Seller or an Affiliate of Seller.
(c) The obligation of Purchaser to effect the
Closing is further subject to the satisfaction (or waiver by Purchaser) at or
prior to the Closing of the following conditions:
(i) Seller shall have duly performed
and complied in all material respects with each covenant, agreement and
condition required by this Agreement to be performed or complied with
by Seller at or prior to the Closing (for the avoidance of doubt,
representations and warranties shall not be deemed to be covenants,
agreements or conditions for purposes of this clause (i));
(ii) All consents set forth on Schedule
13(c)(ii) shall have been duly obtained, made or given and shall be in
full force and effect, without the imposition upon Purchaser, RSUI or
any of the Affiliates of Purchaser of any material condition,
restriction or required undertaking or any conditions or restrictions
which, individually or in the aggregate, (A) materially impair or
interfere with the ability of Purchaser or RSUI to conduct their
respective businesses substantially in the manner as such businesses
are now being conducted, (B) impair or interfere with the ability of
any Affiliate of 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
Purchaser's businesses or (C) have or are reasonably likely to have a
Business Material Adverse Effect;
(iii) 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 either case restrains or prohibits the consummation of
the purchase and sale of the Acquired Assets or imposes material
limitations on the ability of Purchaser to exercise full rights of
ownership of the Acquired Assets or on the ability of RSUI to conduct
the Business, or which requires the divestiture by Purchaser of the
Acquired Assets, or which requires the divestiture by Purchaser, RSUI
or any of the Affiliates of Purchaser of any material assets or
businesses. No action or proceeding before any court or regulatory
authority, domestic or foreign, (x) shall have been
70
instituted or threatened by any Governmental Entity or (y) shall have
been instituted by any other Person, which in either case seeks to
prevent or delay the consummation of the purchase and sale of the
Acquired Assets, impose material limitations on the ability of
Purchaser to exercise full rights of ownership of the Acquired Assets
or on the ability of RSUI to conduct the Business, or which would
require the divestiture by Purchaser of the Acquired Assets, or which
would require the divestiture by Purchaser, RSUI or any of the
Affiliates of Purchaser of any material assets or businesses, or which
challenges the validity or enforceability of this Agreement, unless, in
either, case Seller agrees to fully indemnify in accordance with
Article XV hereof Purchaser and any Purchaser Indemnitee from any and
all Losses 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 Seller pursuant to Article XV
hereof or a separate agreement of Seller;
(iv) Purchaser shall have received a
certificate signed by the secretary of Purchaser certifying the
adoption of resolutions by the Board of Directors of Purchaser
authorizing the transactions contemplated hereby;
(v) Purchaser shall have received a
certificate of a senior executive officer of Seller certifying as to
the fulfillment of the conditions set forth in Section 13.1(c)(i)
hereof;
(vi) Purchaser shall have received
copies of the Ancillary Agreements duly executed by each party thereto
(including RSUI) that is not Purchaser or an Affiliate of Purchaser;
(vii) Purchaser shall have received the
resignation of each of the directors of RSUI set forth in Schedule
8.15;
(viii) Seller shall have caused to be
delivered to Purchaser one or more certificates representing all of the
RSUI Shares free and clear of all Liens, duly executed in blank, or
accompanied by stock powers duly executed in blank, in proper form for
transfer;
(ix) Since December 31, 2002, no change
or event shall have occurred and no condition shall exist that,
individually or in the aggregate, has had or would be reasonably likely
to have a Business Material Adverse Effect, and Purchaser shall have
received a certificate dated the date of the Closing Date, signed by
the chief executive officer or by the chief financial officer of Seller
on behalf of Seller, to the foregoing effect; and
(x) At least 90% of the participants
(by participation level and not by number of participants) (the
"Minimum Continued Participation Level") in each of the Schedule 5.3(a)
Contracts (i) shall have waived any change of control provision or net
retention requirement which, absent such waiver, would permit
termination, cancellation or commutation of such treaty by reason
71
of the transactions contemplated by this Agreement and/or by any of the
Ancillary Agreements and (ii) shall have delivered written notice to
RSUI stating its intention (which need not be a binding commitment) to
participate at the same or a greater participation level in a parallel
treaty to be entered into for the benefit of AIHL Insurance Co. on
substantially the same terms and conditions as the treaty currently in
effect for the Royal Insurer Affiliates (the "Parallel Treaty");
provided, however, that if for any one or more of such Schedule 5.3(a)
Contracts the Minimum Continued Participation Level is not attained and
a substitute reinsurer (which may be either (A) a new participant which
is an Acceptable Reinsurer or which is otherwise satisfactory to each
of Purchaser and Seller, or (B) another participant in the same treaty
taking on a greater participation, which reinsurer will be deemed to be
satisfactory to each of Purchaser and Seller) provides written notice
of its intention to participate in such Schedule 5.3(a) Contract
(including the related Parallel Treaty), the participation by such
substitute reinsurer shall be counted toward the Minimum Continued
Participation Level.
With regard to the condition set forth in Section 13.1(c)(ix), if the Closing
does not occur on the Target Closing Date solely by reason of Purchaser's
election to delay the Closing until an Extended Closing Date as provided in
Section 1.16(a) hereof, then Seller shall deliver to Purchaser on July 1, 2003
the certificate described in Section 13.1(c)(ix) above and, upon delivery of
such certificate by Seller to Purchaser, the condition to Closing set forth in
Section 13.1(c)(ix) above shall be deemed to be satisfied.
ARTICLE XIV
TERMINATION
Section 14.1 Termination Prior to Closing. This Agreement may
be terminated at any time prior to the Closing:
(a) by the mutual written consent of Purchaser
and Seller;
(b) by Purchaser, on the one hand, or Seller, on
the other hand, upon written notice given to the other if the Closing has not
taken place on or before October 1, 2003; provided, however, that the right to
terminate this Agreement under this Section 14.1(b) 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 date;
(c) by Purchaser, on the one hand, or Seller, on
the other hand, (i) upon written notice given to the other if any Governmental
Entity of competent jurisdiction shall have issued a final, unappealable order,
decree or ruling permanently restraining, enjoining or otherwise prohibiting any
of the transactions contemplated by this Agreement or (ii) upon 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
72
transactions contemplated hereby illegal; provided, however, that the right to
terminate this Agreement under this Section 14.1(c) 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;
(d) by Purchaser, upon a material breach of any
covenant or agreement on the part of Seller set forth in this Agreement such
that the conditions set forth in Section 13.1(c)(i) hereof would not be
satisfied as of the time of such breach, after affording Seller a 10-day period
after written notice in which to cure such breach; or
(e) by Seller, upon a material breach of any
covenant or agreement on the part of Purchaser set forth in this Agreement such
that the conditions set forth in Section 13.1(b)(i) hereof would not be
satisfied as of the time of such breach, after affording Purchaser a 10-day
period after written notice in which to cure such breach.
Section 14.2 Effect of Termination.
(a) Notwithstanding the terms and provisions of
the Confidentiality Agreement, in the event of the termination of this Agreement
as provided in Section 14.1 hereof, this Agreement shall become null and void
and of no further force or effect, and there shall be no liability or obligation
hereunder on the part of Seller or Purchaser or their respective Affiliates, or
any of their respective directors, officers, employees, Affiliates, agents,
representatives, successors or assigns, except (i) for the provisions of this
Agreement relating to the obligations of the parties hereto to keep confidential
and not to use information and data obtained from the other parties hereto and
(ii) the obligations of the parties to this Agreement under Sections 8.8
(Expenses), 8.9 (Public Announcements), and 8.18 (Indemnification of Brokerage)
hereof, Article XVII (Miscellaneous) hereof, and this Section 14.2 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.
(b) If this Agreement is terminated pursuant to
Section 14.1 hereof, neither party shall, until May 31, 2004, directly or
indirectly, through any Subsidiary, Affiliate, officer, director, agent or
otherwise, (i) use any information that is subject to the Confidentiality
Agreement to the detriment (business or otherwise) of the other party, or (ii)
solicit the employment of or employ or retain as a consultant any employee of
the other party or any of its Subsidiaries who is a management or key employee
as of the date hereof or at any time during such period. Furthermore, if this
Agreement is terminated pursuant to Section 14.1 hereof, Purchaser shall not
oppose or seek to prevent or frustrate any transaction or agreement that Seller
or any of its Subsidiaries may propose or enter into relating to the sale of all
or any portion of the Business to any third party. Nothing in this Section 14.2
is intended to, nor shall it be construed as, a waiver or discharge of any of
the rights and obligations under the Confidentiality Agreement of the parties
thereto. Nothing herein shall relieve any party from liability for any breach of
any of its covenants or agreements or willful breach of its
73
representations and warranties contained in this Agreement prior to termination
of this Agreement or any obligations thereunder.
Section 14.3 Notice Regarding Termination. Any notice
delivered by any party pursuant to Section 14.1 hereof shall be delivered in
accordance with Section 17.5 hereof and shall include a statement of the grounds
for termination.
ARTICLE XV
EXCLUSIONS FROM REPRESENTATIONS AND WARRANTIES;
SURVIVAL; INDEMNIFICATION
Section 15.1 Exclusions from the Representations and
Warranties of Seller. Notwithstanding anything to the contrary in this Agreement
or the Ancillary Agreements or the exhibits or schedules hereto or thereto,
Purchaser acknowledges and agrees that Seller makes no representation or
warranty with respect to, and nothing contained in this Agreement (including
Articles II, III, IV and V hereof), in the Ancillary Agreements or in any other
agreement, document or instrument to be delivered in connection herewith or
therewith is intended or shall be construed to be a representation or warranty
(express or implied) of Seller or any of its Subsidiaries or Affiliates or of
the Business, for any purpose of this Agreement (including Article VIII hereof
and this Article XV), the Ancillary Agreements or any other agreement, document
or instrument to be delivered in connection herewith or therewith, in respect
of: (i) the adequacy or sufficiency of Reserves, (ii) the effect of the adequacy
or sufficiency of Reserves on any line item, asset, liability or equity amount
on any financial document, or (iii) whether or not Reserves were determined in
accordance with any actuarial, statutory or other standard. Further, subject to
the following sentence, Purchaser acknowledges and agrees that no fact,
condition, development or issue relating to the adequacy or sufficiency of
Reserves may be used, directly or indirectly, to demonstrate or support the
breach of any representation or warranty contained in this Agreement, the
Ancillary Agreements or any other agreement, document or instrument to be
delivered in connection with the transactions contemplated hereby or thereby.
Section 15.2 Survival of Representations, Warranties and
Covenants.
(a) The representations and warranties of the
parties contained in this Agreement shall survive the Closing and shall continue
in full force and effect until one (1) year following the Closing Date, after
which time such representations and warranties shall terminate and have no
further force or effect, except that (i) the survival of representations and
warranties made by Seller in Article X hereof shall be governed solely by the
provisions of Article X hereof; (ii) the representations and warranties
contained in Section 4.14 (Employee Benefit Plans; ERISA) shall survive until
thirty (30) days after the expiration of the applicable statute of limitations;
and (iii) the representations and warranties contained in Section 2.5 (Title to
the RSUI Shares), Section 2.6 (Brokers and Finders), Section 4.3
(Capitalization) and Section 6.7 (Brokers and Finders) shall survive
indefinitely. The period during which any such representation and warranty
survives is the "Survival Period" for such representation and warranty.
74
Notwithstanding the foregoing, any representation or warranty that would
otherwise terminate shall survive with respect to Losses in respect of any
Action of which notice is given pursuant to this Agreement prior to the end of
the Survival Period, until such Action is finally resolved and any related
Losses are paid.
(b) Unless otherwise limited by the terms of
this Agreement, covenants of the parties contained in this Agreement shall
survive the Closing indefinitely.
(c) 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; provided, however, that the Seller shall have no obligation to
indemnify the Purchaser in respect of a breach of representation or warranty
which is specifically disclosed to Purchaser by Seller in writing or as to which
Purchaser otherwise has Knowledge if such breach involves a change or event
which would cause the condition to Purchaser's obligation to effect the Closing
set forth in Section 13.1(c)(ix) not to be satisfied and Purchaser nonetheless
elects to proceed with the Closing.
Section 15.3 Seller's Indemnification Obligation.
(a) Subject to the limitations set forth in this
Article XV and other than in respect of Taxes (which shall be governed solely by
Article X hereof), Seller agrees to indemnify, defend and hold harmless
Purchaser and its directors, officers, employees, Affiliates, successors,
permitted assigns, agents and representatives (collectively, the "Purchaser
Indemnitees") from and against any and all liabilities, losses, expenses and
fees, including court costs and reasonable attorneys' fees and expenses
("Losses") arising out of, or resulting from or relating to: (i) any breach as
of the date of this Agreement or as of the Closing Date (A) of the
representations and warranties of Seller set forth in Section 2.5 (Title to the
RSUI Shares), Section 2.6 (Brokers and Finders), Section 4.3 (Capitalization),
Section 4.6 (Working Capital) and Section 4.14 (Employee Benefit Plans; ERISA)
(other than Section 4.14(l), which is governed by Section 10.4(a)(ii)), and (B)
of any of the other representations and warranties of Seller contained in this
Agreement or in any certificate delivered to Purchaser in connection with the
Closing; (ii) any breach or non-performance of any of the covenants or
agreements of Seller contained in this Agreement; (iii) the Retained
Liabilities; and (iv) any and all Actions, judgments, costs and expenses
incidental to the foregoing.
(b) The aggregate amount for which Seller shall
be liable under Section 15.3(a)(i) hereof shall in no event exceed one hundred
percent (100%) of the Final Purchase Price; provided, however, that
indemnification for Losses arising from breaches of any of the representations
and warranties set forth in Section 2.5 (Title to the RSUI Shares), Section 2.6
(Brokers and Finders), Section 4.3 (Capitalization), Section 4.6 (Working
Capital) and Section 4.14 (Employee Benefits; ERISA) shall not be subject
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to any limitation. Seller shall be required to indemnify the Purchaser
Indemnitees pursuant to Section 15.3(a)(i)(B) hereof only when and to the extent
that the aggregate Losses incurred by the Purchaser Indemnitees in connection
with the matters identified therein exceeds two percent (2%) of the Final
Purchase Price; provided that Seller's indemnification for Taxes shall be
governed exclusively by Article X hereof.
Section 15.4 Purchaser's Indemnification Obligation.
(a) Subject to the limitations set forth in this
Article XV, Purchaser agrees to indemnify, defend and hold harmless Seller and
its respective directors, officers, employees, Affiliates, successors, permitted
assigns, agents and representatives (collectively, the "Seller Indemnitees")
from and against any and all Losses arising out of, or resulting from or
relating to: (i) any breach as of the date of this Agreement or as of the
Closing Date of (A) the representations and warranties of Purchaser set forth in
Section 6.7 (Brokers and Finders), and (B) any of the other representations and
warranties of Purchaser contained in this Agreement or in any certificate
delivered to Purchaser in connection with the Closing; (ii) any breach or
non-performance of any of the covenants and agreements of Purchaser contained in
this Agreement; (iii) the Acquired Assets; and (iv) any and all Actions,
judgments, costs and expenses incidental to the foregoing.
(b) The aggregate amount for which Purchaser
shall be liable under Section 15.4(a)(i) hereof shall in no event exceed one
hundred percent (100%) of the Final Purchase Price; provided however, that
indemnification for Losses arising out of any breach of the representations and
warranties of Purchaser set forth in Section 6.7 (Brokers and Finders) shall not
be subject to any limitation. Purchaser shall be required to indemnify the
Seller Indemnitees pursuant to Section 15.4(a)(i)(B) hereof only when and to the
extent that the aggregate Losses incurred by the Seller Indemnitees in
connection with the matters identified therein exceeds two percent (2%) of the
Final Purchase Price.
Section 15.5 Other Limitations on Indemnification.
(a) The amount of any Losses sustained by a
Purchaser Indemnitee or a Seller Indemnitee shall be reduced (i) by any amount
received by such Purchaser Indemnitee or Seller Indemnitee with respect thereto
under any insurance coverage relating thereto (other than insurance coverage
provided by an Affiliate of such indemnitee) or from any other party alleged to
be responsible therefor, and (ii) by the amount of any Tax benefit actually
realized with respect to the Loss. The Purchaser Indemnitees and the Seller
Indemnitees shall use commercially reasonable efforts to collect any amounts
available under such insurance coverage and from such other party alleged to
have responsibility and to realize any Tax benefit with respect to the Loss. If
a Purchaser Indemnitee or a Seller Indemnitee realizes a Tax benefit or receives
an amount under insurance coverage or from such other party with respect to
Losses sustained at any time subsequent to any indemnification provided pursuant
to this Article XV, then such Purchaser Indemnitee or Seller Indemnitee shall
promptly reimburse the applicable Indemnifying Party for any payment made by
such Indemnifying Party in connection
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with providing such indemnification up to such amount realized or received by
Purchaser Indemnitee or Seller Indemnitee, as applicable. Nothing in this
Section 15.5(a) shall limit in any way the ability of Seller, RSUI or Purchaser
to (i) take (or refrain from taking, as the case may be) any reasonable position
for Tax purposes that Seller, RSUI or Purchaser determines to take (or refrain
from taking) in its sole discretion, or (ii) refrain from pursuing any third
party insurance recovery that Seller, RSUI or Purchaser, as the case may be,
determines would be commercially inadvisable to pursue.
(b) With respect to Losses arising out of the
breach of any representation or warranty contained herein, the Indemnifying
Party shall be obligated to indemnify the Indemnified Party only for those
claims for which the Indemnified Party has given the Indemnifying Party written
notice within the Survival Period relating to such breached representation or
warranty.
(c) Each Indemnified Party shall be obligated to
use its reasonable best efforts to mitigate to the fullest extent practicable
the amount of any Loss for which its it entitled to seek indemnification
hereunder, and the Indemnifying Party shall not be required to make any payment
to an Indemnified Party in respect of such Loss to the extent such Indemnified
Party has failed to comply with the foregoing obligation.
(d) Upon making any indemnification payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party in respect of the Loss
to which the payment relates; provided, however, that until the Indemnified
Party recovers full payment of its Loss, any and all claims of the Indemnifying
Party against any such third party on account of said payment are hereby made
expressly subordinated and subjected in right of payment to the Indemnified
Party's rights against such third party. Without limiting the generality of any
other provision hereof, each such Indemnified Party and Indemnifying Party will
duly execute upon request all instruments reasonably necessary to evidence and
perfect the above described subrogation and subordination rights.
(e) Neither Seller nor Purchaser shall have any
right to set off any Losses against any payments to be made by such party or
parties pursuant to this Agreement or the Ancillary Agreements.
Section 15.6 Notice. In the event that either a Purchaser
Indemnitee or a Seller Indemnitee wishes to assert a claim for indemnification
under this Article XV, such party seeking indemnification (the "Indemnified
Party") shall deliver written notice (a "Claims Notice") to the other party (the
"Indemnifying Party") no later than ten (10) Business Days after such claim
becomes known to the Indemnified Party, specifying the facts constituting the
basis for, and the amount (if known) of the claim asserted. Failure to deliver a
Claims Notice with respect to a claim in a timely manner as specified in the
preceding sentence shall not release the Indemnifying Party from any of its
obligations under this Article XV, except to the extent the Indemnifying Party
is materially prejudiced by such failure.
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Section 15.7 Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in
the future seek to assert, a claim for indemnification hereunder because of an
Action instituted by any Person not a party to this Agreement (a "Third Party
Claimant") that may result in a Loss with respect to which the Indemnified Party
would be entitled to indemnification pursuant to this Article XV (an "Asserted
Liability"), the Indemnified Party shall deliver to the Indemnifying Party a
Claims Notice with respect thereto, which Claims Notice shall, in accordance
with the provisions of Section 15.6 hereof, be delivered as promptly as
practicable and in any event no later than ten (10) Business Days after such
Asserted Liability is actually known to the Indemnified Party. The failure to
deliver a Claims Notice with respect to an Asserted Liability within ten (10)
Business Days of the Indemnified Party's receipt of written notice of such
Asserted Liability shall not release the Indemnifying Party from any of its
obligations under this Article XV except to the extent the Indemnifying Party is
materially prejudiced by such failure.
(b) (i) The Indemnifying Party shall, upon
receipt of such notice and upon its notifying the Indemnified Party in writing
that it shall, either unconditionally or subject to a reservation of rights,
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 Asserted Liability 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 Asserted Liability or making any counterclaim against
the Third Party Claimant; provided, however, that if the Indemnifying Party
assumes the defense, appeal or settlement of such Asserted Liability, (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 Asserted Liability 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 Indemnifying
Party). Any Indemnified Party is hereby authorized prior to the date on which
its receives written notice from the Indemnifying Party that it intends to
assume the defense, appeal or settlement of such Asserted Liability, 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 Asserted Liability 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 Asserted
Liability on behalf of and for the account and risk of the Indemnifying
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Party, unless and until the Indemnifying Party notifies the Indemnified Party
that it has elected to assume such defense, appeal or settlement. If the
Indemnifying Party fails to assume the defense, appeal or settlement of such
Asserted Liability and the Indemnified Party undertakes such defense, appeal or
settlement, the Indemnified Party shall, upon the request of the Indemnifying
Party, keep the Indemnifying Party advised of relevant developments on a timely
basis.
(ii) Except as set forth in Section 15.7 (b)(i),
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.
(iii) Seller and Purchaser shall make mutually
available to each other all relevant information in their possession relating to
any Asserted Liability and shall cooperate with each other in the defense
thereof.
Section 15.8 Indemnification Payments. Any payment hereunder
shall be made by wire transfer of immediately available funds to such account or
accounts as the Indemnified Party shall designate to the Indemnifying Party in
writing.
Section 15.9 Exclusive Remedy. Except as specifically provided
in Section 8.18 (Indemnification of Brokerage) hereof and except for the
Seller's indemnification for Taxes (which shall be governed exclusively by
Article X hereof), absent fraud, the indemnification provided for in this
Article XV hereof shall be the exclusive remedy in any action brought by any
party to this Agreement.
Section 15.10 No Duplication of Recovery. Any liability for
indemnification under this Agreement or under any Ancillary Agreement or under
the Landmark Purchaser Agreement shall be determined without duplication of
recovery by reason of (i) the state of facts giving rise to such liability
constituting a breach of more than one representation, warranty, covenant or
agreement or (ii) the liability of the Indemnifying Party or any Affiliate
thereof under more than one of this Agreement, an Ancillary Agreement or the
Landmark Purchase Agreement. In the event that the state of facts giving rise to
any liability for indemnification under this Agreement, any Ancillary Agreement
or under the Landmark Purchase Agreement provides an entitlement to
indemnification under more than one of such agreements, the Indemnified Party
may seek indemnification under whichever of such agreements it chooses, but not
under more than one of such agreements.
Section 15.11 Purchase Price Adjustment. Purchaser and Seller
agree to treat, to the maximum extent permitted by Applicable Law, any payments
under this Article XV or Article X as an adjustment to the Final Purchase Price
for all Tax purposes.
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ARTICLE XVI
CERTAIN DEFINITIONS AND OTHER MATTERS
Section 16.1 Definitions. For purposes of this Agreement, the
Seller Disclosure Schedules and the Purchaser Disclosure Schedules, the
following terms shall have the following meanings:
"Affiliate" of any Person means another Person that from time
to time, directly or indirectly controls, is controlled by, or is under common
control with, such first Person, where "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of voting securities, by
contract, as trustee or executor, or otherwise. For the purposes of this
Agreement, the term "Affiliated" has a meaning correlative to the foregoing.
"Affiliate Agreements" means the agreements set forth on
Schedule 4.17(b).
"Ancillary Agreements" means the Quota Share Reinsurance
Agreements, the Administrative Services Agreements, the Claims Servicing
Agreement, the Renewal Rights Agreement, the Transition Services Agreement, the
Transitional Trademark License Agreement, the Service ▇▇▇▇ Assignment, the
Employee Leasing Agreement, the Managing General Agency Agreement, the
Substitution and Indemnification Agreement, the Assignment of Insurance
Recoverables Agreement and the RSA SLISI Purchase Agreement, together with any
and all agreements and instruments to be executed and delivered pursuant to each
of the foregoing and all schedules and exhibits to each of the foregoing.
"Applicable Law" means any applicable order, law, statute,
regulation, rule, ordinance, writ, injunction, directive, judgment, decree,
principal of common law, constitution or treaty enacted, promulgated, issued,
enforced or entered by any Governmental Entity, including any amendments thereto
that may be adopted from time to time.
"Applicable Rate" means the annual yield rate, as of any given
date, of actively traded U.S. Treasury securities having remaining duration to
maturity of three months, as such rate is published under "Treasury Constant
Maturities" in Federal Reserve Statistical Release H.15(519).
"Assumed Contracts" shall mean the In Force Contracts as of
the Effective Date, the actual or contingent liabilities and obligations of
which are assumed by AIHL Insurance Co. pursuant to the Quota Share Reinsurance
Agreements, to the extent such liabilities and obligations arise out of, or
relate to, periods on and after the Effective Date.
"Bankruptcy and Equity Exception" shall mean, in respect of
any agreement, contract or commitment, any limitation thereon imposed by any
bankruptcy, insolvency, fraudulent conveyance, reorganization, rehabilitation,
moratorium or similar
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law affecting creditors' rights and remedies generally and, with respect to the
enforceability thereof, by general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
"Books and Records" means the originals or copies of all
customer lists, policy information, insurance contract forms, administrative and
pricing manuals, medical procedure code lists, claim records, sales records,
underwriting records, financial records, compliance records, data files prepared
for or filed with regulators of the Business and premium tax records, each in
the possession or control of RSUI, Seller or any of its Affiliates, or, after
the Closing, Purchaser or any of its Affiliates and used in the operation of the
Business, whether or not stored in hardcopy form or on magnetic or optical media
(to the extent not subject to licensing restrictions), but excluding (i) prior
to the Closing, any such lists, information and records that are prohibited from
being disclosed or transferred by Applicable Law or regulatory requirements and
(ii) any such information that is part of any consolidated, unitary, combined or
similar Tax Return except to the extent directly related to RSUI.
"Business" means the business conducted by RSUI and the Royal
Insurer Affiliates relating to the underwriting and administration of the
RSUI-Produced Insurance Contracts for the Royal Insurer Affiliates; provided,
however, the term "Business" shall not include the American Agency (a/k/a
Emergency Medical Services a/k/a the Kansas City Branch) operations, the Royal
Surplus Lines Insurance Services operation in Cherry Hill, New Jersey, nor the
Healthcare D&O losses; for the avoidance of doubt, the term "Business" does not
include any losses or expenses incurred by, or any reserves held by, the Royal
Insurer Affiliates relating to the RSUI-Produced Insurance Contracts.
"Business Day" means a Monday, Tuesday, Wednesday, Thursday or
Friday on which banking institutions in the State of New York are not authorized
or obligated by Applicable Law to close.
"Business Material Adverse Effect" means a material adverse
effect on the business, financial condition or results of operations of the
Business; provided, however, that the following shall be excluded from the
definition of "Business Material Adverse Effect" and from any determination as
to whether such Business Material Adverse Effect has occurred or may occur: (i)
the effects of changes that are generally applicable to the insurance,
reinsurance and/or brokerage industries; (ii) the effects of changes in general
economic or security market conditions; (iii) the effects of any facts or
circumstances clearly related to, or directly caused by, Purchaser; and (iv) the
effects of any breach of any provision of this Agreement by Purchaser.
"Cat Cover" means the catastrophe excess of loss reinsurance
contract by and among RICA, RIC, RSLIC and all Affiliates and Subsidiaries, and
the new corporate entity to succeed Royal & SunAlliance as the owner of RSUI,
effective May 1, 2003.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Computer Software" means all computer software, databases,
data files, source and object codes, user interfaces, manuals and other
specifications and documentation and all know how relating thereto.
"Damages" means all costs, expenses, fines, penalties, losses,
judgments, damages, liabilities and other amounts (including attorneys'
actuaries', accountants' and experts' fees and settlement amounts) arising out
of any suit, claim or proceeding.
"Deferred Acquisition Cost" means premium taxes, agents'
commissions net of ceding commissions under third party reinsurance contracts,
assessments for boards and bureaus, guaranty funds and other residual market
assessments, and any other expenses paid by the Royal Insurer Affiliates in
connection with the issuance of the Assumed Contracts.
"Effective Date" shall mean the date as to which the Closing
will be given effect for all purposes, which shall be 12:01 a.m. on July 1,
2003.
"GAAP" means generally accepted accounting principles in
effect in the United States of America at the time of determination.
"Governmental Entity" means any foreign, domestic, federal,
territorial, state or local U.S. or non-U.S. governmental authority,
quasi-governmental authority, instrumentality, court or government
self-regulatory organization, commission, tribunal or organization or any
political or other subdivision, department, branch or representative of any of
the foregoing.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
act of 1976, as amended.
"In Force" means, with respect to an insurance contract, an
insurance contract which, as of a specified date, has been bound by an insurance
company and has not been canceled or otherwise terminated. For purposes hereof,
references to In Force RSUI-Produced Insurance Contracts without reference to a
specified date shall mean (x) until the Closing Date, In Force RSUI-Produced
Insurance Contracts as of the date hereof, and (y) from and after the Closing
Date, In Force RSUI-Produced Insurance Contracts as of the Closing Date.
"Income Tax" means any federal, state, local or foreign
income, alternative, minimum, franchise, profits, or other similar Tax (but only
if determined with respect to net income) or deficiencies with respect thereto
(including interest and penalties thereon and additions thereto).
"Income Tax Return" means any Tax Return with respect to
Income Taxes.
"Insurance Permit" means any Permit in any jurisdictions to
issue, underwrite, assume, place or otherwise transact the business of
insurance.
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"Intellectual Property" means, collectively, (x) all United
States and foreign registered, unregistered and pending (i) Trademarks, (ii)
Computer Software, (iii) copyrights (including, without limitation, those in
Computer Software, and all registrations and applications therefor), (iv)
Patents, (v) Trade Secrets, and (vi) other intellectual property; and (y) all
license, assignment, distribution or other agreements relating to any of the
items set forth in clause (x) above (collectively, "Intellectual Property
Contracts").
"Intellectual Property Contracts" shall have the meaning given
to that term in the definition of "Intellectual Property".
"Knowledge" with respect to: (i) Seller or any of its
Affiliates which is a party to any Ancillary Agreement means the actual
knowledge of the natural Persons listed in Schedule 16.1(a), and (ii) Purchaser
or any of its Affiliates which is a party to any Ancillary Agreement means the
actual knowledge of the natural Persons listed in Schedule 16.1(b).
"Lien" means any mortgage, pledge, lien, encumbrance, charge,
adverse claim (whether pending or, to the Knowledge of the Person against whom
the adverse claim is being asserted, threatened) or restriction of any kind
affecting title or resulting in an encumbrance against property, real or
personal, tangible or intangible, or a security interest of any kind, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statute) of
any jurisdiction (other than a financing statement which is filed or given
solely to protect the interest of a lessor).
"Material Business Contract" means any contract required to be
set forth in Schedule 4.16(a).
"Net Unearned Premium Reserves" shall mean the aggregate
amount of all unearned premium reserves, calculated as of the Effective Date,
related to all Assumed Contracts, less the unearned premiums to be ceded to
third party reinsurers with respect to such Assumed Contracts.
"Patents" means all utility and design patents, registered
designs and invention disclosures (including, without limitation, those relating
to Computer Software), and all grants, registrations and applications therefor.
"Permits" shall mean all permits, licenses, authorizations,
variances, exemptions, orders, registrations and approvals of all Governmental
Entities, including, without limitation, Insurance Permits.
"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) and (ii)
mechanics', carriers', workers', repairers', materialmen's, warehousemen's and
other similar liens arising or
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incurred in the ordinary course of business with respect to a liability or
obligation that is not yet due or delinquent and that is not material in amount.
"Person" means an individual, corporation, partnership, joint
venture, association, limited liability company, trust, unincorporated
organization, or other entity.
"Pre-Closing Tax Period" means a taxable year or period ending
on or before the Closing Date.
"Post-Closing Tax Period" means a taxable year or period
beginning after the Closing Date.
"Purchaser Disclosure Schedules" means the disclosure
schedules delivered by Purchaser to Seller prior to the execution of this
Agreement.
"Qualifying Assets" shall mean cash and investments which are
"Acceptable Investments" as such term is defined in the Trust Agreements.
"Reinsured Contracts" means (i) all policies, binders and
contracts of insurance written on an admitted basis or a non-admitted basis and
issued in the name of RIC, RSLIC or Landmark by or on behalf of RSUI, as agent,
with an effective date, new or renewal, after the Effective Date, and (ii)
Assumed Contracts.
"Reserves" shall mean the reserves, funds or provisions of
Royal Insurer Affiliates for losses, claims, premiums, policy benefits and
expenses in respect of (i) insurance or reinsurance obligations of any of the
Royal Insurer Affiliates (whether for unearned premiums, incurred losses,
technical reserves, incurred loss adjustment expenses, incurred but not reported
losses, loss adjustment expense or otherwise), (ii) reinsurance collectibles or
(iii) other accounts receivable that are of a type included within the line item
"Other Receivables" on the Audited RSUI Financial Statements.
"RSUI-Produced Insurance Contracts" means all policies,
binders and contracts of insurance (both direct and assumed) underwritten by
RSUI and issued by any of the Royal Insurer Affiliates.
"SAP" shall mean, with respect to any Person, the statutory
accounting principles and practices prescribed or permitted by the domicillary
state of the relevant Person, consistently applied.
"Schedule of Adjusted Underwriting Results" means the Schedule
of Adjusted Underwriting Results attached to the Report of Independent Auditors
prepared by PwC and addressed to the managements of Royal & SunAlliance and
Purchaser.
"Seller Disclosure Schedules" means the disclosure schedules
delivered by Seller to Purchaser prior to the execution of this Agreement.
"Straddle Period" means a taxable year or period beginning on
or before, and ending after, the Closing Date.
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"Subsidiary" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Tax" or "Taxes" means all federal, state, county, local,
municipal, foreign and other taxes, assessments, duties or similar charges of
any kind whatsoever, including all corporate franchise, income, gross receipts,
occupation, windfall profits, sales, use, ad valorem, value-added, profits,
license, withholding, payroll, employment, excise, insurance premium, real
property, personal property, customs, net worth, capital gains, transfer, stamp,
documentary, social security, disability, environmental, alternative minimum,
estimated, recapture and other taxes, and including all interest, penalties and
additions imposed with respect thereto.
"Tax Return" means any and all returns, declarations, reports,
claims for refund, information returns, or other documents or statements
relating to Taxes required to be supplied to any Taxing Authority, including any
schedule or attachment thereto and any amendment or supplement thereof.
"Taxing Authority" means any domestic, foreign, federal,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising regulatory authority with respect to Taxes.
"Terrorism Treaty" means the specific aggregate excess of loss
reinsurance contract by and among Royal & SunAlliance, including all of its
Affiliates and Subsidiaries, effective February 28, 2003.
"Trade Secrets" means all trade secrets, proprietary and
confidential business information and data, inventions, processes, formulae,
know how, concepts, ideas, research and development, designs, business plans,
strategies, marketing and other information and customer lists.
"Trademarks" means all trade names, trade dress, trademarks,
service marks, assumed names, business names and logos, internet domain names
and all registrations and applications therefor, together with all goodwill
symbolized thereby.
"Transfer Taxes" means any and all transfer, documentary,
sales, use, gross receipts, stamp, registration, value added, recording, escrow
and other similar Taxes and fees (including any out-of-pocket filing expenses,
penalties and interest) incurred in connection with the transactions
contemplated by this Agreement (including recording and escrow fees and any real
property or leasehold interest transfer or gains tax and any similar Tax).
"Unaffiliated Reinsurers" means reinsurers who are not
Affiliates of Seller.
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Section 16.2 Disclosure Schedules. The parties hereto
acknowledge and agree that any information set forth in any of the Seller
Disclosure Schedules or any of the Purchaser Disclosure Schedules is considered
disclosed in each and every other of the Seller Disclosure Schedules and the
Purchaser Disclosure Schedules, respectively, as to which such information is
applicable; provided that the disclosure is sufficient to enable a party to this
Agreement to identify the Seller Disclosure Schedules or Purchaser Disclosure
Schedules to which it applies. Any disclosure in any of the Seller Disclosure
Schedules or the Purchaser Disclosure Schedules of any contract, document,
liability, default, breach, violation, limitation, impediment or other matter,
although the provision for such disclosure may require such disclosure only if
such contract, document, liability, default, breach, violation, limitation,
impediment or other matter be "material," shall not be construed against any
party to this Agreement, as an assertion by such party, that any such contract,
document, liability, default, breach, violation, limitation, impediment or other
matter is, in fact, material.
ARTICLE XVII
MISCELLANEOUS
Section 17.1 Amendment, Modification and Waiver. This
Agreement may not be amended, modified or waived except by an instrument or
instruments in writing signed and delivered on behalf of each of the parties
hereto.
Section 17.2 Entire Agreement. This Agreement and the
Ancillary Agreements (together with the Seller Disclosure Schedules, the
Purchaser Disclosure Schedules, the other schedules hereto and thereto, the
exhibits hereto and thereto, the annexes hereto and thereto and the other
agreements, documents and instruments delivered in connection herewith and
therewith) constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings (other than the Confidentiality Agreement), both written and
verbal, among the parties or any of them with respect to the subject matter
hereof.
Section 17.3 Interpretation.
(a) When a reference is made in this Agreement
to a Section or Article, such reference shall be to a section or article of this
Agreement unless otherwise clearly indicated to the contrary. Whenever the words
"include," "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation." The words "hereof,"
"herein" and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement. The meaning assigned to each term used
in this Agreement shall be equally applicable to both the singular and the
plural forms of such term, and words denoting any gender shall include all
genders. Where a word or phrase is defined herein, each of its other grammatical
forms shall have a corresponding meaning.
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(b) The parties have participated jointly in the
negotiation and drafting of this Agreement and the Ancillary Agreements;
consequently, in the event an ambiguity or question of intent or interpretation
arises, this Agreement and each of the Ancillary Agreements shall be construed
as if drafted jointly by the parties thereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or of any of the Ancillary Agreements.
Section 17.4 Due Investigation. Purchaser has conducted its
own independent review and analysis of the Business, operations, technology,
assets, liabilities, results of operations, financial condition and prospects of
RSUI and the Business and acknowledges that Seller has provided Purchaser with
access to the personnel, properties, premises and books and records of RSUI and
the Business for this purpose. In entering into this Agreement and the Ancillary
Agreements, Purchaser has relied solely upon its own investigation and analysis,
and Purchaser acknowledges and agrees (i) that, except for the specific
representations and warranties made by Seller and Affiliates of Seller contained
in this Agreement, the Ancillary Agreements, the Seller Disclosure Schedules and
other schedules and the exhibits hereto and thereto, none of Seller or its
Affiliates nor any of their respective directors, officers, employees,
Affiliates, controlling Persons, agents or representatives, makes or has made
any representation or warranty, either express or implied, as to the accuracy or
completeness of any of the information (including any projections, estimates or
other forward-looking information) provided (including in any management
presentations, information memorandum, supplemental information or other
materials or information with respect to any of the above) or otherwise made
available to Purchaser or any of its directors, officers, employees, Affiliates,
controlling Persons, agents or representatives and (ii) that, to the fullest
extent permitted by Applicable Law, and absent fraud, that Seller and its
Affiliates and their respective directors, officers, employees, Subsidiaries,
controlling Persons, agents or representatives shall not have any liability or
responsibility whatsoever to Purchaser or its Affiliates or any of their
respective directors, officers, employees, Subsidiaries, controlling Persons,
agents or representatives on any basis (including in contract or tort, under
federal or state securities laws or otherwise) based upon any information
provided or made available, or statements made (or any omissions therefrom), to
Purchaser or its Affiliates or any of their respective directors, officers,
employees, Subsidiaries, controlling Persons, agents or representatives,
including in respect of the specific representations and warranties of Seller
set forth in this Agreement, the Ancillary Agreements, the Seller Disclosure
Schedules and other schedules and the exhibits hereto and thereto, except as and
only to the extent expressly set forth herein or therein with respect to such
representations and warranties.
Section 17.5 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in Person, by
telecopy (delivery of which is confirmed), by courier (delivery of which is
confirmed) or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties to this Agreement as follows:
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If to Seller:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
General Counsel
Royal Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice to
Seller for purposes of this Section 17.5):
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Purchaser:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Alleghany Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice to
Purchaser for purposes of this Section 17.5):
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. In
no event shall the provision of notice pursuant to this Section 17.5 constitute
notice for service of any writ, process or summons in any suit, action or other
proceeding.
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Section 17.6 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 17.7 Descriptive Headings. The descriptive article and
section headings herein are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 17.8 Assignment; Binding Agreement. Neither this
Agreement, nor any rights, interests or obligations hereunder, may be directly
or indirectly assigned, delegated, sublicensed or transferred by any party to
this Agreement, in whole or in part, to any other Person (including any
bankruptcy trustee) by operation of law or otherwise, whether voluntarily or
involuntarily, 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 and under any
Ancillary Agreement to any wholly owned Subsidiary of Purchaser, provided that
such assignment shall not relieve the Purchaser of any of its obligations
hereunder and thereunder. 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.
Section 17.9 Third Party Beneficiaries. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
other than the parties hereto any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 17.10 Specific Performance. The parties recognize and
agree that if for any reason any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached,
immediate and irreparable harm or injury would be caused for which money damages
would not be an adequate remedy. Accordingly, each party agrees that, in
addition to any other available remedies, each other party shall be entitled to
an injunction restraining any violation or threatened violation of any of the
provisions of this Agreement without the necessity of posting a bond or other
form of security. In the event that any action should be brought in equity to
enforce any of the provisions of this Agreement, no party will allege, and each
party hereby waives the defense, that there is an adequate remedy at Law.
Section 17.11 Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as would be enforceable.
Section 17.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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Section 17.13 Consent to Jurisdiction. Each of the parties
hereto irrevocably and unconditionally submits to the exclusive jurisdiction of
the state and federal courts located in the State of Delaware for the purposes
of enforcing this Agreement or any of the Ancillary Agreements. The parties
shall take such actions as are within their control to cause any matter
contemplated hereby to be assigned to the Chancery Court of the State of
Delaware. In any action, suit or other proceeding, each of the parties hereto
irrevocably and unconditionally waives and agrees not to assert by way of
motion, as a defense or otherwise any claims that it is not subject to the
jurisdiction of the above courts, that such action or suit is brought in an
inconvenient forum or that the venue of such action, suit or other proceeding is
improper. Each of the parties hereto also agrees that any final and unappealable
judgment against a party hereto in connection with any action, suit or other
proceeding shall be conclusive and binding on such party and that such award or
judgment may be enforced in any court of competent jurisdiction, either within
or outside of the United States. A certified or exemplified copy of such award
or judgment shall be conclusive evidence of the fact and amount of such award or
judgment.
Section 17.14 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.
Section 17.15 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.
Section 17.16 Confidentiality. Each party hereto will hold,
and will use its reasonable best efforts to cause its Affiliates and
representatives to hold, in strict confidence from any Person (other than any
such Affiliates or representatives), this Agreement, the Ancillary Agreements,
the terms and conditions hereof and thereof, and all documents and information
concerning the other party or any of its Affiliates (the "Confidential
Information") furnished to it by the other party (the "Disclosing Party") or
such Disclosing Party's representatives in connection with this Agreement or any
Ancillary Agreement or the transactions contemplated hereby or thereby, except
to the extent that such Confidential Information can be shown to have been (a)
previously known by the party receiving such Confidential Information (the
"Receiving Party"), (b) in the public domain (either prior to or after the
furnishing of such Confidential Information hereunder) through no fault of such
Receiving Party or (c) later acquired by the Receiving Party from another source
if the Receiving Party is not aware that such
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source is under an obligation to another party hereto to keep such Confidential
Information confidential; provided that, a Receiving Party may make any
disclosure of Confidential Information (i) the use of such Confidential
Information is reasonably required in connection with disclosure of the tax
treatment and any facts that may be relevant to the tax structure of the
transactions contemplated by this Agreement, (ii) with the prior written consent
of the other party, (iii) if compelled to disclose by judicial or administrative
process (including, without limitation, in connection with obtaining the
necessary approvals for this Agreement and the transactions contemplated hereby
of governmental or regulatory authorities) or by other requirements of
Applicable Law or the rules of a national securities exchange or (iv) in
connection with an action or proceeding brought by a party hereto in pursuit of
its rights or in the exercise of its remedies hereunder. In the event a
Receiving Party becomes compelled to disclose Confidential Information as
described in clauses (iii) and (iv) above, such party will provide the
Disclosing Party with prompt notice of such legal proceedings so that the
Disclosing Party may seek an appropriate protective order or other appropriate
relief or waive compliance with the provisions of this Section 17.16. In the
absence of a protective order or a waiver from the Disclosing Party, the
Receiving Party compelled to disclose Confidential Information is permitted to
disclose that portion (and only that portion) of the Confidential Information
that such Receiving Party is legally compelled to disclose; provided, however,
that the Receiving Party must use reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded by any Person to whom any
Confidential Information is disclosed. In the event the transactions
contemplated by this Agreement are not consummated, upon the request of the
other party, each party hereto will, and will cause its Affiliates and their
respective representatives to promptly redeliver or cause to be redelivered all
copies of confidential documents and information furnished by the other party in
connection with this Agreement or any Ancillary Agreement or the transactions
contemplated hereby or thereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the party furnished such documents and information
or its representatives.
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IN WITNESS WHEREOF, each of the parties has caused this
Acquisition Agreement to be executed on its behalf by its officer thereunto duly
authorized, all as of the day and year first above written.
ROYAL GROUP, INC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President, General Counsel
& Chief Administrative Officer
ALLEGHANY INSURANCE HOLDINGS LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
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