CONFORMED COPY
DATE: JANUARY 31, 1999
HCC INSURANCE HOLDINGS, INC.
AND
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, INC.
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
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SHARE PURCHASE AGREEMENT
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TABLE OF CONTENTS
PAGE
ARTICLE 1 SALE AND TRANSFER OF THE ▇▇▇▇▇ SHARES 2
ARTICLE 2 WARRANTIES, COVENANTS AND LIMITATION ON LIABILITY 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF HCC 22
ARTICLE 4 COVENANTS OF THE SELLERS 24
ARTICLE 5 COVENANTS OF HCC 26
ARTICLE 6 CLOSING 30
ARTICLE 7 BONUS SCHEME 34
ARTICLE 8 COVENANTS TO PAY 35
ARTICLE 9 NON-COMPETITION AGREEMENTS AND OTHER NON-COMPETITION AGREEMENTS 40
ARTICLE 10 MISCELLANEOUS 41
ARTICLE 11 INTERPRETATION 50
SCHEDULE 1A ▇▇▇▇▇ SHARES 59
SCHEDULE 1B GROUP B SHAREHOLDERS' PORTION OF MINIMUM PRICE 60
SCHEDULE 1C GROUP A SHAREHOLDERS' ALLOCATION OF MINIMUM PURCHASE PRICE 61
SCHEDULE 1D ANNUAL INSTALMENTS 62
SCHEDULE 1E AMOUNTS SUBJECT TO ESCROW DURING THE INITIAL ESCROW PERIOD 63
SCHEDULE 2 EARNOUT PROVISIONS 64
SCHEDULE 3 WARRANTIES 66
SCHEDULE 4 LIMITATIONS ON SELLERS LIABILITY FOR BREACH OF WARRANTY AND UNDER THE TAX COVENANT 101
SCHEDULE 5 PROPERTY LEASES 110
SCHEDULE 6 HCC'S OBLIGATIONS PENDING REDEMPTION OF THE INITIAL SHORT TERM LOAN NOTES 111
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") is entered into on January 31,
1999 but effective for all purposes on January 1, 1999 (the "Effective Date") by
and among HCC Insurance Holdings, Inc., a Delaware corporation ("HCC"); ▇▇▇▇▇ ▇.
▇▇▇▇, of ▇▇▇▇▇▇▇'▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇
("▇▇▇▇"); ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, of ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇-▇▇-▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇
("▇▇▇▇▇▇▇"); ▇▇▇▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇, of ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
("▇▇▇▇"; ▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇ are collectively referred to as the "Group A
Shareholders"); ▇▇▇▇▇▇ ▇▇▇▇, of ▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇
("Axel"); ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc., a New York corporation ("MRI"); ▇▇▇▇ ▇▇▇▇▇, of
▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇ ▇▇▇ ("▇▇▇▇▇") and ▇▇▇▇▇ ▇. ▇▇▇▇▇, of ▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇ ("▇▇▇▇▇"; Axel, MRI, ▇▇▇▇▇ and ▇▇▇▇▇
are collectively referred to as the "Group B Shareholders"), and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, c/o ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc. ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ("Rattner"). The Group A Shareholders and the Group B Shareholders
are collectively referred to as the "Shareholders" and the Shareholders together
with Rattner are collectively referred to as the "Sellers".
RECITALS:
A. The Shareholders currently own all of the issued share capital of ▇▇▇▇▇
Holdings Limited ("▇▇▇▇▇"). ▇▇▇▇▇ is the sole shareholder and parent
company of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Ltd ("RML").
B. HCC desires to purchase all of the issued shares in the capital of ▇▇▇▇▇
(the "▇▇▇▇▇ Shares") and the Shareholders desire to sell to HCC the ▇▇▇▇▇
Shares for the consideration and on the other terms and subject to the
conditions set out in this Agreement.
C. HCC agrees to pay Rattner at Closing an arrangement fee of (pound)660,000
(the "Arranger's Fee") by way of the issue of a loan note in connection
with his efforts in relation to the transaction contemplated by this
Agreement on the terms and subject to the conditions set out in this
Agreement.
D. Each Seller has been informed by HCC that HCC intends to transfer after the
date of this Agreement all or some of the ▇▇▇▇▇ Shares or other shares in
the then issued share capital of ▇▇▇▇▇ to a wholly owned subsidiary of HCC
("HCC UK") to be incorporated under English law and each Seller confirms
and acknowledges that HCC has the right to make such a transfer following
the full payment of all amounts payable under the Initial Short Term Loan
Notes (as defined herein) to be issued to the Sellers and subject to
compliance by HCC with its obligations under Sections 5.5 and 10.5 of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto do hereby agree as follows:
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ARTICLE 1
SALE AND TRANSFER OF THE ▇▇▇▇▇ SHARES
1.1 SALE OF ▇▇▇▇▇ SHARES
(a) Subject to the terms and conditions of this Agreement, at the Closing,
each Shareholder shall sell, transfer and deliver to HCC, and HCC
shall purchase from that Shareholder, the number of ▇▇▇▇▇ Shares set
out against his name in Schedule 1A.
(b) Each Shareholder acknowledges and agrees that he has the right to
transfer legal and beneficial title to the number of ▇▇▇▇▇ Shares set
out against his name in Schedule 1A on and from the date of Closing.
The ▇▇▇▇▇ Shares shall be sold free from all Encumbrances. HCC shall
be entitled on and from the date of Closing to exercise all rights
attached or accruing to the ▇▇▇▇▇ Shares including, without
limitation, the right to receive all dividends, distributions or any
return of capital declared, paid or made by ▇▇▇▇▇ on or after the
Effective Date other than the dividend in the amount
of(pound)1,600,000 declared by ▇▇▇▇▇ on December 1, 1998 and paid to
the Shareholders on January 4, 1999 and the dividend referred to in
Section 5.7. Each of the Shareholders waives all rights of pre-emption
over any of the ▇▇▇▇▇ Shares conferred upon him by the articles of
association of ▇▇▇▇▇ or in any other way and undertakes to take all
steps necessary to ensure that any rights of pre-emption over any of
the ▇▇▇▇▇ Shares are waived. For the avoidance of doubt, Part 1 of the
Law of Property (Miscellaneous Provisions) ▇▇▇ ▇▇▇▇ shall not apply
for the purposes of Section 1.1(a) and (b).
1.2 CONSIDERATION AND ARRANGER'S FEE
(a) The consideration due to the Shareholders (the "Total Consideration")
for the ▇▇▇▇▇ Shares shall be the aggregate of (i) (pound)43,340,000
(the "Minimum Consideration"), which shall be discharged in accordance
with the provisions of this Section 1.2; and (ii) (in the case of the
Group A Shareholders only) the Earnout Price Adjustment (as defined in
Section 1.3 below), if any, which shall be determined and discharged
in accordance with Section 1.3 below.
(b) Subject to the performance of the Sellers' obligations under Section
6.2, HCC shall deliver at Closing to each of the Group B Shareholders
a loan note issued by HCC in agreed terms (an "Initial Short Term Loan
Note") in accordance with Section 6.3 or, if such Group B Shareholder
has so elected prior to the execution of this Agreement by notice to
HCC, an Initial Short Term Loan Note and a further loan note issued by
HCC in agreed terms (an "Initial Long Term Loan Note"; "Initial Short
Term Loan Notes" and "Initial Long Term Loan Notes" are collectively
referred to as the "Initial Loan Notes" and each as an "Initial Loan
Note") in accordance with Section 6.3. The aggregate principal amounts
of the
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Initial Loan Notes or (if such Group B Shareholder has only elected to
receive an Initial Short Term Loan Note, the principal amount of the
Initial Short Term Loan Note) to be issued to any of the Group B
Shareholders pursuant to this Section 1.2(b) shall be the amount set
out against that Group B Shareholder's name in Schedule 1B. Subject to
the foregoing sentence, each Group B Shareholder who has elected prior
to the execution of this Agreement to receive an Initial Short Term
Loan Note and an Initial Long Term Loan Note will by notice to HCC
prior to the execution of this Agreement, have allocated the principal
amounts payable under the Initial Loan Notes provided that the
principal amount payable under the Initial Short Term Loan Note will
not be less than the amount set out against that Group B Shareholder's
name in Schedule 1E. The aggregate principal amount of all the Initial
Loan Notes to be issued to all the Group B Shareholders shall
be(pound)18,203,000 which represents the portion of the Minimum
Consideration allocated to the Group B Shareholders.
(c) Subject to the performance of the Sellers' obligations under Section
6.2, HCC shall deliver at Closing to each of the Group A Shareholders
an Initial Short Term Loan Note or, if such Group A Shareholder has so
elected prior to the execution of this Agreement by notice to HCC, an
Initial Short Term Loan Note and an Initial Long Term Loan Note. The
aggregate principal amounts of the Initial Loan Notes or (if such
Group A Shareholder has only elected to receive an Initial Short Term
Loan Note, the principal amount of the Initial Short Term Loan Note)
to be issued to any of the Group A Shareholders pursuant to this
Section 1.2(c) shall be the amount set out against that Group A
Shareholder's name in the third column of Schedule 1C. Subject to the
foregoing sentence, each Group A Shareholder who has elected prior to
the execution of this Agreement to receive an Initial Short Term Loan
Note and an Initial Long Term Loan Note will by notice to HCC prior to
the execution of this Agreement, have allocated the principal amounts
payable under the two Initial Loan Notes provided that the principal
amount payable under the Initial Short Term Loan Note will not be less
than the amount set out against that Group A Shareholder's name in
Schedule 1E. The aggregate principal amount of all the Initial Loan
Notes to be issued to all the Group A Shareholders shall
be(pound)15,082,200 which represents sixty per cent. (60%) of the
Minimum Consideration allocated to the Group A Shareholders.
(d) Subject to the performance of the Sellers' obligations under Section
6.2, HCC shall deliver at Closing a charge in agreed terms (the "Deed
of Charge") over the ▇▇▇▇▇ Shares sold and transferred to it in
accordance with Section 1.1(a) as security for the payment of the
principal amounts and interest payable under the Initial Loan Notes to
be issued by HCC to the Shareholders as set out in Section 1.2(b) and
(c) and as security for the payment of the principal and interest
payable under the Initial Loan Note to be issued by HCC to Rattner
under Section 1.2(k). Pending
4
redemption of the Initial Short Term Loan Notes, HCC undertakes and
covenants to the Sellers in the terms set out in Schedule 6.
(e) Subject to Closing,(pound)10,054,800, which represents the remaining
forty per cent. (40%) of the portion of the Minimum Consideration
allocated to the Group A Shareholders (the "Deferred Consideration"),
shall be allocated amongst the Group A Shareholders as set forth in
the fourth column of Schedule 1C and discharged in instalments as
herein provided. Each Group A Shareholder's allocated portion of the
Deferred Consideration shall be discharged in four (4) annual
instalments, without interest until the due date, the first instalment
becoming due on January 31, 2000, and the other instalments becoming
due thereafter on January 31, 2001, 2002 and 2003 respectively or, if
any of such four dates is not a Business Day, on the Business Day next
following (each being referred to as an "Instalment Date"). Each
annual instalment ("Annual Instalment") due to the Group A
Shareholders shall be in an aggregate amount equal to the following
percentages of the Group A Shareholders' allocation of the Minimum
Consideration: First Instalment - 14%; Second Instalment - 11%; Third
Instalment - 10%; and, Fourth Instalment - 5%. Each Annual Instalment
of the Deferred Consideration shall be discharged in accordance with
this Section 1.2 and in the manner more specifically provided in
Section 1.2(f) below. For the avoidance of doubt, each Group A
Shareholder's right to receive any Deferred Consideration is not
contingent upon the continued employment of such Group A Shareholder
by ▇▇▇▇▇ or RML or any other company or person.
(f) Each Group A Shareholder shall receive half of each of his Annual
Instalments on each relevant Instalment Date by way of the issue of
the number of shares of HCC common stock of par value of $1.00 each
("HCC Common Stock") set out against that Shareholder's name in the
third column of Schedule 1D and half of each of his Annual Instalments
by way of the issue of a loan note on the relevant Instalment Date
which loan note shall be in one of the two agreed forms (a "Form A
Deferred Loan Note" and a "Form B Deferred Loan Note"). The Form A
Deferred Loan Notes and the Form B Deferred Loan Notes are
collectively referred to as the "Deferred Loan Notes" and each as a
"Deferred Loan Note". The principal amount of each Deferred Loan Note
to be issued to each Group A Shareholder under each of his Annual
Instalments is set out in the fourth column of Schedule 1D. Each Group
A Shareholder shall notify HCC in writing no later than ten (10)
Business Days prior to each Instalment Date which one of the two forms
of Deferred Loan Note he elects to have issued to him on such
Instalment Date by HCC provided that if no such notice has been
received by HCC from a Group A Shareholder by the date referred to
above, that Group A Shareholder shall be deemed to have elected a Form
A Deferred Loan Note. If any Deferred Loan Note is not issued on the
relevant Instalment Date, HCC shall pay to the Group A Shareholder
entitled to the Deferred Loan Note
5
liquidated damages equal to the interest that would have accrued prior
to the actual date of issue had the Deferred Loan Note been issued on
the relevant Instalment Date.
(g) The shares of HCC Common Stock issuable to any Group A Shareholder in
partial discharge of any Annual Instalment pursuant to this Section
1.2 are referred to as the "HCC Shares". All such HCC Shares and
Deferred Loan Notes shall be issued free and clear from all
Encumbrances and the HCC Shares shall rank pari passu in all respects
with the then existing shares of HCC Common Stock. If HCC shall split,
subdivide or combine the HCC Common Stock into a different number of
securities of the same class at any time before the final Annual
Instalment or (subject to the sentence following) a bonus,
capitalisation or other issue of HCC Common Stock is made to the then
current holders of HCC Common Stock generally where such issue
contains (whether wholly or in part) a gratuitous element (for
example, but without limitation, the discount to market price in a
rights issue shall be a gratuitous element), the number of shares of
HCC Common Stock issuable in any subsequent Annual Instalment shall be
proportionately increased, in the case of a split or subdivision,
bonus, capitalisation or other issue of HCC Common Stock to the then
current holders of HCC Common Stock generally, or proportionately
decreased in the case of a combination. In the event of any bonus,
capitalisation or other issue of HCC Common Stock which contains only
in part a gratuitous element being made to the then current holders of
HCC Common Stock generally, the number of shares of HCC Common Stock
issuable in any subsequent Annual Instalment shall be adjusted in a
manner which in the opinion of HCC's auditors is fair and reasonable
so as to avoid the entitlement to the number of shares of HCC Common
Stock of the relevant Group A Shareholders being diluted by reason of
the gratuitous element (such opinion, in the absence of fraud or
manifest error, to be binding on all the Group A Shareholders). HCC
will promptly notify the Group A Shareholders of any adjustment made
in accordance with the provisions in this Section 1.2(g). No
fractional shares of HCC Common Stock shall be issued.
(h) The HCC Shares issued in partial discharge of any Annual Instalment
shall not be registered under any applicable securities laws of the
United States when issued hereunder and are required to be held
subject to the holding provisions set forth under Rule 144 of the
Securities Act of 1933. Subject to the following provisions of this
Section 1.2(h), the certificates representing the HCC Shares issued
pursuant to this Section 1.2 shall be issued and delivered to the
Group A Shareholders (or as such Group A Shareholder has notified to
HCC in writing not later than five Business Days in advance of the
relevant Instalment Date) on the relevant Instalment Date and shall
bear all appropriate legends indicating that such shares have not been
registered under the applicable securities laws of the United States
and may not be
6
transferred, offered or sold unless they have been registered under
any such applicable securities laws or an exemption therefrom is
available. HCC shall have no obligation to register any transfer of
such unregistered HCC Shares or to issue or deliver any such HCC
Shares to any person other than the relevant Group A Shareholder
unless it receives such appropriate investment representations and
warranties as HCC acting reasonably may deem necessary for the issue
of such HCC Shares.
(i) The parties expect that the Group A Shareholders will not become
liable to pay Tax on any part of the consideration which the Group A
Shareholders receive pursuant to this Agreement in the form of HCC
Shares, Deferred Loan Notes or Earnout Loan Notes (excluding, for the
avoidance of doubt, dividends received on such HCC Shares or interest
received on such Deferred Loan Notes or Earnout Loan Notes) until the
date when the Group A Shareholders dispose of such HCC Shares,
Deferred Loan Notes or Earnout Loan Notes. However, recognising that
such treatment is not certain, the parties have agreed as follows:-
(i) subject to Section 1.2(j), in the event that a Group A
Shareholder becomes liable to pay Tax on any part of the
consideration which the Group A Shareholder receives pursuant to
this Agreement in the form of HCC Shares, Deferred Loan Notes or
Earnout Loan Notes (excluding, for the avoidance of doubt,
dividends received on such HCC Shares, interest received on such
Deferred Loan Notes or Earnout Loan Notes, such part of the
proceeds of disposing of a loan note as represents accrued
interest or such part of the proceeds of disposing of an HCC
Share as represents accrued dividends, but including any part of
the principal amount of the loan notes as is subject to income
tax on the basis that it represents deemed interest income in
the hands of the Group A Shareholder) on a date falling earlier
than the date (the "Anticipated Tax Payment Date") on which
capital gains tax is payable in respect of capital gains arising
in the year of assessment in which the Group A Shareholder
disposes of such HCC Shares, Deferred Loan Notes or Earnout Loan
Notes (such Tax being described in the remainder of this clause
as the "Accelerated Tax Liability"), then, provided that the
date of payment as determined under Section 1.2(i)(ii) below
falls after the date on which the Group A Shareholder is liable
to discharge the Accelerated Tax Liability, HCC shall pay to
such Group A Shareholder an amount equal to A x B x 50%, where:-
(a) A is the Accelerated Tax Liability; and
(b) B is an amount equal to 180 day LIBOR for the period from
the date on which the Group A Shareholder is liable to
discharge the Accelerated Tax Liability to the date of
7
payment as determined under Section 1.2(i)(ii) below plus
1%, multiplied by the number of days in such period and
divided by 365.
(ii) the payment required to be made pursuant to Section 1.2(i)(i)
above shall be made as follows:-
(a) to the extent that the payment relates to an Accelerated
Tax Liability which would not have arisen if the issue of
particular HCC Shares had been accepted as deferring the
imposition of Tax until the Anticipated Tax Payment Date,
the date falling eighteen months after the date of issue
of such HCC Shares (or, if earlier, the Anticipated Tax
Payment Date); and
(b) to the extent that the payment relates to an Accelerated
Tax Liability which would not have arisen if the issue of
particular Deferred Loan Notes or Earnout Loan Notes had
been accepted as deferring the imposition of Tax until the
Anticipated Tax Payment Date, the date falling six months
after the date of issue of such Deferred Loan Notes or
Earnout Loan Notes (or, if earlier, the Anticipated Tax
Payment Date).
(j) HCC will not be required to make a payment to a Group A Shareholder
pursuant to Section 1.2(i)(i) above to the extent that the Accelerated
Tax Liability arises or is increased as a result of the relevant Group
A Shareholder's failure to comply with the following:-
(i) Each Group A Shareholder shall give proper notice to the Inland
Revenue in respect of any Earnout Loan Note on or before the
first anniversary of January 31 next following the year of
assessment in which the Earnout Loan Note is issued to him that
he elects that section 138A of TCGA is to apply to the Earnout
Loan Note.
(ii) Upon any Group A Shareholder's becoming aware of any notice,
letter or other document (including a Tax assessment) or the
taking of any action by or on behalf of the Inland Revenue from
which notice, letter, document or action it appears that the
Inland Revenue does not accept that the issue of HCC Shares or
Deferred Loan Notes or Earnout Loan Notes will defer the
imposition of Tax on such part of the consideration which the
Group A Shareholder receives pursuant to this Agreement in the
form of HCC Shares, Deferred Loan Notes or Earnout Loan Notes
until the Anticipated Tax Payment Date, the relevant Group A
Shareholder shall as soon as reasonably practicable give written
notice of such notice, letter, document or action to HCC, and
8
HCC may require the Group A Shareholder to take such steps as
HCC may reasonably require in order for the relevant Group A
Shareholder to avoid, resist or appeal against the position
taken by the Inland Revenue provided always that no Group A
Shareholder shall be required by HCC to take any action or
disclose to it any part of information which relates to such
Group A Shareholder's Tax affairs other than those related to
this matter and subject always to compliance with applicable law
and regulations and provided further that HCC shall indemnify
such Group A Shareholder to his reasonable satisfaction against
any liability, cost, damages, awards or expenses (including,
without limitation, interest and penalties and any additional
Tax and all legal costs and expenses properly incurred)
(together, "Costs") which may be incurred in connection with any
such steps but not, for the avoidance of doubt, Costs arising in
respect of such Group A Shareholder's Tax affairs other than
those related to this matter.
(iii) The actions which HCC may require under paragraph (ii) of this
Section 1.2(j) shall include (without limitation) the relevant
Group A Shareholder's applying to postpone (so far as legally
possible) the payment of any Tax liability and/or appealing
against any assessment to Tax to the special or general
commissioners, or other court or appellate body and/or, at the
request of HCC, allowing HCC to take on or take over the conduct
of all or any proceedings relating to any such Tax liability,
and, if HCC takes on or takes over the conduct of proceedings,
the relevant Group A Shareholder shall provide such information
and assistance as HCC may reasonably require in connection with
the preparation for and conduct of those proceedings provided
that nothing in this Section 1.2(j) shall require the relevant
Group A Shareholder to commence any action before an appellate
body unless HCC has first obtained an opinion from a counsel
reasonably acceptable to the relevant Group A Shareholder that
such action would be worthwhile because of the prospects of
success or the sum of money involved.
(k) HCC shall deliver at Closing to Rattner an Initial Short Term Loan
Note issued by HCC in the principal amount of(pound)660,000 in
accordance with Section 6.3 in satisfaction of the Arranger's Fee.
Rattner confirms and acknowledges that the issue of such an Initial
Loan Note to him and in the manner set out in Section 1.2(l) and its
redemption in accordance with its terms shall constitute complete
discharge of the payment of the Arranger's Fee to him and that HCC
shall not be concerned to see that any other person who may be
entitled or who may have a claim to such payment shall be paid in
accordance with such person's entitlement or claims. Rattner shall, at
Closing, deliver a deed of release (the "Rattner
9
Deed of Release") in agreed terms under which, among other things, he
confirms and acknowledges that he has no further right to any
brokerage fees, commissions, finder's fee, arranger's fees or any
other financial advisory or consulting fees or Bonus (as herein
defined) from HCC, ▇▇▇▇▇ or RML in connection with the transactions
contemplated under this Agreement or otherwise or, except as stated
therein, make any other claim against HCC, ▇▇▇▇▇ or RML.
(l) HCC undertakes and covenants to each of the Sellers to redeem, repay
or otherwise discharge in full the aggregate principal amount
(together with interest thereon calculated in accordance with the
terms of the Initial Short Term Loan Note issued to him) due to him
under the Initial Short Term Loan Note issued to him by no later than
60 days after the Closing by electronic funds transfer in immediately
available sterling funds to Midland Bank plc, Poultry and ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ (sort code: 40 05 30; account name: ▇▇▇▇▇▇▇▇ Chance
Client Account; account number: ▇▇▇▇▇▇▇▇) on behalf of such Sellers
(receipt of which shall fully discharge HCC's obligations under this
Section 1.2(l) and this shall be the notice requiring payment to a
specified account required under the Initial Short Term Loan Notes).
(m) The obligations imposed upon ▇▇▇▇, Lockett, Mays, ▇▇▇▇▇ and ▇▇▇▇▇
under the Non-Competition Agreements referred to in Section 6.2, the
obligations imposed upon them in clause 14 of the service agreements
referred to in Section 6.2 and the obligations imposed upon MRI and
Rattner under the Other Non-Competition Agreements referred to in
Section 6.2 shall cease to be binding on each of them and the
Non-Competition Agreements and the Other Non-Competition Agreements
shall terminate automatically if any holder of an Initial Short Term
Loan Note does not receive payment from HCC in accordance with such
Note of all principal and interest due to him under the Initial Loan
Note issued to him pursuant to this Agreement on or before the due
date and in accordance with Section 1.2(l). The provisions of this
Section 1.2(m) shall not limit any other right or remedy that the
holders of Initial Short Term Loan Notes may have in respect of any
failure to pay principal or interest on any Initial Short Term Loan
Note.
1.3 EARNOUT PRICE ADJUSTMENT
(a) In addition to the portion of the Minimum Consideration to which the
Group A Shareholders are entitled as set forth in Sections 1.2(c) and
(e), the Group A Shareholders shall, after Closing and subject to the
terms and conditions set forth herein, receive additional
consideration (the "Earnout Price Adjustment" or "EPA") by way of the
issue of loan notes which loan notes shall be in one of two agreed
forms (a "Form A Earnout Loan Note" or a "Form B Earnout Loan Note").
The Form A Earnout Loan Notes and Form B Earnout Loan Notes are
collectively
10
referred to as the "Earnout Loan Notes" and each as an "Earnout Loan
Note". If the Actual Pretax Profits (as herein defined) of ▇▇▇▇▇
calculated in accordance with Schedule 2 in respect of any Earnout
Period (as herein defined) exceed the applicable Target Pretax Profits
(as herein defined) of that Earnout Period, HCC shall, in respect of
any Earnout Period for which the Actual Pretax Profits for that
Earnout Period exceed the applicable Target Pretax Profits for that
Earnout Period, issue to the Group A Shareholders on the April 30 next
following that Earnout Period (or if any such date is not a Business
Day, on the Business Day next following such date) Earnout Loan Notes
with an aggregate principal amount equal to the amount (the "Annual
Earnout Amount") of seventy-five percent (75%) of the excess of ▇▇▇▇▇'
Actual Pretax Profits for that Earnout Period over the applicable
Target Pretax Profits for that Earnout Period. (For example, the
Annual Earnout Amount for any Earnout Period shall be determined as
follows: Annual Earnout Amount = 0.75 x (Actual Pretax Profits -
Target Pretax Profits).) Each successive twelve (12) month period
ending December 31, 1999, 2000, 2001 and 2002 is an "Earnout Period".
Any Earnout Loan Notes issued to any Group A Shareholders shall not be
issued prior to April 30 immediately following the Earnout Period to
which such notes relate and shall, regardless of the date of issue of
such notes, bear interest on the principal amount thereof at the rate
of interest specified under the terms of such notes from April 30
immediately following the Earnout Period to which such notes relate.
(b) The Group A Shareholders' right to receive the Earnout Price
Adjustment after Closing pursuant to this Section 1.3 is conditional
upon the Actual Pretax Profits of ▇▇▇▇▇ in respect of an Earnout
Period exceeding the Target Pretax Profits for that Earnout Period but
is not subject to the continued employment of any Group A Shareholder
by ▇▇▇▇▇ and/or RML or any other company or person. HCC shall have no
obligation to issue any Earnout Loan Note for any Earnout Period
unless the Actual Pretax Profits exceed the Target Pretax Profits for
such Earnout Period and in no event shall any Actual Pretax Profits
earned in any Earnout Period be carried forward or carried back to any
other Earnout Period for the purpose of satisfying the Target Pretax
Profits for such other Earnout Period.
(c) For the purposes of this Section 1.3 and the calculation of the
Earnout Price Adjustment and each Annual Earnout Amount, the "Actual
Pretax Profits" shall be denominated in pounds sterling and shall have
the meaning and shall be calculated in accordance with the provisions
set out in Schedule 2. The "Target Pretax Profits" for the first
Earnout Period shall be (pound)8,000,000. The Target Pretax Profits
for each of the successive Earnout Periods shall be an amount in
pounds sterling equal to 110% of the Actual Pretax Profits for the
immediately preceding Earnout Period.
11
(d) The principal amount of each Earnout Loan Note to be issued to each
Group A Shareholder in respect of any Earnout Period shall be the
Annual Earnout Amount for that Earnout Period multiplied by the
percentage set out against the name of that Group A Shareholder
below:-
GROUP A SHAREHOLDER PERCENTAGE (%)
▇▇▇▇ 50
▇▇▇▇▇▇▇ 25
▇▇▇▇ 25
(e) No earlier than April 6 and no later than April 15 immediately
following an Earnout Period, HCC shall deliver a notification in
writing (the "HCC Earnout Statement") to the Representative stating
the Annual Earnout Amount in respect of that Earnout Period. Such HCC
Earnout Statement shall have attached to it a report from the auditors
of ▇▇▇▇▇ confirming that the HCC Earnout Statement has been drawn up
and the Actual Pretax Profits as stated in the HCC Earnout Statement
have been calculated in accordance with the provisions of this
Agreement. If the Representative does not object to the amount of the
Annual Earnout Amount set out in such HCC Earnout Statement within
fifteen (15) Business Days of its delivery to the Representative, the
Annual Earnout Amount stated in such HCC Earnout Statement shall be
deemed to have been agreed to by and shall (in the absence of fraud)
be final and binding on all the Group A Shareholders in respect of the
relevant Earnout Period. HCC shall procure that ▇▇▇▇▇ provides the
Representative and/or any professional adviser of the Representative
to whom HCC has no reasonable objection (it being confirmed by HCC
that it currently does not have any objection to Mazars ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ being so appointed as an adviser of the Representative and HCC
acknowledges that the mere fact that Mazars ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ are
currently the auditors of ▇▇▇▇▇ would not in itself be a reasonable
objection) with such access to ▇▇▇▇▇'▇ and RML's internal accounting
working papers and the accounting and financial records of ▇▇▇▇▇ in
respect of the relevant Earnout Period as are reasonably necessary for
the review of the HCC Earnout Statement and the calculation of the
Actual Pretax Profits of ▇▇▇▇▇ in respect of the relevant Earnout
Period. HCC further agrees to provide in a timely manner explanations
to queries reasonably made by the Representative and/or any such
professional adviser of the Representative in relation to the
calculation of the Annual Earnout Amount set out in an HCC Earnout
Statement.
(f) If the Representative wishes to dispute the Annual Earnout Amount set
out in such HCC Earnout Statement, he shall deliver a notification
(the "Objection Notification") in writing to HCC within the fifteen
(15)
12
Business Days of receipt of such HCC Earnout Statement stating that
he, on behalf of the Group A Shareholders, disagrees with the amount
of the Annual Earnout Amount set out in such HCC Earnout Statement and
setting out so far as reasonably practicable the amount he proposes to
be the correct Annual Earnout Amount, together with reasons for and
details of the calculation relating to such proposal in reasonable
detail. In the event that HCC reasonably considers that the reasons
and/or calculation provided by the Representative require further
explanation, the Representative shall provide such further reasons and
details of such calculation as are reasonably practicable to be
collated within ten (10) Business Days of receipt by the
Representative of the request from HCC for such information so that
such further reasons and details shall be provided within such ten
(10) Business Day period.
(g) If HCC does not agree with the Annual Earnout Amount proposed in the
Objection Notification delivered by the Representative in accordance
with Section 1.3(f) above, HCC and the Representative shall meet to
discuss the objections raised and shall use all reasonable endeavours
to reach agreement upon the Annual Earnout Amount. If HCC and the
Representative are able to reach agreement on the amount of the Annual
Earnout Amount (incorporating any agreed adjustments), such agreed
amount of the Annual Earnout Amount shall be final and binding on HCC
and all the Group A Shareholders.
(h) If HCC and the Representative are unable to reach agreement on the
Annual Earnout Amount under dispute within ten (10) Business Days of
the delivery of the Objection Notification by the Representative (the
"Resolution Period"), the dispute (the "Earnout Dispute") shall be
referred on the written request of either HCC or the Representative
(each a "Dispute Party") to a partner of a leading independent firm of
chartered accountants (the "Expert") to be appointed jointly by HCC
and the Representative or, failing such appointment within three (3)
Business Days after either HCC's or the Representative's written
request, appointed at the written request of either HCC or the
Representative by the President for the time being of the Institute of
Chartered Accountants in England and Wales for resolution. In relation
to any Earnout Dispute which is referred to the Expert, the following
shall apply:-
(i) each Dispute Party shall prepare a written submission on the
Earnout Dispute (the "First Submission") which shall be
delivered to the Expert no later than fifteen (15) Business Days
after the day on which such Expert is appointed and a copy of
the First Submission prepared by each Dispute Party shall be
delivered by that Dispute Party to the other Dispute Party
within the fifteen (15) Business Day period referred to above;
13
(ii) each Dispute Party shall be entitled to prepare a response to
the other's First Submission which shall be submitted to the
Expert no later than ten (10) Business Days after the date on
which that Dispute Party received a copy of the other Dispute
Party's First Submission pursuant to paragraph (i) above, with a
copy of such response delivered to the other Dispute Party; and
(iii) following submission of the written statements by HCC and the
Representative as contemplated by paragraphs (i) and (ii) above,
neither HCC nor the Representative shall be entitled to make any
further statements except insofar as the Expert so requests or HCC and
the Representative otherwise agree.
(i) The Expert shall, within forty-five (45) Business Days of his
appointment, decide and give his decision in writing as to what the
Annual Earnout Amount under dispute should be in order for it to be
calculated in accordance with this Agreement. Any such decision shall
(in the absence of manifest error) be final and binding on HCC and all
the Group A Shareholders and shall be given by the Expert so appointed
as an Expert and not as an arbitrator. Each of HCC and the Group A
Shareholders shall provide the Expert with all such information and
access to all such documents as the Expert may reasonably request for
the purpose of reaching his decision. In giving his decision on the
Earnout Dispute, the Expert shall provide reasons therefor. For the
avoidance of doubt, if either HCC or the Representative fails to
prepare a First Submission or a response to the other's First
Submission as contemplated in Sections 1.3(h)(i), (ii) and (iii) the
Expert shall nevertheless be entitled to determine the Earnout Dispute
on the basis of the information and documents available to him.
(j) The costs of each Dispute Party (other than the costs of the Expert)
shall, unless the Expert otherwise determines, be borne by that
Dispute Party. The cost of the Expert shall be borne in accordance
with a direction made by such Expert at his discretion provided that
unless the Expert in his discretion otherwise determines, the costs of
the Expert shall be borne by the Group A Shareholders if the Expert
agrees with the Annual Earnout Amount stated in the HCC Earnout
Statement delivered by HCC in accordance with Section 1.3(e).
(k) Each Group A Shareholder shall notify HCC in writing no later than
three (3) Business Days after the date of determination of the Final
Earnout Amount which one of the two forms of the Earnout Loan Notes he
elects to have issued to him on such Instalment Date by HCC provided
that if no such notice has been received from a Group A Shareholder by
the date referred to above, that Group A Shareholder shall be deemed
to have elected a Form A Earnout Loan Note. As soon as reasonably
practicable following, and in any event not later than ten
14
(10) Business Days after the determination of the Final Annual Earnout
Amount in respect of an Earnout Period in accordance with the
foregoing provisions of this Section 1.3, HCC shall issue to each
Group A Shareholder an Earnout Loan Note in the principal amount equal
to such Final Annual Earnout Amount multiplied by the percentage set
out against the name of that Group A Shareholder in Section 1.3(d)
above. The "Final Annual Earnout Amount" in respect of an Earnout
Period shall be:-
(i) the Annual Earnout Amount stated in the HCC Earnout Statement if
no Objection Notification is delivered within the time period
specified in Section 1.3(f); failing which
(ii) the Annual Earnout Amount agreed between HCC and the
Representative as contemplated under Section 1.3(g); failing
which
(iii) the Annual Earnout Amount determined by the Expert in accordance
with Section 1.3(i).
(l) For the purposes of this Section 1.3, the Representative means the
Group A Representative in accordance with Section 8.4.
1.4 ESCROW AGREEMENT
No later than ten (10) Business Days prior to the due date for the payment
of the principal amounts under the Initial Short Term Loan Notes, each
Seller and HCC shall enter into an escrow agreement in agreed terms (an
"Escrow Agreement") and Mourant & Co. Capital Trustees Limited (the "Escrow
Agent"). In accordance with the terms of each Initial Short Term Loan Note
to be delivered by HCC to each Seller at the Closing, HCC shall, on the
redemption date of such Initial Short Term Loan Note, deposit on behalf of
the relevant Seller and out of the principal amount to be paid under such
Initial Loan Note, an amount in immediately available sterling funds equal
to the amount set out against that Seller's name in Schedule 1E with the
Escrow Agent instead of making the payment thereof to that Seller, which
amount is equal to five per cent. (5%) of such Seller's share of the
Minimum Consideration or (in the case of Rattner) the Arranger's Fee
referred to in Section 1.2(k) such amount to be held on the terms and
subject to the conditions set out in the relevant Escrow Agreement. The
total aggregate amount to be so deposited with the Escrow Agent shall be
(pound)2,200,000.
1.5 NO RIGHT OF SET-OFF
(a) For the avoidance of doubt, HCC hereby acknowledges and agrees that
all payments to be made by or on behalf of HCC to any of the Sellers
as contemplated under or pursuant to this Agreement and any other
document to be entered into between HCC and, amongst others, that
15
Seller or delivered by HCC to that Seller as contemplated under this
Agreement shall not be subject to any rights of set-off, withholding,
deduction or counterclaim (other than in respect of any amount payable
by that Seller to HCC under a final and unappealable judgement given
in its favour) save (i) in accordance with the terms of the Escrow
Agreement to which that Seller is a party; (ii) as required by law; or
(iii) to the extent specified otherwise in this Agreement or any other
document contemplated by this Agreement.
(b) For the avoidance of doubt, each Seller hereby acknowledges and agrees
that all payments to be made by or on his behalf to HCC as
contemplated under or pursuant to this Agreement and any other
document to be entered into between HCC and, amongst other things,
that Seller or delivered by the Sellers to HCC as contemplated under
this Agreement shall not be subject to any rights of set-off,
withholding, deduction or counterclaim (other than any amount payable
by HCC to the relevant Seller under a final and unappealable judgement
given in his favour) save as required by law or to the extent
specified otherwise in this Agreement or any other document
contemplated by this Agreement.
1.6 CONDUCT OF BUSINESS DURING THE EARNOUT PERIODS
(a) Each of HCC and the Group A Shareholders agrees that (subject to
applicable law and regulation) such party shall use all reasonable
endeavours to ensure that none of ▇▇▇▇▇, RML, or any other subsidiary,
subsidiary undertaking or any associated undertaking of ▇▇▇▇▇ will
during the period from Closing to December 31, 2002 enter into any
transaction (not being in the normal course of the relevant company's
business or the development of the relevant company's business) the
principal or primary purpose of which is to:
(i) inflate the Actual Pre-tax Profits of ▇▇▇▇▇ for any period;
(ii) reduce, defer or divert the Actual Pre-tax Profits of ▇▇▇▇▇ for
any such period; or
(iii) increase the losses of ▇▇▇▇▇ for any such period.
(b) Without limiting the generality of Section 1.6(a), each of HCC and the
Group A Shareholders agrees that its obligations under Section 1.6(a)
include an obligation on each such party to use all reasonable
endeavours to ensure that:
(i) neither ▇▇▇▇▇ nor RML shall dispose of the whole or any
substantial part of its business, undertaking or assets (other
than, in the case of assets, in the normal course of trading)
before December 31, 2002 where to do so would or is reasonably
likely
16
to reduce the Actual Pre-tax Profits during any Earnout Period
or to increase the Target Pretax Profits in any Earnout Period;
(ii) ▇▇▇▇▇ shall not dispose of the whole or any substantial part of
the issued share capital of RML where to do so would or is
reasonably likely to reduce the overall Actual Pre-tax Profits
during any Earnout Period or to increase the Target Pretax
Profits in any Earnout Period; and
(iii) there is not a winding up of ▇▇▇▇▇ or RML (other than a members'
voluntary winding up of ▇▇▇▇▇ or RML for the purposes of a good
faith reconstruction or reorganisation) provided that nothing in
this paragraph (iii) shall require HCC nor any of the Group A
Shareholders to inject any funding or provide any form of
financial support to ▇▇▇▇▇ or RML at any time.
(c) For the avoidance of doubt, the Group A Shareholders agree with HCC
that Section 1.6(a) shall not prevent:
(i) any other member of the HCC Group obtaining the best terms
obtainable (through commercial negotiations on an arms length
basis) from ▇▇▇▇▇ or RML in the normal course of trading
(including, without limitation, for the sharing of brokerage and
other fees consistent with past practice prior to the date of
this Agreement); or
(ii) any other member of the HCC Group choosing at any time and from
time to time to place any of its business with a person other
than ▇▇▇▇▇ or RML; or
(iii) any other member of the HCC Group enjoying the full benefit of
all its rights under or in connection with any agreement or
other arrangement (present or future) between or involving such
member and ▇▇▇▇▇ or RML (including, without limitation, all such
rights to bring any claims whether in contract, tort or on any
other ground whatsoever).
17
ARTICLE 2
WARRANTIES, COVENANTS AND LIMITATION ON LIABILITY
2.1 SELLERS' WARRANTIES AND COVENANTS
(a) Each of the Sellers severally warrants to HCC that each of the
warranties set out in Schedule 3 given by the Sellers (together the
"Warranties" and each a "Warranty") is accurate in all respects and
not misleading at the date of this Agreement and as at Closing.
(b) The Sellers accept that HCC is entering into this Agreement in
reliance upon the Warranties made by the Sellers with the intention of
inducing HCC to enter into this Agreement and that accordingly HCC has
been induced to enter into this Agreement. HCC acknowledges that in
entering into this Agreement it has not relied on and has not been
induced to enter into this Agreement on the basis of any warranties or
representations other than those set out in this Agreement or any
other document or certificate delivered by any Seller to it at
Closing.
(c) Each of the Warranties shall be construed as a separate and
independent warranty and (except where expressly provided to the
contrary) shall not be limited or restricted by reference to or
inference from the terms of any other Warranty or any other terms of
this Agreement or any terms in any other document or certificate
referred to in this Agreement.
(d) In the event that the Sellers (or any of them) are in breach of
Section 2.1(a), the Sellers covenant with HCC that the Sellers will,
at the direction of HCC, pay to HCC or, as the case may be, ▇▇▇▇▇, RML
or PMS an amount equal to:
(i) either:-
(A) the amount by which the value of an asset (including one
warranted to exist but not in fact existing) or contract
of ▇▇▇▇▇, RML or PMS is or becomes less than its value
would have been if the Warranties had not been breached or
not been untrue or misleading; and
(B) the amount of any liability or increase in any liability
which ▇▇▇▇▇, RML or PMS has incurred or is or becomes
subject to which it would not have incurred or become
subject to or which would not have increased if the
Warranties had not been breached or not been untrue or
misleading; or
(ii) the amount (the "Reduction") by which the aggregate value of the
issued share capital of ▇▇▇▇▇ is or becomes less than it would
have been if the Warranties had not been breached or not been
18
untrue or misleading. For this purpose all of the Sellers
acknowledge and agree with HCC that the aggregate consideration
payable by HCC under this Agreement was calculated using a price
earnings multiple (based on the adjusted pre-Tax earnings of the
Group) of 7.5 and accordingly the Reduction shall be calculated
on the basis of the same price earnings multiple as applied to
the reduction in pre-Tax earnings of the Group caused by such
breach of Warranty; and
(iii) together, in each case with an amount equal to all costs and
expenses incurred directly or indirectly as a result of or in
connection with any deficiency or diminution in the ▇▇▇▇▇ Shares
Value or in value of any asset or contract or any liability or
increased liability, as the case may be, referred to in
paragraph (i) or (ii).
For the avoidance of doubt, amounts payable under this Section 2.1(d)
shall be calculated without reference to the rules of general law
relating to the claims for damages for breach of Warranty but shall be
subject to the provisions of Section 2.2 and Schedule 4.
(e) (i) If any amount payable by the Sellers to HCC pursuant to this
Agreement (including, without limitation, any payments under
Section 2.1(d) or 8.1) is subject to United Kingdom Taxation in
the hands of HCC, such additional amounts shall be paid by the
Sellers to HCC so as to ensure that the net amount received by
HCC is equal to the full amount payable to HCC under this
Agreement. All amounts payable by the Sellers pursuant to this
Agreement (including, without limitation, any payments under
Section 2.1(d) or 8.1) shall be paid free and clear of all
deductions or withholdings, save as may be required by United
Kingdom law. If any Seller is required by United Kingdom law to
make any deduction or withholding from any such payment, such
additional amounts shall be paid by the Seller to HCC so as to
ensure that the net amount received by HCC is equal to the full
amount payable to HCC under this Agreement.
(ii) HCC shall take such steps as are reasonable to avoid any such
Tax liability as is referred to in Section 2.1(e)(i) (including
claiming so far as practicable that any such payment as is made
by the Sellers to HCC is a reduction of the purchase price
payable for the ▇▇▇▇▇ Shares). If HCC is entitled to obtain any
Relief (as defined in the Tax Covenant) in respect of any amount
that has given rise to a payment under this Section 2.1(e), HCC
shall use reasonable endeavours to obtain such Relief as soon as
possible and shall upon receipt of such Relief promptly refund
to the Sellers such amount, not exceeding the amount paid under
this Section 2.1(e) as shall leave HCC in no better and no worse
19
position than if no payment under Section 2.1(e)(i) had been
due. Provided that HCC will be entitled to arrange its Tax
affairs in whatever manner it thinks fit and, in particular,
will not be obliged to claim Relief under this Section
2.1(e)(ii) in priority to any other Relief available to it and
HCC shall not be obliged to disclose any information regarding
its Tax affairs or computations to the Sellers.
(f) The Sellers undertake to indemnify HCC against all reasonable costs
(including legal costs on an indemnity basis as defined in Order 62 of
the Rules of the Supreme Court), expenses or other liabilities which
HCC may properly incur either before or after the commencement of any
action in connection with:-
(i) the settlement of any claim that any of the Warranties are
untrue or misleading or may have been breached or that any sum
is payable under Section 2.1(d) or 8.1;
(ii) any legal proceedings in which HCC claims that any of the
Warranties are untrue or misleading or have been breached or
that any sum is payable under Section 2.1(d) or 8.1 and in which
judgement on that issue is given for HCC; or
(iii) the enforcement of any such settlement or judgement.
(g) The representations and warranties made by the Sellers in this
Agreement or in any document or certificate executed and, at Closing,
delivered by any of them shall survive the Closing Date and the
consummation of the transactions contemplated hereby regardless of any
investigation made by HCC save as provided in Section 2.2(c). Any
provision of this Agreement and any other documents referred to in it
which is capable of being performed after but which has not been
performed at or before Closing shall remain in full force and effect
notwithstanding Closing.
2.2 HCC'S REMEDIES AND SELLERS' LIMITATION ON LIABILITY
(a) Subject to Section 2.2(b), (c) and (d), HCC shall be entitled to claim
that any of the Warranties has or had been breached or is or was
misleading and, without limitation, to claim under any covenant or
indemnity even if HCC knew or could have discovered on or before
Closing that the Warranty in question had been breached or was
misleading and Closing shall not in any way constitute a waiver of any
of HCC's rights.
(b) HCC shall not be entitled to claim that any facts and/or circumstances
cause any of the Warranties to be breached or renders any misleading
if such facts and/or circumstances have been fairly disclosed to HCC
in the
20
letter (and accompanying Disclosure Bundle) dated the date of this
Agreement and written by the Sellers to HCC and delivered to HCC
before the execution of this Agreement (the "Disclosure Letter") in
the absence of any fraud, fraudulent misrepresentation or dishonesty
on the part of any of the Sellers or their agents or advisers in
relation to such facts and/or circumstances to which the disclosure
relates and provided further that HCC shall not be precluded from
claiming that a Warranty or Warranties have been breached to the
extent that the facts or circumstances disclosed relate to Tax on
income, profits or gains earned, accrued or received on or before
December 31, 1998 or Tax in respect of an event occurring on or before
December 31, 1998.
(c) The Sellers shall not be liable for any losses in respect of any claim
for breach of a Warranty:-
(i) if and to the extent that either ▇▇▇▇▇▇▇ ▇. Way or ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ had actual knowledge immediately prior to HCC's
execution of this Agreement that the Warranty would be untrue
when given by reason of the matter or circumstance giving rise
to such claim and HCC did not disclose such knowledge to the
Sellers prior to HCC's execution of this Agreement; and
(ii) if and to the extent that losses which result from a breach of
such Warranty are reasonably foreseeable,
provided that notwithstanding the foregoing provisions of this Section
2.2(c) the Sellers shall remain liable for losses in respect of a
claim for breach of Warranty even if ▇▇▇▇▇▇▇ ▇. Way or ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ had actual knowledge immediately prior to HCC's execution of
this Agreement that the Warranty would be untrue when given by reason
of Tax on income, profits or gains earned, accrued or received on or
before December 31, 1998 or Tax in respect of an event occurring on or
before December 31, 1998.
(d) The Sellers shall not be liable in respect of claims under the
Warranties if and to the extent that the limitations set out in
Schedule 4 apply in the absence (except as expressly stated in that
Schedule) of any fraud, fraudulent misrepresentation or dishonesty in
relation to that breach on the part of the Sellers or their agents or
advisers.
(e) Except as stated expressly in this Section 2.2, this Section 2.2 shall
not limit any other section of this Agreement or any other document or
certificate referred to in this Agreement or any other right, power or
remedy otherwise provided by law.
2.3 If a Warranty is untrue, inaccurate, incomplete or misleading and that
Warranty also constituted a misrepresentation which HCC relied on in
entering into this Agreement:
21
(a) the relevant Seller shall not be liable (in equity or tort or under
the Misrepresentation ▇▇▇ ▇▇▇▇ or in any other way) in respect of the
misrepresentation; and
(b) HCC may not terminate or rescind this Agreement after Closing as a
result of a breach of the Warranty or misrepresentation.
2.4 Except as stated in Schedule 4 or this ▇▇▇▇▇▇▇ ▇, ▇▇▇▇ of the restrictions
contained in this Section 2 affect a Seller's liability or HCC's rights or
remedies in respect of fraudulent misrepresentation or fraud or dishonesty.
2.5 Any payment by any Seller pursuant to this Section 2 or Section 8.1 shall,
so far as possible, take effect by way of a repayment of the consideration
payable under this Agreement.
2.6 Without limitation of Section 2.2(b), it is hereby agreed that (in the
absence of any fraud, fraudulent misrepresentation or dishonesty on the
part of the Sellers or their agents or advisers in relation to such
disclosure) the disclosure relating to the Unicover account in paragraph
1.12(a) of the Disclosure Letter shall be deemed to be fair disclosure of
the matters and circumstances described or referred to in that paragraph as
at the date of this Agreement.
22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HCC
3.1 HCC warrants to the Sellers that HCC is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware and the
execution, delivery and performance by HCC of this Agreement and every
other agreement entered into by it in connection with the transactions
contemplated hereby (the "Total Agreements"), and the consummation by HCC
of the transactions contemplated hereby and thereby are within the
corporate powers of HCC and have been duly authorised by all necessary
corporate action. This Agreement and each other agreement entered into by
it in connection with the transactions contemplated hereby constitutes, or
upon execution will constitute, valid and binding agreements of HCC except
as may be limited by bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights generally or by general principles of
equity.
3.2 HCC warrants to the Sellers that Middle East Insurance Brokers, Ltd.
("MEIB") in the financial year ended December 31, 1998 made an operating
profit which profit will be reflected in its audited accounts for such
financial period and is budgeted on reasonable grounds based on the current
insurance and reinsurance market conditions to make an operating profit in
its current financial year provided that no warranty is hereby given as to
the outcome.
3.3 HCC warrants to the Sellers that neither the execution and delivery by HCC
of the Total Agreements nor compliance by HCC with the provisions thereof:
(a) violates (i) any presently existing statute or governmental regulation
(including, without limitation, insurance statutes and regulations) of the
United States or any state (an "Applicable State") in which HCC or any of
its subsidiaries is domiciled, is resident, has its principal place of
business or its principal assets, or (ii) any provision of the certificate
of incorporation or bylaws of HCC; (b) violates any order or decree of any
court or governmental instrumentality to which HCC is subject; (c)
conflicts with or results in the breach of, or constitutes a default under,
any indenture, mortgage, deed of trust, material agreement or other
material instrument to which HCC is a party or by which HCC is bound (a
"HCC Material Agreement"); or (d) results in the creation or imposition of
any lien upon any of the property of HCC under any HCC Material Agreement
except in favour of the Sellers.
3.4 There are no actions, suits or proceedings pending or threatened against or
affecting HCC before any court, arbitrator or governmental or
administrative body or agency (a) seeking to restrain, enjoin, prevent the
consummation of, or otherwise challenge the transactions contemplated by
the Total Agreements, or (b) which, if adversely determined, could have a
material adverse effect on HCC.
3.5 To the best of HCC's knowledge, no action of or filing with any authority
of the United States or an Applicable State is required to be obtained or
made by HCC to authorise or otherwise is required to authorise, or to make
valid or legally
23
binding the Deed of Charge referred to in Section 1.2(d), or is otherwise
required in connection with the execution, delivery, performance, validity
or enforceability by HCC of, the Deed of Charge.
24
ARTICLE 4
COVENANTS OF THE SELLERS
4.1 NECESSARY CONSENTS
The Sellers shall use commercially reasonable efforts to obtain, and shall
cooperate with HCC in HCC's efforts to obtain, such written consents and
take such other actions as may be necessary or appropriate to allow ▇▇▇▇▇
and RML or any successor to carry on its business as a subsidiary of HCC
after the Closing Date provided always that such efforts and actions shall
not involve the Sellers or any of them incurring any significant
expenditure of time or money.
4.2 REGULATORY APPROVAL
Each of the Sellers shall execute and file, or join in the execution and
filing of, every application or other document that may be necessary in
order to obtain the authorisation, approval or consent of any Governmental
Authority (as herein defined) which may be reasonably required, or which
HCC may reasonably request, in connection with the consummation of the
transactions provided for in this Agreement provided always that such
efforts and actions shall not involve the Sellers or any of them incurring
any significant expenditure of time or money. Subject to the proviso in the
sentence above, each of the Sellers shall use commercially reasonable
efforts to obtain or assist HCC in obtaining all such authorisations,
approvals and consents.
4.3 INVESTMENT REPRESENTATION
Each Group A Shareholder represents and warrants that the HCC Shares to be
issued to him pursuant to this Agreement will be acquired solely for his
account for investment purposes only and not with a view to the
distribution thereof. Each Group A Shareholder covenants that he will not
participate, directly or indirectly, in any distribution or transfer of
such HCC Shares, nor will he participate, directly or indirectly, in
underwriting any such distribution of HCC Common Stock within the meaning
of the Securities Act. Each Group A Shareholder warrants and confirms that
he has such knowledge and experience in business matters that he is capable
of evaluating the merits and risks of an investment in HCC and the
acquisition of the shares of HCC Common Stock, and is making an informed
investment decision with respect thereto. Each Group A Shareholder confirms
and acknowledges that he has been informed by HCC that the HCC Shares to be
issued pursuant to this Agreement and the documents to be executed in
connection herewith will not be registered under the applicable securities
laws of any Governmental Authority (including, without limitation, the
Securities Act) at the time of their issue and can be sold only upon
registration under the applicable securities laws of any Governmental
Authority (including, without limitation, the Securities Act) or subject to
the availability of an appropriate exemption therefrom. Each Group A
Shareholder further confirms and acknowledges that he has been informed
that HCC will be under no obligation to register the HCC Shares under the
applicable securities
25
laws of any Governmental Authority (including, without limitation, the
Securities Act) or except as specifically provided herein to take any steps
to assist him to comply with any applicable exemption under the applicable
securities laws of any Governmental Authority (including, without
limitation, the Securities Act) with respect to the sale or other transfer
of the HCC Shares.
4.4 INCOME TAX
Each Seller undertakes that, in the event that HCC, HCC UK, ▇▇▇▇▇, RML or
any other affiliate of HCC becomes liable to pay United Kingdom income tax
in respect of all or any part of the Arranger's Fee, the Minimum
Consideration or the Earnout Price Adjustment received by such Seller which
income tax discharges or reduces any Tax such Seller would otherwise have
to pay, the Seller will pay to HCC (by way of a refund of such
consideration) an amount equal to the income tax referable to such
consideration.
26
ARTICLE 5
COVENANTS OF HCC
5.1 LISTING OF HCC COMMON STOCK
HCC shall use all reasonable efforts to cause the HCC Shares to be issued
to the Group A Shareholders from time to time pursuant to this Agreement to
be approved for listing on the New York Stock Exchange as soon as
reasonably practicable and, in any event, within 90 days following the
issue of such HCC Shares.
5.2 RULE 144
For so long as any HCC Share held by any Group A Shareholder is required to
be sold pursuant to Rule 144 of the Securities Act, HCC shall file such
reports as are necessary to satisfy the current public information
requirement contained in Rule 144(c) of the Securities Act and take such
further actions as may be required pursuant to such Rule 144 to allow the
continued sale of such HCC Shares by such Group A Shareholder thereunder.
5.3 EXISTING EMPLOYEE BENEFITS
Save as contemplated by Article 7, HCC agrees to ensure that each of the
employees of ▇▇▇▇▇ or RML (other than those Sellers who are employees and
who will enter into new service agreements at Closing as contemplated by
Section 6.2(d)(iii)) at the date of this Agreement (but excluding, for the
avoidance of doubt, any future employees of ▇▇▇▇▇ and RML)) shall be
employed on the same terms and conditions and shall continue to receive
employee benefits (including, without limitation, medical insurance,
company car and pension contribution) on a basis at least equivalent to
those being provided to them at the date of this Agreement for so long as
such person remains an employee of the relevant company provided that this
shall not apply if and to the extent that:
(a) such terms and conditions have not been disclosed in all material
respects in the Disclosure Letter; or
(b) such employee agrees otherwise with ▇▇▇▇▇ or RML.
5.4 ACQUISITION OF MRI
HCC agrees with the Group A Shareholders that in the event that HCC
acquires or persons acting in concert with HCC acquire (directly or
indirectly) control over more than fifty (50) per cent. of the voting
issued share capital of MRI, HCC shall procure that MRI complies with its
obligations under the Deed of Appointment and the Other Non-Competition
Agreement to which it is a party.
5.5 VOTING POWERS IN ▇▇▇▇▇
27
HCC undertakes to the Group A Shareholders that:-
(a) it will, in the period from Closing until and including the later of
the date on which the Earnout Loan Notes in respect of the first
Earnout Period are issued to the Group A Shareholders and the date on
which the Deferred Loan Notes and the HCC Shares representing the
first Annual Instalment are issued to the Group A Shareholders hold
directly the greater part of the voting power in ▇▇▇▇▇; and
(b) if at any time from the date referred to in paragraph (a) above until
and including the date on which the last of the HCC Shares, Deferred
Loan Notes or Earnout Loan Notes are issued, HCC ceases to hold
directly the greater part of the voting power in ▇▇▇▇▇, HCC will pay
to each Group A Shareholder such amount as, after taking into account
any payments made to that Group A Shareholder pursuant to Section
1.2(i), will compensate the Group A Shareholder (on an after Tax
basis) for any Tax (and any interest and penalties associated with
such Tax) which that Group A Shareholder suffers in consequence of
HCC's ceasing to hold the greater part of the voting power in ▇▇▇▇▇
coupled with the Group A Shareholder's entering into this Agreement
provided that the maximum liability of HCC under this paragraph (b),
together with Section 1.2(i) shall not exceed(pound)5 million and,
where HCC's liability would have exceeded(pound)5 million but for this
proviso, HCC's liability to each Group A Shareholder shall be reduced
in proportion to what would have been their respective entitlements
but for this proviso.
5.6 GROSSING UP
(a) HCC undertakes to each of the Sellers that it will not issue a reduced
number of HCC Shares or a reduced principal amount of Initial Loan
Notes or Deferred Loan Notes or Earnout Loan Notes (together, the
"Notes") by reason of any deduction or withholding on account of Tax
save as may be required by law. HCC undertakes to each Seller that,
subject to Sections 5.6(b) and 5.6(c) below, in the event that HCC is
required by law to issue to the Seller a reduced number of HCC Shares
or a reduced principal amount of Notes as a result of the imposition
of withholding tax in the United States in respect of such issue, HCC
will issue to the Seller such additional HCC Shares or Notes of the
same description as will leave the Seller, after such withholding or
deduction, with the number of HCC Shares or the principal amount of
Notes (as the case may be) specified in this Agreement. In that event,
the relevant Seller will use all reasonable endeavours to obtain a
credit against his Tax liabilities or other Tax relief for the
withholding or deduction giving rise to the issue of the additional
HCC Shares or Notes and, upon obtaining the benefit of such credit or
other Tax relief, shall pay to HCC such amount as will leave him in no
better and no worse position than he would have been in had no such
withholding or deduction been required.
28
(b) The Seller may not claim under Section 5.6(a) to the extent that the
withholding or deduction would not have arisen had such Seller,
throughout the period from Closing until and including the date on
which the relevant HCC Shares or Notes were issued:
(i) if an individual, remained resident in the United Kingdom for
United Kingdom Tax purposes or been a resident or a citizen of
the United States for United States Tax purposes or, if a
corporation, been a company incorporated in the United States;
and
(ii) filed in good time all forms, claims or other documents
reasonably requested by HCC to be lodged with any Tax authority
or other person (and complied with all other procedures
reasonably requested by HCC) in order to secure the benefit of
any exemption from or reduction in withholding.
(c) The Seller may not claim under Section 5.6(a) to the extent that the
withholding or deduction arises under the laws of a jurisdiction other
than the United States or the United Kingdom and is attributable to
the existence of a connection between the Seller and that jurisdiction
other than through the holding of his HCC Shares or Notes provided
that this Section 5.6(c) shall not apply to prevent a Seller from
making such a claim where the Seller's connection with the relevant
jurisdiction arises out of the Seller's employment by HCC or any of
its subsidiaries.
(d) Section 5.6(b)(i) above shall not preclude a Seller who is an
individual from claiming under Section 5.6(a) above to the extent that
his failure to be resident in the United Kingdom is due to his
employment by HCC or any of its subsidiaries.
5.7 DIVIDENDS
HCC shall procure that ▇▇▇▇▇ shall (and HCC shall do everything to ensure
that ▇▇▇▇▇ and RML shall take all lawful action required to) pay after
April 5, 1999 and on or before May 15, 1999 a dividend with a record date
of December 31, 1998 (the "Record Date") of an aggregate amount in cash
(the "Dividend Payment") equal to:
(a) the amount of the consolidated retained profit of ▇▇▇▇▇ as shown in
▇▇▇▇▇' audited accounts for the eight months ending on December 31,
1998 as calculated in accordance with accounting policies, principles,
bases and methods complying with UK GAAP on a basis consistent with
the preparation of the ▇▇▇▇▇ consolidated audited accounts as of April
30, 1998; plus
(b) the amount of any increase in such earnings resulting from making such
adjustments to such accounting policies, principles, bases and methods
29
as are necessary in order for such accounts to comply with U.S. GAAP
as applied by HCC in its audited consolidated accounts for the period
ending on the same day;
but less:
(i) an amount (if any) equal to any Tax resulting from the adjustments
provided for in paragraph (b) above; and
(ii) (pound)300,000,
with such dividend (rounded down to the nearest pound) to be divided
amongst each of those entitled thereto on such basis as bears the same
proportion to the Dividend Payment as the relevant person's ▇▇▇▇▇ Shares on
the Record Date bear to all of the ▇▇▇▇▇ Shares in issue on that date. For
the avoidance of doubt, HCC shall, without prejudice to the generality of
the foregoing, ensure that ▇▇▇▇▇ has sufficient distributable reserves and
cash resources (whether as a result of receipt of a dividend from RML or
otherwise) to make the Dividend Payment. HCC will procure that any dividend
paid by RML in order to finance the above dividend will either be paid
after April 5, 1999 or be paid under a valid group income election.
5.8 DISPOSAL OF THE FLAT AT TRINITY SQUARE
Immediately prior to Closing, RML granted to the Sellers a right to acquire
the property located at ▇▇▇▇ ▇, ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ (▇▇▇ "Flat")
on arms length terms customary for the sale and purchase of residential
property such right being exercisable by all (or, if they so agree, some
only) of ▇▇▇▇, Mays, Lockett, ▇▇▇▇▇ and ▇▇▇▇▇ (such Sellers exercising this
right being together the "Purchasing Sellers"). The right to acquire the
Flat is exercisable by the Purchasing Sellers at a price of (pound)380,000
such price being acknowledged to reflect fairly current market value at any
time during the period of 3 months from Closing by the Purchasing Sellers
serving written notice to that effect on RML. HCC agrees and undertakes to
procure that, both before and after receipt of such notification, RML and
▇▇▇▇▇ shall do all acts and things as are reasonably necessary in order to
give full effect to the right granted to the Purchasing Sellers and to
procure that, without limitation, any necessary board and shareholder
resolutions of RML are passed (including resolutions pursuant to section
320 of the Companies Act 1985) to approve the exercise of this right and
the sale and purchase of the Flat as contemplated by this clause.
30
ARTICLE 6
CLOSING
6.1 COMPLETION
The completion of the sale and purchase of the ▇▇▇▇▇ Shares under this
Agreement (the "Closing") shall take place at 7.00 a.m. on the date of this
Agreement or such other date as may be agreed to by the Representative and
HCC (the "Closing Date") at the offices of ▇▇▇▇▇▇▇▇▇ and May at ▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇.
6.2 CLOSING OBLIGATIONS OF THE SELLERS
At Closing, the Sellers shall do the following things:-
(a) each of the Shareholders shall deliver to HCC:-
(i) duly executed transfers in respect of such Shareholder's ▇▇▇▇▇
Shares in favour of HCC or such person as HCC may have nominated
in advance of Closing and share certificates for the ▇▇▇▇▇
Shares in the name of the relevant transferors and any power of
attorney under which any transfer is executed on behalf of such
Shareholder or nominee;
(ii) a consent from MRI in accordance with the articles of
association of ▇▇▇▇▇ to enable HCC or its nominees to be
registered as holders of the ▇▇▇▇▇ Shares; and
(iii) powers of attorney in agreed terms;
(b) deliver to HCC a Tax Covenant in agreed terms (the "Tax Covenant")
duly executed by each of them;
(c) the Sellers shall procure the delivery to HCC (or any person whom HCC
may nominate) such of the following as HCC may require (such
requirements having been notified to the Sellers' Solicitors (as
defined herein) prior to the date of this Agreement) and that the
remainder of the following is held to the order of HCC:-
(i) the statutory books (which shall be written up to but not
including the Closing Date), the certificate of incorporation
(and any certificate of incorporation on change of name), common
seal (if any) and corporate, accounting, business and tax
records of each member of the Group and share certificates in
respect of the issued share capital of each such member;
31
(ii) a copy of the minutes of a duly held meeting of the directors of
MRI authorising the execution of this Agreement and the Tax
Covenant (such copy minutes being certified as correct by its
secretary); and
(iii) the title deeds relating to the Property Leases.
(d) the Sellers shall procure board meetings of each member of the Group
to be held at which:-
(i) in the case of ▇▇▇▇▇, it shall be resolved that each of the
transfers relating to the ▇▇▇▇▇ Shares shall be approved for
registration and (subject only to the transfer being duly
stamped) each transferee registered as the holder of the ▇▇▇▇▇
Shares concerned in the register of members;
(ii) the accounting reference date shall be changed to December 31;
(iii) the entry by ▇▇▇▇▇ or RML into the service agreements in agreed
terms with each of ▇▇▇▇, Mays, Lockett, ▇▇▇▇▇ and ▇▇▇▇▇ shall be
approved;
(iv) entry into by ▇▇▇▇▇ and RML of the Non-Competition Agreements in
agreed terms ("Non-Competition Agreements") with each
Shareholder other than Axel and MRI shall be approved;
(v) entry into by ▇▇▇▇▇ and RML of the Non-Competition Agreements in
agreed terms ("Other Non-Competition Agreements") with MRI and
Rattner shall be approved;
(vi) entry into by RML of the Deed of Appointment with MRI shall be
approved; and
(vii) entry into by ▇▇▇▇▇ and RML of each Deed of Release (as defined
herein) referred to in Section 6.2(g) shall be approved;
The Sellers shall procure that minutes of each duly held board
meeting, certified as correct by the secretary of the relevant company
and the documents referred to above are delivered to HCC;
(e) each Seller other than Axel, MRI and Rattner shall deliver to HCC a
Non-Competition Agreement executed by him, ▇▇▇▇▇ and RML and each of
MRI and Rattner shall deliver to HCC an Other Non-Competition
Agreement duly executed by him, ▇▇▇▇▇ and RML;
(f) Rattner shall deliver the Rattner Deed of Release duly executed by
him;
32
(g) the Sellers shall deliver or cause to be delivered a counterpart of a
deed of release ("a Deed of Release") in the agreed form duly executed
by each Seller (other than Rattner and MRI), ▇▇▇▇▇ and RML, providing
general releases in favour of ▇▇▇▇▇, RML and HCC;
(h) MRI shall deliver to HCC a counterpart of a deed of appointment duly
executed by it pursuant to which MRI shall appoint RML as MRI's
exclusive broker in the United Kingdom in agreed terms ("Deed of
Appointment");
(i) the Sellers shall deliver to HCC a counterpart of the Deed of
Appointment duly executed by RML;
(j) each of MRI, Axel and Rattner shall deliver to HCC a certified copy of
the process agent appointment letter in agreed terms duly executed by
him pursuant to which he appoints his process agent in accordance with
Section 10.14;
(k) MRI shall deliver to HCC a legal opinion from counsel to MRI in agreed
terms; and
(l) the Seller shall deliver to HCC the certificate duly signed by each of
the Sellers and ▇▇▇▇▇ in relation to ▇▇▇▇▇' ownership of shares in RML
in agreed terms.
6.3 HCC shall, subject to the performance by the Sellers of their obligations
under Section 6.2:-
(a) issue an Initial Short Term Loan Note to each Shareholder who is to
receive only an Initial Short Term Loan Note in accordance with
Section 1.2;
(b) issue an Initial Short Term Loan Note and an Initial Long Term Loan
Note to each Shareholder who has elected to receive both in accordance
with Section 1.2;
(c) issue an Initial Short Term Loan Note to Rattner in accordance with
Section 1.2;
(d) duly execute and deliver the Deed of Charge to the Sellers;
(e) deliver a certified copy of a process agent appointment letter duly
executed by it pursuant to which it appoints its process agent in
accordance with Section 10.15;
(f) deliver to the Sellers a legal opinion from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
P.C. in agreed terms;
33
(g) deliver to the Sellers a counterpart of the Tax Covenant duly executed
by it;
(h) deliver to the Sellers a counterpart of each Non-Competition Agreement
and Other Non-Competition Agreement duly executed by it;
(i) deliver to the Sellers a counterpart of each Deed of Release and the
Rattner Deed of Release duly executed by it; and
(j) deliver minutes of a duly held board meeting of HCC approving and
authorising the execution of this Agreement and the other documents
contemplated under this Agreement and to which HCC is a party,
certified as correct by its secretary.
6.4 HCC shall not be obliged to complete this Agreement unless each Seller
complies fully with the requirements of Section 6.2.
6.5 HCC shall not be obliged to complete the sale and purchase of any of the
▇▇▇▇▇ Shares unless the sale and purchase of all the ▇▇▇▇▇ Shares is
completed simultaneously.
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ARTICLE 7
BONUS SCHEME
7.1 HCC shall after Closing permit ▇▇▇▇▇ and/or RML to establish and operate a
loyalty deferred bonus scheme (the "Bonus Scheme") for the benefit of
officers and/or employees of ▇▇▇▇▇ and/or RML (other than the Sellers)
pursuant to which bonus payments amounting to (pound)2,015,000 in aggregate
(the "Bonus Amount") shall be made to such officers and/or employees of
▇▇▇▇▇ and/or RML upon such terms and conditions as shall be reasonably
proposed by ▇▇▇▇ in his capacity as Managing Director of RML. It is
confirmed and acknowledged by the parties hereto that year-end bonus
payments of approximately one-third of the Bonus Amount were paid during
the week commencing January 25, 1999.
7.2 If the retained audited consolidated earnings of ▇▇▇▇▇ as at December 31,
1998 as shown in the accounts referred to in paragraph (a) of Section 5.7
would fall short of (pound)300,000 (such shortfall being referred to as the
"Retained Earnings Shortfall"), the Shareholders covenant to pay HCC an
amount equal to such Retained Earnings Shortfall.
35
ARTICLE 8
COVENANTS TO PAY
8.1 SELLERS' COVENANT TO PAY
Without limiting HCC's rights under any other section of this Agreement or
any document or certificate referred to in this Agreement or any other
rights or remedies under law but subject to the limitations set out in
Section 8.3, from and after the Closing Date, each Seller severally
covenants to pay to HCC an amount equal to all claims, demands, actions,
causes of action, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees, (hereafter in this
Section 8.1 referred to as "HCC Damages"), made against or incurred by each
of HCC, ▇▇▇▇▇, RML and PMS (individually a "▇▇▇▇▇ Indemnified Person" and
collectively the "▇▇▇▇▇ Indemnified Persons") arising out of any
misrepresentation or breach of or default under any of the representations,
warranties (other than the Warranties), covenants or agreements given or
made in this Agreement or any document or certificate delivered by or on
behalf of ▇▇▇▇▇, RML or the Sellers pursuant hereto provided that this
covenant shall not apply to HCC Damages which arise out of a breach of any
of the Warranties. The covenant provided for in this Section 8.1 relates
only to the actual expenditures or damages incurred by the ▇▇▇▇▇
Indemnified Persons for the above described losses. Such covenant does not
relate to consequential, special or other speculative or punitive
categories of damages.
8.2 HCC COVENANT TO PAY
Without limiting the Seller' rights under any other section of this
Agreement or any document referred to in this Agreement or any other rights
or remedies under law, from and after the Closing Date, HCC covenants to
pay to the Sellers an amount equal to all claims, demands, actions, causes
of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees (net of: (i) recoveries from
third parties (net of costs and tax); and (ii) tax savings made by HCC
Indemnified Persons (as defined below) at the time of making a claim
hereunder which relates directly thereto but taking account of the timing
of receipt of any such saving) (hereafter in this Section 8.2 referred to
as "▇▇▇▇▇ Damages") made against or incurred by each of the Sellers
(hereinafter in this Section 8.2 referred to individually as an "HCC
Indemnified Person" and collectively as "HCC Indemnified Persons") arising
out of any misrepresentation or breach of or default under any of the
representations, warranties, covenants and agreements given or made by HCC
in this Agreement or any document or any certificate delivered by or on
behalf of HCC pursuant hereto. The covenant provided for in this Section
8.2 relates only to the actual expenditures or damages incurred by the HCC
Indemnified Persons for the above described losses. The covenant does not
relate to consequential, special, or other speculative or punitive
categories of damages. Notwithstanding the foregoing, in the absence of
fraud, fraudulent misrepresentation or dishonesty on the part of HCC or its
agents or advisers in relation to the matter which is
36
the subject of the claim under this covenant, in no event shall HCC have
any obligation hereunder in excess of an aggregate of (pound)22,000,000
(the "HCC Cap") save that HCC's obligations to make payments under the
Initial Loan Notes, the Deferred Loan Notes and the Earnout Loan Notes and
to issue the HCC Shares and such Loan Notes under Section 1.2(g) shall not
be subject to the HCC Cap.
8.3 LIMITATION AND EXPIRATION
(a) The Sellers shall not be liable in respect of claims under Section 8.1
if and to the extent that the limitations set out in Schedule 4 apply
in the absence of (except as expressly stated in that Schedule) any
fraud, fraudulent misrepresentation or dishonesty in relation to the
matter which is the subject of the claim under section 8.1 on the part
of the Sellers or their agents or advisers.
(b) Except as stated expressly in this Section 8.3, this Section 8.3 shall
not limit any other section of this Agreement or any other document or
certificate referred to in this Agreement or any other right, power or
remedy otherwise provided by law.
8.4 APPOINTMENT OF REPRESENTATIVE
(a) Subject to the provisions of this Section 8.4, ▇▇▇▇ (the "Group A
Representative") is hereby irrevocably appointed as the agent and
representative of the Group A Shareholders for all purposes of or
relating to this Agreement, the Tax Covenant and any other document
entered into by any of the Group A Shareholders pursuant to this
Agreement (together the "Relevant Group A Documents").
(b) Subject to the provisions of this Section 8.4, ▇▇▇▇▇ (the "Group B
Representative") is hereby irrevocably appointed as the agent and
representative of the Group B Shareholders and Rattner for all
purposes of or relating to this Agreement, the Tax Covenant and any
other document entered into by any of the Group B Shareholders and/or
Rattner pursuant to this Agreement (together the "Relevant Group B
Documents"; Relevant Group A Documents and Relevant Group B Documents
are together referred to as the "Relevant Documents" and each a
"Relevant Document").
(c) Notice is hereby given to HCC, and, without independent verification,
HCC may rely upon the Representative's undertakings and actions in
such capacity (including for the avoidance of doubt, the Group A
Representative's undertakings and actions in such capacity and Group B
Representative's undertakings and actions in such capacity). The
Representative shall have full and irrevocable authority on behalf of
the Sellers, and shall promptly and completely exercise such authority
in a timely fashion to:
37
(i) participate in, represent and bind the Sellers in all respects
with respect to any arbitration or legal proceeding relating to
any Relevant Document, including, without limitation, the
defence and settlement of any matter, and the calculation
thereof for every purpose thereunder, consent to jurisdiction,
enter into any settlement, and consent to entry of judgment,
each with respect to any or all of the Sellers;
(ii) receive, accept and give notices and other communications
relating to any Relevant Document;
(iii) take any action (including but without limitation, in the case
of the Group A Representative, all actions contemplated under
Section 1.3) contemplated to be done by that Seller under this
Agreement (other than the execution of any of the documents on
behalf of that Seller to be delivered by that Seller at Closing
(but without prejudice to any other powers of attorney given by
any such Seller to the Group A Representative or the Group B
Representative outside the terms of this Agreement)) and take
such other actions that the Representative deems necessary or
desirable in order fully to effectuate the transactions
contemplated by any Relevant Document; and
(iv) execute and deliver any instrument or document that the
Representative deems necessary or desirable in the exercise of
his authority under this Section 8.4,
provided always that in any such case the relevant action is not in
respect of a matter or thing in respect of which it is reasonably
foreseeable that a liability for the Sellers (or any of them) in
excess of (pound)25,000 could arise and provided further that neither
the Group A Representative nor the Group B Representative shall have
any authority whatsoever to agree to any amendment, variation or
waiver of any of the terms of the Deed of Appointment, Rattner Deed of
Release or any of the Non-Competition Agreements or the Other
Non-Competition Agreements.
(d) The Representative shall also hold the benefit of the Deed of Charge
as trustee on behalf of all the Sellers.
(e) Those Group A Shareholders who, as of the Closing Date, hold a
majority of the ▇▇▇▇▇ Shares out of those ▇▇▇▇▇ Shares held by the
Group A Shareholders may, at any time and by written notice delivered
to HCC, remove the Group A Representative or any successor thereto,
but such removal shall be effective only upon the replacement of such
Group A Representative or successor by a new Group A Representative
designated, by written notice delivered to HCC, by those Group A
Shareholders who, as of the date hereof, hold a majority of ▇▇▇▇▇
38
Shares out of those ▇▇▇▇▇ Shares held by the Group A Shareholders,
provided, however, that any such notice shall be effective upon actual
receipt by HCC. Any such written notice shall be delivered to HCC in
accordance with the notice provisions set forth in Section 10.3
hereof. If the Group A Representative shall have died, become
incapacitated or unable to serve, those Group A Shareholders who, as
of the date hereof, hold a majority of ▇▇▇▇▇ Shares out of those ▇▇▇▇▇
Shares held by the Group A Shareholders, the Group A Shareholders
shall promptly designate by written notice delivered to HCC, a
replacement of the Group A Representative. Any costs and expenses
incurred by the Group A Representative in connection with actions
taken pursuant to or permitted by this Section 8.4 will be borne by
the Group A Shareholders and paid or reimbursed to the Group A
Representative on a pro rata basis. Any Group A Representative ceasing
to be such shall transfer the benefit of the Deed of Charge and all
rights relating thereto to the replacement of the Group A
Representative.
(f) A majority of the Group B Shareholders may, at any time and by written
notice delivered to HCC, remove the Group B Representative or any
successor thereto, but such removal shall be effective only upon the
replacement of such Group B Representative or successor by a new Group
B Representative designated, by written notice delivered to HCC, by
such Group B Shareholders, provided, however, that any such notice
shall be effective upon actual receipt by HCC. Any such written notice
shall be delivered to HCC in accordance with the notice provisions set
forth in Section 10.3 hereof. If the Group B Representative shall have
died, become incapacitated or unable to serve, a majority of the Group
B Shareholders shall promptly designate by written notice delivered to
HCC, a replacement of the Group B Representative. Any costs and
expenses incurred by the Group B Representative in connection with
actions taken pursuant to or permitted by this Section 8.4 will be
borne by the Group B Shareholders and paid or reimbursed to the
Representative on a pro rata basis. Any Group B Representative ceasing
to be such shall transfer the benefit of the Deed of Charge and all
rights relating thereto to the replacement of the Group B
Representative. Any reference in this paragraph to Group B
Shareholders shall be deemed to include Rattner.
(g) The authorisation of the Representative under this Section 8.4 is
granted and conferred in consideration for the various agreements and
covenants of HCC contained herein. In consideration of the foregoing,
and subject to the successorship provisions of this Section 8.4, this
authorisation granted to the Representative shall be irrevocable and
shall not be terminated by any act of any of the Sellers or by the
occurrence of any other event. The Representative shall have no
liability to any Seller for any act or omission or obligation
hereunder, provided that such action or omission is taken by the
Representative in good faith and without wilful misconduct.
39
(h) The Sellers shall not be bound by any act or thing done or omitted to
be done by the Representative if he is to receive directly or
indirectly a benefit for the doing of or the omission to do the act or
thing where such benefit is not available to each of the other
Sellers.
40
ARTICLE 9
NON-COMPETITION AGREEMENTS AND OTHER NON-COMPETITION AGREEMENTS
9. In the event that any covenant (the "Ineffective Covenant") in any of the
Non-Competition Agreements or Other Non-Competition Agreements to be
executed and delivered by any Seller is invalid, ineffective, void or
unenforceable against that Seller because the scope (whether in relation to
the geographic areas to which or the period for which such covenant applies
or otherwise) of such covenant is considered by any competent court to be
too broad or for any other reason whatsoever, such Seller covenants with
HCC that it or he will enter into a new agreement with ▇▇▇▇▇ and/or RML
which provides for a covenant of a reduced scope to replace the Ineffective
Covenant which will be legal, valid, binding, and enforceable against such
Seller.
41
ARTICLE 10
MISCELLANEOUS
10.1 FURTHER ASSURANCES
Each party agrees to co-operate fully with the other parties and to execute
such further instruments, documents and agreements and to give such further
written assurances as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of
this Agreement.
10.2 FEES AND EXPENSES
Unless otherwise expressly provided herein or agreed by the parties in
writing, each party shall bear its own fees and expenses, including,
without limitation, legal fees and fees of brokers and investment bankers
contracted by such party, in connection with the transactions contemplated
hereby.
10.3 NOTICES
Whenever any party hereto desires or is required to give any notice,
demand, or request with respect to this Agreement, each such communication
shall be in writing and shall be effective only if it is delivered by
personal service or registered post or sent by prepaid courier or
facsimile, addressed as follows:
HCC:
HCC Insurance Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: ▇▇▇ ▇▇▇ ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Executive Vice President
With copies (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: ▇▇▇ ▇▇▇ ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
42
▇▇▇▇▇▇▇▇▇ and May
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: 011-44-171-600-0289
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
All the Sellers c/o the Representative:
▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇
c/▇ ▇▇▇▇▇ Holdings Limited
Walsingham House
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: 011-44-171-481-3616
With copies (which shall not constitute notice) to the 2 Representatives at
their home addresses notified in accordance with this section from time to
time
With copies (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ Chance
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: 011-44-171-600-5555
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Such communications shall be effective when they are received by the
addressee thereof. Any notice deemed or request served in accordance with
this Section 10.3 shall be deemed to have been received:
(a) in the case of a fax, when despatched but only if a complete
transmission report is received by the sender;
(b) in the case of registered post, at the time of delivery as certified
by the postal service;
(c) in the case of personal service, at the time of delivery; and
43
(d) in the case of prepaid courier, at the time of delivery as certified
by the courier.
Any party may change its address for such communications by giving notice
thereof to other parties in conformity with this Section and such change
shall become effective on the date specified in the notification as the
date on which the change is to take place or, if no such date is specified
or the date specified is less than 5 clear Business Days after the date the
notice is given, the date falling 5 Business Days after the notice of such
change. In the event there is a change in the identity of the Group A
Representative or the Group B Representative, the successor
Representative's address shall be the address for the Sellers and the
successor Group A Representative or, as the case may be, Group B
Representative's address shall give notice of his address to HCC forthwith
after his appointment.
10.4 DELAY OR OMISSION
No delay or omission on the part of any party to this Agreement in
exercising any right, power or remedy provided by law or under this
Agreement or any other documents referred to in it shall impair such right,
power or remedy or operate as a waiver thereof. The single or partial
exercise of any right, power or remedy provided by law or under this
Agreement shall not preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The rights, powers and
remedies provided in this Agreement are accumulative and not exclusive of
any rights, powers and remedies provided by law.
10.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT
(a) This Agreement and the provisions hereof shall be binding upon each of
the parties, their permitted successors and assigns. Save as set out
in the sentence following, the rights under this Agreement may not be
assigned by HCC without the prior consent of the Representative and
the rights under this Agreement may not be assigned by any Seller
without the consent of HCC. HCC shall be permitted at any time and
from time to time to cause the assignment (of all or any part) its
rights under this Agreement to a wholly-owned (directly or indirectly)
subsidiary of HCC (without in any way relieving HCC of its obligations
under this Agreement) provided that, if HCC has assigned all or part
of its rights under this Agreement to a wholly-owned subsidiary of HCC
(the "Group Transferee") and that Group Transferee shall subsequently
cease to be a wholly-owned subsidiary of HCC, HCC shall procure that
prior to such Group Transferee ceasing to be a wholly-owned subsidiary
of HCC such Group Transferee shall assign its rights and benefits
under this Agreement to HCC or another wholly-owned subsidiary of HCC.
In the event that any such assignment occurs, HCC acknowledges and
agrees that the liability of the Sellers in respect of any claim under
this
44
Agreement shall not be any greater than such liability would have been
had such assignment not taken place.
(b) For the avoidance of doubt, subject to compliance with HCC's
obligations under clause 7(C) of the Deed of Charge, nothing in this
Agreement or any other document entered into by HCC in connection with
this Agreement shall prohibit or otherwise prevent the transfer at any
time and from time to time of all or any of the ▇▇▇▇▇ Shares to a
wholly-owned subsidiary of HCC.
10.6 SEVERABILITY
If any provision of this Agreement, or the application thereof, shall for
any reason or to any extent be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other persons or
circumstances shall continue in full force and effect and in no way be
affected, impaired or invalidated.
10.7 ENTIRE AGREEMENT
This Agreement and any other agreement and instrument referenced herein
constitute the entire understanding and agreement of the parties with
respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect
hereto.
10.8 AMENDMENT AND WAIVERS
Any and all amendments and modifications of this Agreement must be in
writing and signed by the parties hereto immediately prior to the Closing
Date. Any term or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either generally or
in a particular instance in either retroactively or prospectively) only in
writing signed by those persons as provided in this Section 10.8. Any such
waiver shall not be deemed to constitute a waiver of any other term,
provision, condition, or any succeeding breach thereof, unless such waiver
so expressly states. A variation or amendment of this Agreement may only be
in writing.
10.9 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original as against any party whose signature appears thereon
and all of which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all the
parties reflected hereon as signatories.
10.10 ANNOUNCEMENTS
45
(a) Subject to Section 10.10(b), no announcement concerning the sale of
the ▇▇▇▇▇ Shares or any ancillary matter shall be made by the Sellers
without the prior written approval of HCC or by HCC without the prior
written approval of the Representative, in either case such approval
not to be unreasonably withheld or delayed.
(b) Either the Sellers or HCC may make an announcement concerning the sale
of the Shares or any ancillary matter if required by:-
(i) the law of any relevant jurisdiction; or
(ii) any securities exchange or regulatory or governmental body to
which either party is subject or submits, wherever situated,
including (without limitation) the New York Stock Exchange,
whether or not the requirement has the force of law,
in which case, if the party concerned is a Seller, it shall take all
such steps as may be reasonable and practicable in the circumstances
to agree the contents and timing of such announcement with HCC before
making such announcement and, if the party concerned is HCC, it shall
take all such steps as may be reasonable and practicable in the
circumstances to agree the contents and timing of such announcement
with the Representative.
(c) The restrictions contained in this Section 10.10 shall, in relation to
HCC, cease to apply after Closing except to the first announcement to
be made by HCC after Closing and, in relation to the Sellers, continue
to apply after Closing without limit in time.
10.11 CONFIDENTIALITY
(a) Subject to Section 10.11(b), each party shall treat as strictly
confidential all information received or obtained as a result of
entering into or performing this Agreement which relates to:-
(i) the provisions of this Agreement;
(ii) the negotiations relating to this Agreement; or
(iii) any other party.
(b) Any party may disclose information which would otherwise be
confidential if and to the extent:-
(i) required by the law of any relevant jurisdiction;
(ii) required by any securities exchange or regulatory or
governmental body to which that party is subject or submits,
46
wherever situated, including (without limitation) the New York
Stock Exchange, whether or not the requirement for information
has the force of law;
(iii) required to vest the full benefit of this Agreement in that
party;
(iv) (subject to that party procuring that they keep it on the terms
of this Section 10.11) disclosed to the professional advisers,
auditors and bankers of that party for the purpose of obtaining
advice;
(v) the information has come into the public domain through no fault
of that party; or
(vi) in the case of HCC, the Representative has given prior written
approval to the disclosure and, in the case of any Seller, HCC
has given prior written approval to the disclosure
PROVIDED THAT any such information disclosed pursuant to paragraph (i)
or (ii) shall be disclosed only after consultation of the contents and
timing of the disclosure (to the extent reasonably practicable) in the
case of disclosure by HCC, with the Representative and, in the case of
disclosure by any Seller, with HCC.
(c) The restrictions contained in this Section 10.11 shall, in relation to
HCC, cease to apply after Closing and, in relation to the Sellers,
continue to apply after Closing without limit in time.
10.12 CHOICE OF GOVERNING LAW
This Agreement is governed by and shall be construed in accordance with
English law. Any dispute or claim of whatever nature arising out of or in
connection with this Agreement is to be governed by English law.
10.13 JURISDICTION
(a) The courts of England are to have exclusive jurisdiction to hear and
decide any proceedings, suit or action arising out of or in connection
with this Agreement ("Proceedings"). This clause is not included for
the benefit of any one party to this Agreement and, for these
purposes, each party irrevocably submits to the jurisdiction of the
courts of England.
(b) Each party irrevocably waives any objection which it might at any time
have to the courts of England being nominated as the forum to hear and
to decide any proceedings and to settle any disputes in connection
with this Agreement and agrees not to claim that the courts of England
are not a convenient or appropriate forum.
47
10.14 MRI, AXEL AND RATTNER'S AGENT FOR SERVICE
(a) Each of MRI, Axel and Rattner (the "Appointors" and each an
"Appointor") irrevocably agrees that any Service Document may be
sufficiently and effectively served on it in connection with
Proceedings in England and Wales by service on its or his agent
▇▇▇▇▇▇▇▇ Chance Secretaries Limited, if no replacement agent has been
appointed and notified to HCC pursuant to Section 10.14(d), or on the
replacement agent if one has been appointed and notified to the
Representative.
(b) Any Service Document served pursuant to this Section 10.14 shall be
marked for the attention of:-
(i) ▇▇▇▇▇▇▇▇ Chance Secretaries Limited at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or such other address within
England or Wales as may be notified to HCC; or
(ii) such other person as is appointed as agent for service pursuant
to Section 10.14(d) at the address notified pursuant thereto.
(c) Any document addressed in accordance with Section 10.14(b) shall be
deemed to have been duly served if:-
(i) left at the specified address, when it is left; or
(ii) sent by registered post, five Business Days after the date of
posting.
(d) If the agent referred to in Section 10.14(a) (or any replacement agent
appointed pursuant to this section) at any time ceases for any reason
to act as such on behalf of any Appointor, that Appointor shall
appoint a replacement agent to accept service having an address for
service in England or Wales and shall notify HCC of the name and
address of the replacement agent; failing such appointment and
notification, HCC shall be entitled by notice to HCC to appoint such a
replacement agent to act on that Appointor's behalf.
(e) A copy of any Service Document served on an agent pursuant to this
clause shall be sent by post to the relevant Appointor at its address
for the time being for the service of notices and other communications
under Section 10.3, but no failure or delay in so doing shall
prejudice the effectiveness of service of the Service Document in
accordance with the provisions of Section 10.14(a).
(f) "SERVICE DOCUMENT" means a writ, summons, order, judgment or other
process issued out of the courts of England and Wales.
10.15 HCC'S AGENT FOR SERVICE
48
(a) HCC irrevocably agrees that any Service Document may be sufficiently
and effectively served on it in connection with Proceedings in England
and Wales by service on its agent Trusec Limited, if no replacement
agent has been appointed and notified to the Representative pursuant
to Section 10.15(d), or on the replacement agent if one has been
appointed and notified to the Representative.
(b) Any Service Document served pursuant to this Section 10.15 shall be
marked for the attention of:-
(i) Trusec Limited at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇ or such other address within England or Wales as may be
notified to the Representative; or
(ii) such other person as is appointed as agent for service pursuant
to Section 10.15(d) at the address notified pursuant thereto.
(c) Any document addressed in accordance with Section 10.15(b) shall be
deemed to have been duly served if:-
(i) left at the specified address, when it is left; or
(ii) sent by registered post, five Business Days after the date of
posting.
(d) If the agent referred to in Section 10.15(a) (or any replacement agent
appointed pursuant to this section) at any time ceases for any reason
to act as such on behalf of HCC, HCC shall appoint a replacement agent
to accept service having an address for service in England or Wales
and shall notify the Representative of the name and address of the
replacement agent; failing such appointment and notification, the
Representative shall be entitled by notice to HCC to appoint such a
replacement agent to act on HCC's behalf.
(e) A copy of any Service Document served on an agent pursuant to this
clause shall be sent by post to HCC at its address for the time being
for the service of notices and other communications under Section
10.3, but no failure or delay in so doing shall prejudice the
effectiveness of service of the Service Document in accordance with
the provisions of Section 10.15(a).
10.16 INTEREST
If any party hereunder defaults in the payment when due of any sum payable
under this Agreement (whether determined by agreement or pursuant to an
order of a court or otherwise) the liability of the defaulting party shall
be increased to include interest on such sum from the date when such
payment was due until (but excluding) the date of actual payment (as well
after as
49
before judgment) at a rate per annum of 2% above the bank base rate from
time to time of Midland Bank PLC. Such interest shall be calculated on the
basis of 365 days and shall accrue from day to day.
10.17 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement may
be extended by mutual agreement between HCC and the Representative (on
behalf of the Sellers) but as regards any time or date for the payment of
any amounts by any party hereunder, the time or date, as the case may be,
as set out in this Agreement or as so extended, time shall be of the
essence.
50
ARTICLE 11
INTERPRETATION
11.1 DEFINITIONS
"ACCELERATED TAX LIABILITY" has the meaning given in Section 1.2(i)(i);
"ACTUAL PRETAX PROFITS" has the meaning given in Section 1.3(c);
"ANNUAL EARNOUT AMOUNT" has the meaning given in Section 1.3(a);
"ANNUAL INSTALMENT" has the meaning given in Section 1.2(e);
"ANTICIPATED TAX PAYMENT DATE" has the meaning given in Section 1.2(i)(i)
"APPLICABLE CLAIMS" has the meaning in paragraph 4.1 of Schedule 4;
"APPLICABLE PERIOD" has the meaning in paragraph 13 of Schedule 4;
"APPLICABLE STATE" has the meaning in Section 3.3;
"APPOINTORS" OR "APPOINTOR" has the meaning given in Section 10.14;
"ARRANGER'S FEE" has the meaning given in Recital C;
"ASSOCIATED COMPANY" means an undertaking in which HCC has a participating interest (as
defined in section 260 of the Companies ▇▇▇ ▇▇▇▇ which is not a
subsidiary of HCC);
"BALANCE SHEET DATE" has the meaning given in Warranty 1.9 of Schedule 3;
"BONUS" means any bonus or other compensation whatsoever (and whether
satisfied in cash, by the issue of
securities or by any other means
whatsoever) other than (except in the
case of Rattner) basic salary and
benefits disclosed in the Disclosure
Letter;
"BONUS SCHEME" has the meaning given in Section 7.1;
"BROKERS BYELAW" means Lloyd's Brokers Byelaw (No. 5 of 1988);
"BUDGET AND PLAN" has the meaning given in Warranty 1.29 of Schedule 3;
"BUSINESS DAY" means a day (other than a Saturday or a Sunday) on which banks are
open for business in London;
51
"BUSINESS INFORMATION" means all information, know-how and records (whether or not
confidential and in whatever form held) including (without
limitation) all formulas, designs, specifications, drawings, data,
manuals and instructions and all customer lists, sales
information, business plans and forecasts, and all technical or
other expertise and all computer software and all accounting and
tax records, correspondence, orders and inquiries;
"CLOSING" has the meaning given in Section 6;
"CLOSING DATE" has the meaning given in Section 6;
"COMPANIES ACTS" means the Companies ▇▇▇ ▇▇▇▇, the
Companies Consolidation (Consequential
Provisions) ▇▇▇ ▇▇▇▇, the Companies ▇▇▇
▇▇▇▇ and Part V of the Criminal Justice
▇▇▇ ▇▇▇▇;
"COSTS" has the meaning given in Section 1.2(j)(ii);
"DEED OF APPOINTMENT" has the meaning given in Section 6.2(h);
"DEED OF CHARGE" has the meaning given in Section 1.2(d);
"DEED OF RELEASE" has the meaning given in Section 6.2(g);
"DEFENDING ACTION" has the meaning in paragraph 10.1 of
Schedule 4;
"DEFERRED CONSIDERATION" has the meaning given in Section 1.2(e);
"DEFERRED LOAN NOTE" has the meaning given in Section 1.2(f);
"DISCLOSURE BUNDLE" means the file(s) of documents delivered
to HCC together with the Disclosure Letter;
"DISCLOSURE LETTER" has the meaning given in Section 2.2(b);
"DISPUTE PARTY" has the meaning given in Section 1.3(h);
"DIVIDEND PAYMENT" has the meaning given in Section 5.7;
"EARNOUT DISPUTE" has the meaning given in Section 1.3(h);
"EARNOUT LOAN NOTE" has the meaning given in Section 1.3(a);
"EARNOUT PERIOD" has the meaning given in Section 1.3(a);
52
"EARNOUT PRICE ADJUSTMENT" OR "EPA" has the meaning given in Section 1.3(a);
"ENCUMBRANCE" means a mortgage, charge, pledge, lien,
option, restriction, right of first
refusal, right of pre-emption, right of
set-off or counterclaim, third party
right or interest, other encumbrance or
security interest of any kind or any
other type of preferential arrangement
(including, without limitation, a title
transfer or retention arrangement) having
similar effect;
"ENVIRONMENTAL LAWS" has the meaning given in Warranty 1.18(a) of Schedule 3;
"ENVIRONMENTAL LIABILITIES" has the meaning given in Warranty 1.18(a) of Schedule 3;
"ESCROW AGENT" has the meaning given in Section 1.4;
"ESCROW AGREEMENT" has the meaning given in Section 1.4;
"EXCEPTIONS TO LIABILITY" has the meaning in paragraph 10.1 of Schedule 4;
"EXPERT" has the meaning given in Section 1.3(h);
"FINAL ANNUAL EARNOUT AMOUNT" has the meaning given in Section 1.3(k);
"FIRST SUBMISSION" has the meaning given in Section 1.3(h);
"FORM A DEFERRED LOAN NOTE" has the meaning given in Section 1.2(f);
"FORM A EARNOUT LOAN NOTE" has the meaning given in Section 1.3(a);
"FORM B DEFERRED LOAN NOTE" has the meaning given in Section 1.2(f);
"FORM B EARNOUT LOAN NOTE" has the meaning given in Section 1.3(a);
"GOVERNING DOCUMENTS" has the meaning given in Warranty 1.1 of Schedule 3;
"GOVERNMENTAL AUTHORISATIONS" has the meaning given in Warranty 1.1 of Schedule 3;
53
"GOVERNMENTAL AUTHORITY" has the meaning given in Warranty 1.3 of Schedule 3;
"GROUP" means ▇▇▇▇▇ and all its Subsidiaries;
"HAZARDOUS SUBSTANCES" has the meaning given in Warranty 1.18(a) of Schedule 3;
"HCC CAP" has the meaning given in Section 8.2;
"HCC COMMON STOCK" has the meaning given in Section 1.2(f);
"HCC DAMAGES" has the meaning given in Section 8.1;
"HCC EARNOUT STATEMENT" has the meaning given in Section 1.3(e);
"HCC GROUP" means HCC and its subsidiaries and associated companies and "HCC
Group Company" shall be construed accordingly;
"HCC INDEMNIFIED PERSONS" has the meaning given in Section 8.2;
"HCC MATERIAL AGREEMENTS" has the meaning given in Section 3.3;
"HCC SHARES" has the meaning given in Section 1.2(g);
"HCC UK" has the meaning given in Recital D;
"IBRC" means the Insurance Brokers Registration Council, a body
established under the Insurance Brokers (Registration) ▇▇▇ ▇▇▇▇;
"ICTA 1988" means the Income and Corporation Taxes ▇▇▇ ▇▇▇▇;
"INEFFECTIVE COVENANT" has the meaning given in Article 9;
"INITIAL LOAN NOTE" has the meaning given in Section 1.2(b);
"INITIAL LONG TERM LOAN NOTE" has the meaning given in Section 1.2(b);
"INITIAL SHORT TERM LOAN NOTE" has the meaning given in Section 1.2(b);
"INSTALMENT DATE" has the meaning given in Section 1.2(e);
"INTERIM BALANCE SHEET" has the meaning given in Warranty 1.9 of Schedule 3;
54
"JOINT VENTURE" has the meaning given in Warranty 1.8 of Schedule 3;
"LIBOR" means when applied to an amount for a particular period, the rate
which appears on the relevant Telerate
Page for deposits in the currency of that
amount for that period at or about 11.00
a.m. on the day two Business Days prior
to the first day of the period and if no
rate appears on the relevant Telerate
Page, "LIBOR" will be based on the rate
at which deposits of that amount and
currency are offered to Barclays Bank plc
for that period by prime banks in the
London inter-bank market on or about
11.00 a.m. on the day two Business Days
prior to the first day of the period;
"LLOYD'S" means the Society and Corporation incorporated by the Lloyd's ▇▇▇
▇▇▇▇ by the name of Lloyd's;
"LLOYD'S BYELAWS" means the Byelaws made under Lloyd's Acts 1871 to 1982;
"MATERIAL ADVERSE CHANGE" has the meaning given in Warranty 1.1 of Schedule 3;
"MATERIAL ADVERSE EFFECT" has the meaning given in Warranty 1.1 of Schedule 3;
"MATERIAL AGREEMENTS" has the meaning given in Warranty 1.16(a) of Schedule 3;
"MINIMUM CONSIDERATION" has the meaning given in Section 1.2(a);
"NON-COMPETITION AGREEMENT" has the meaning given in Section 6.2(d)(iv);
"NOTES" has the meaning given in Section 5.6;
"NOTIFICATION CLAIM" has the meaning in paragraph 10.1 of Schedule 4;
"OBJECTION NOTIFICATION" has the meaning given in Section 1.3(f);
"OTHER NON-COMPETITION AGREEMENT" has the meaning given in Section 6.2(d)(v);
"▇▇▇▇▇" has the meaning given in the Recital A;
"▇▇▇▇▇ BALANCE SHEET" has the meaning given in Warranty 1.9 of Schedule 3;
"▇▇▇▇▇ DAMAGES" has the meaning given in Section 8.2;
55
"▇▇▇▇▇ FINANCIAL STATEMENTS" has the meaning given in Warranty 1.9 of Schedule 3;
"▇▇▇▇▇ INDEMNIFIED PERSON" OR "▇▇▇▇▇ has the meaning given in Section 8.1;
INDEMNIFIED PERSONS"
"▇▇▇▇▇ SECURITIES" has the meaning given in Warranty 1.7(b) of Schedule 3;
"▇▇▇▇▇ SHARES" has the meaning given in the Recital B;
"PMS" means ▇▇▇▇▇ Management Services Limited;
"PROPERTY LEASES" has the meaning given in Warranty 1.17 of Schedule 3;
"PURCHASER'S SOLICITORS" means ▇▇▇▇▇▇▇▇▇ and May;
"RATTNER DEED OF RELEASE" has the meaning given in Section 1.2(k);
"RECORD DATE" has the meaning given in Section 5.7;
"REDUCTION" has the meaning given in Section 2.1(d);
"REGULATED ACTIVITY" has the meaning given in Warranty 1.18(a) of Schedule 3;
"RELEVANT AGREEMENTS" has the meaning given in paragraph 1.2 of Schedule 4;
"RELEVANT DOCUMENTS" has the meaning given to it in Section 8.4;
"RELEVANT GROUP A DOCUMENTS" has the meaning given in Section 8.4;
"RELEVANT GROUP B DOCUMENTS" has the meaning given in Section 8.4;
"RELEVANT EMPLOYEE" has the meaning in paragraph 10.1 of Schedule 4;
56
"REPRESENTATIVE" means the Group A Representative and the Group B Representative
acting jointly provided that (except as
expressly specified in this Agreement in
which eventthe express provision shall
override this proviso) in relation to any
matter which concerns or affects only the
Group A Shareholders, any reference in
this Agreement to the Representative in
relation to such matters shall be deemed
to be a reference to the Group A
Representative only and in relation to
any matter which concerns or affects only
the Group B Shareholders and Rattner, any
reference in this Agreement to the
Representative in relation to such
matters shall be deemed to be a reference
to the Group B Representative;
"RESOLUTION PERIOD" has the meaning given in Section 1.3(h);
"RETAINED EARNINGS SHORTFALL" has the meaning given in Section 7.2;
"RML" has the meaning given in Recital A;
"RML SECURITIES" has the meaning given in Warranty 1.7(b) of Schedule 3;
"SCHEDULED INVESTMENTS" has the meaning given in Warranty 1.22(a) of Schedule 3;
"SECURITIES ACT" has the meaning given in Warranty 1.3(a) of Schedule 3;
"SELLERS' CAP" has the meaning given in paragraph 2 of Schedule 4;
"SELLERS' SOLICITORS" means ▇▇▇▇▇▇▇▇ Chance;
"SERVICE DOCUMENT" has the meaning given in Section 10.14(f);
"TARGET PRETAX PROFITS" has the meaning given in Section 1.3(c);
"TAX COVENANT" has the meaning given in Section 6.2(b);
"TAXES", "TAX" OR "TAXATION" has the meaning given in the Tax Covenant;
"TCGA" means the Taxation of Chargeable Gains ▇▇▇ ▇▇▇▇;
"TOTAL CONSIDERATION" has the meaning given in Section 1.2(a);
57
"U.K. GAAP" has the meaning given in Warranty 1.9 of Schedule 3;
"U.S. GAAP" has the meaning given in Schedule 2; and
"WARRANTY" OR "WARRANTIES" has the meaning given in Section 2.1(a).
11.2 In this Agreement, unless otherwise specified:
(a) references to articles, sections, paragraphs and Schedules are to
articles, sections, paragraphs of, and Schedules to, this Agreement;
(b) a reference to any statute or statutory provision shall be construed
as a reference to the same as it may have been, or may from time to
time be, amended, modified or re-enacted provided that (except in
respect of the Securities Act) such amendment, modification
re-enactment does not increase the liability of any party under this
Agreement;
(c) references to a "COMPANY" shall be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established;
(d) references to a "PERSON" shall be construed so as to include any
individual, firm, company, government, state or agency of a state or
any joint venture, association or partnership (whether or not having
separate legal personality);
(e) references to "INDEMNIFY" and "INDEMNIFYING" any person against any
circumstance include indemnifying and keeping him harmless on an
after-Tax basis from all actions, claims and proceedings from time to
time made against that person and all loss or damage and all payments,
costs or expenses made or incurred by that person as a consequence of
or which would not have arisen but for that circumstance;
(f) the expressions "ACCOUNTING REFERENCE DATE", "ACCOUNTING REFERENCE
PERIOD", "ASSOCIATED UNDERTAKING", "BODY CORPORATE", "DEBENTURES",
"PROFIT AND LOSS ACCOUNT", "SUBSIDIARY" and "SUBSIDIARY UNDERTAKING"
shall have the meaning given in the Companies Acts;
(g) a person shall be deemed to be connected with another if that person
is connected with another within the meaning of section 839 of the
Income and Corporation Taxes ▇▇▇ ▇▇▇▇;
(h) references to writing shall include any modes of reproducing words in
a legible and non-transitory form;
(i) references to times of the day are to London time;
58
(j) headings to clauses and Schedules are for convenience only and do not
affect the interpretation of this Agreement;
(k) the Schedules form part of this Agreement and shall have the same
force and effect as if expressly set out in the body of this
Agreement, and any reference to this Agreement shall include the
Schedules;
(l) references to the knowledge, information, belief or awareness of any
person shall be treated as including any knowledge, information,
belief or awareness which the person would have if the person made all
usual and reasonable enquiries with due care;
(m) the knowledge, information, belief or awareness of any Seller shall be
deemed to be the knowledge, information, belief or, as the case may
be, awareness of every other Seller;
(n) references to any English legal term for any action, remedy, method of
judicial proceeding, legal document, legal status, court, official, or
any legal concept or thing shall in respect of any jurisdiction other
than England be deemed to include what most nearly approximates in
that jurisdiction to the English legal term;
(n) (i) the rule known as the EJUSDEM GENERIS rule shall not apply and
accordingly general words introduced by the word "other" shall
not be given a restrictive meaning by reason of the fact that
they are preceded by words indicating a particular class of
acts, matters or things; and
(ii) general words shall not be given a restrictive meaning by reason
of the fact that they are followed by particular examples
intended to be embraced by the general words;
(o) "IN AGREED TERMS" in relation to any document means that document in a
form agreed and initialled by the Purchaser's Solicitors on behalf of
HCC and the Sellers' Solicitors on behalf of the Sellers;
(p) words importing one of the masculine, feminine or neuter genders shall
include the others; and
(q) the obligations and liabilities of the Sellers under this Agreement
are several.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first above written.
59
SCHEDULE 1A
▇▇▇▇▇ SHARES
NO. OF ▇▇▇▇▇ SHARES
SELLER (BEING ORDINARY SHARES WITH A NOMINAL AMOUNT OF(POUND)1 EACH)
------ -------------------------------------------------------------
Axel 2,200
▇▇▇▇ 167,500
▇▇▇▇▇▇▇ 50,000
▇▇▇▇ 31,250
MRI 216,550(1)
▇▇▇▇▇ 82,500
▇▇▇▇▇ 75,000
(1) The 216.550 ▇▇▇▇▇ Shares set out against the name of MRI include 500
▇▇▇▇▇ Shares registered in the joint names of MRI and Rattner with
Rattner acting as nominee on behalf of MRI.
60
SCHEDULE 1B
GROUP B SHAREHOLDERS' PORTION OF MINIMUM PRICE
GROUP B SHAREHOLDER ALLOCATION OF MINIMUM CONSIDERATION ((POUND))
------------------- ---------------------------------------------
Axel 92,400
MRI 9,147,600
▇▇▇▇▇ 4,805,000
▇▇▇▇▇ 4,158,000
61
SCHEDULE 1C
GROUP A SHAREHOLDERS' ALLOCATION
OF MINIMUM PURCHASE PRICE
GROUP A ALLOCATION OF PRINCIPAL AMOUNT OF DEFERRED
SHAREHOLDER MINIMUM CONSIDERATION INITIAL LOAN NOTE ((POUND)) CONSIDERATION ((POUND))
((POUND))
▇▇▇▇ 15,325,000 9,195,000 6,130,000
▇▇▇▇▇▇▇ 5,346,000 3,207,600 2,138,400
▇▇▇▇ 4,466,000 2,679,600 1,786,400
62
SCHEDULE 1D
ANNUAL INSTALMENTS
NO. OF HCC SHARES TO BE
ISSUED UNDER AN ANNUAL
INSTALMENT (SUBJECT TO PRINCIPAL AMOUNT
GROUP A SHAREHOLDER DATE OF ANNUAL ADJUSTMENT IN ACCORDANCE OF DEFERRED LOAN NOTES TO BE
INSTALMENT WITH SECTION 1.2(F)) ISSUED UNDER AN ANNUAL INSTALMENT ((POUND))
▇▇▇▇ 31.01.2000 88,384 1,072,750
31.01.2001 69,444 842,875
31.01.2002 63,131 766,250
31.01.2003 31,566 383,125
▇▇▇▇▇▇▇ 31.01.2000 30,832 374,220
31.01.2001 24,225 294,030
31.01.2002 22,023 267,300
31.01.2003 11,011 133,650
▇▇▇▇ 31.01.2000 25,757 312,620
31.01.2001 20,237 245,630
31.01.2002 18,398 223,300
31.01.2003 9,199 111,650
63
SCHEDULE 1E
AMOUNTS SUBJECT TO ESCROW DURING THE INITIAL ESCROW PERIOD
SELLER AMOUNT SUBJECT TO ESCROW ((POUND))
Axel 4,620
▇▇▇▇ 766,250
▇▇▇▇▇▇▇ 267,300
▇▇▇▇ 223,300
Rattner 33,000
MRI 457,380
▇▇▇▇▇ 240,250
▇▇▇▇▇ 207,900
64
SCHEDULE 2
EARNOUT PROVISIONS
1. CALCULATION OF ACTUAL PRETAX PROFITS
For the purpose of this Schedule 2 and the calculation of the Earnout Price
Adjustment and the Annual Earnout Amount referred to in Section 1.3,
"Actual Pretax Profits" shall mean the consolidated earnings of ▇▇▇▇▇ for
the applicable Earnout Period as derived from the audited consolidated
accounts of ▇▇▇▇▇ for such period before applicable corporation tax and
other Taxes. Such audited accounts of ▇▇▇▇▇ shall be prepared in pounds
sterling (or such other currency as the parties may agree) in accordance
with the accounting policies, principles, bases and methods that have been
consistently applied in the preparation of the ▇▇▇▇▇ audited consolidated
accounts for the immediately preceding financial period of ▇▇▇▇▇ subject to
such adjustments as are necessary in order to apply generally accepted
accounting principles in the United States ("U.S. GAAP") in the way U.S.
GAAP is applied to the audited consolidated accounts of HCC for the same
period as that of the applicable Earnout Period provided that:-
(a) no deduction shall be made for interest or other payments or costs
relating to indebtedness incurred, guaranteed or secured by ▇▇▇▇▇ or
RML in connection with the transactions contemplated by this
Agreement;
(b) no deduction shall be made for goodwill;
(c) the Actual Pretax Profits shall include and be reduced by an
allocation of indirect overhead, general and administrative or other
management fees or charges of the HCC Group (the "HCC Overhead
Allocation");
(d) the Actual Pretax Profits shall include all revenues and outgoings,
profits or losses from MEIB; and
(e) the rate of exchange for converting pounds sterling into United States
dollars or vice versa shall be the rate set out in ▇▇▇▇▇' budget for
the relevant Earnout Period adopted by ▇▇▇▇▇ at or around the
beginning of such period if ▇▇▇▇▇ is not permitted to hedge against
fluctuations in exchange rates during that period in a manner similar
to its past practice. If ▇▇▇▇▇ is permitted to hedge, then the
conversion shall be in accordance with U.S. GAAP.
Provided that in relation only to the first two Earnout Periods, if MEIB
does not have profits in respect of an Earnout Period of an amount which is
at least equal to the HCC Overhead Allocation in respect of that Earnout
Period, neither the HCC Overhead Allocation for that Earnout Period nor the
profits or losses of MEIB for that Earnout Period shall be included in the
calculation of the Actual Pretax Profits of ▇▇▇▇▇ for that Earnout Period.
65
2. ADJUSTMENT
HCC and the Group A Shareholders agree that, if for the purposes of
calculating Actual Pretax Profits for any Earnout Period, such adjustments
as are necessary in order to apply U.S. GAAP result in a substantial
distortion in the Actual Pretax Profits for that period, HCC and the Group
A Shareholders shall negotiate in good faith with a view to agreeing
mutually acceptable adjustments to paragraph 1 of this Schedule 2.
66
SCHEDULE 3
WARRANTIES
1.1 CORPORATE EXISTENCE AND POWER
Each member of the Group is a company which is incorporated under English
law, and has the corporate power and all material governmental licences,
authorisations, consents and approvals (collectively, "Governmental
Authorisations") required to carry on its business as now conducted, except
such Governmental Authorisations the absence of which would not, or would
not be reasonably expected to, have a Material Adverse Effect, as
hereinafter defined, on the Group. ▇▇▇▇▇ has delivered to HCC true and
complete copies of each member of the Group's certificate of incorporation
and memorandum and articles of association (the "Governing Documents"), as
currently in effect. For purposes of this Agreement, a "Material Adverse
Effect", with respect to any member of the Group, means a material adverse
effect on the condition (financial or otherwise), business, properties,
assets, liabilities (including contingent liabilities) or results of
operations of the Group, taken as a whole; and "Material Adverse Change"
means a change or a development involving a prospective change which
results, would result or would reasonably be expected to result in a
Material Adverse Effect.
1.2 AUTHORISATION
(a) The execution, delivery and performance by each member of the Group of
any documents contemplated hereby to which it is a party and the
consummation by such member of the Group of the transactions
contemplated hereby and thereby, are within that member's corporate
powers and have been duly authorised by all necessary corporate
action. This Agreement and the documents to be entered into in
connection herewith or therewith at or before Closing constitute, or
upon execution will constitute, valid and binding agreements of such
member save as may be limited by bankruptcy, insolvency or other laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
(b) Each of the Sellers is the sole beneficial owner of the ▇▇▇▇▇ shares
set opposite his name in Schedule 1A free from any Encumbrance (such
shares in aggregate constituting the entire issued share capital of
▇▇▇▇▇) and has the right, power and authority to enter into this
Agreement and each other agreement to be entered into by it at or
before Closing in connection with the transactions contemplated hereby
and that this Agreement and such other agreements contemplated hereby
to be executed at or before Closing constitute, or upon execution will
constitute, valid and binding agreements of the Sellers, except as may
be limited by bankruptcy, insolvency or other similar laws effecting
the enforcement of creditors' rights generally or by general
principles of equity.
67
1.3 GOVERNMENTAL AUTHORISATION
The execution, delivery and performance by the Sellers of this Agreement,
and the consummation of the transactions contemplated hereunder require no
action by any member of the Group or the Sellers or any filing by either of
them with any governmental body, state, political subdivision thereof, or
any entity exercising regulatory or administrative functions of or
pertaining to government, including, without limitation any government
authority, insurance regulatory authority, insurance commission, agency,
local authority department, board, commission or instrumentality of the
United Kingdom or United States, and any tribunal or arbitrator of
competent jurisdiction (collectively referred to as a "Governmental
Authority") (provided that in relation to any aforementioned action or
filing with any Government Authority of the United States, this warranty
shall be given only insofar as any Seller is aware) other than in respect
of:
(a) compliance with any applicable requirements of the securities laws of
the United Kingdom and the United States (including without
limitation, the Securities Act of 1933, as amended (the "Securities
Act")) and the rules and regulations promulgated thereunder;
(b) compliance with any requirements of any applicable insurance or
reinsurance or intermediaries or managing general agent laws,
including licensing or other related laws of any applicable
Governmental Authority; and
(c) such other filings or registrations with, or authorisations, consents
or approvals of, Governmental Authorities, the failure of which to
make or obtain (i) would not reasonably be expected to have a Material
Adverse Effect on ▇▇▇▇▇ or RML, or (ii) would not materially adversely
affect the ability of any Seller, any member of the Group to
consummate the transactions contemplated hereby and operate their
businesses as heretofore operated.
1.4 LLOYD'S COMPLIANCE
(a) RML has at all times since May 2, 1989 complied in all material
respects with Lloyd's Byelaws and any Codes of Practice issued
thereunder in relation to all of its insurance broking activities and
since that date there has been no material breach of any undertaking
given to Lloyd's in connection with any such activities. Without
limitation, the only business carried on by RML is and has been that
of an insurance and reinsurance broker.
(b) No Seller is aware of any grounds, fact or circumstance which is
likely to give rise to any Lloyd's disciplinary inquiries or
proceedings against any officer or employee of RML in relation to any
of its insurance broking activities. Without
68
limitation, none of the Sellers is aware of any grounds, fact or
circumstance relating to the activities of RML likely to give rise
to any Lloyd's disciplinary inquiries or proceedings against any
employee of RML or against RML in relation to the practice of
"grossing-up".
(c) RML is registered as a Lloyd's broker within the meaning of the
Lloyd's ▇▇▇ ▇▇▇▇. None of the Sellers is aware of any reason which is
reasonably likely to lead to RML ceasing to be so registered by
Lloyds.
(d) None of the Sellers is aware of the existence of any grounds, fact or
circumstance which would entitle Lloyd's to exercise its powers of
intervention under paragraphs 6, 10, 35, 36 or 43 of the Brokers
Byelaw and it has not at any time exercised such powers.
(e) RML has at all times been willing and able to supervise and service
all of its activities and responsibilities and to account fully and
properly for those activities as required under paragraph 44 of the
Brokers Byelaw.
(f) None of the Sellers is aware of any reason for the Council to decide
that RML is no longer a fit and proper person to be a Lloyd's broker.
(g) No conditions have been imposed on RML by Lloyd's under paragraph 9(1)
of the Brokers Byelaw.
(h) Save as disclosed in the Disclosure Letter, no person has given any
undertaking or guarantee to Lloyd's within the meaning of paragraph
9(2) of the Brokers Byelaw in connection with the business of RML.
(i) No postponement has been ordered and no directions have been given in
connection with such a postponement by Lloyd's in respect of RML under
paragraph 11(5) of the Brokers Byelaw.
(j) Copies of all of RML's annual returns (as referred to in paragraph 44
of the Brokers Byelaw) since 1995 have been provided to HCC.
(k) Details of all RML's insurance broking accounts which are required to
be maintained by paragraph 22 of the Brokers Byelaw are contained in
the Disclosure Bundle. All such RML insurance broking accounts comply
with the requirements of Chapter II, paragraph 22 to 27 of the Brokers
Byelaw.
(l) Details of any arrangement subsisting between RML and any other person
pursuant to the Umbrella Arrangements Byelaw (No. 6 of 1988) or
pursuant to paragraph 57 of the Brokers Byelaw have been disclosed in
the Disclosure Letter. There are no other arrangements involving RML
under which business may be placed or accepted which subsist at the
date of this Agreement.
69
(m) A brokerage summary of business on a client by client basis as at
December 1998 which sets out the brokerage and other income earned in
relation to the businesses of each such client for the 12 month period
ended December 31 1998 (to the extent that the brokerage and other
income earned in relation to the businesses of such client exceeds 3
per cent. of all RML's aggregate brokerage and other income for that
period) is contained in the Disclosure Bundle.
(n) There are no arrangements in existence between RML and any other
person to which paragraph 8 of the Brokers Byelaw (arrangements
permitting influence) apply or would but for any exclusions referred
to in that paragraph.
(o) RML has taken steps to ensure that the location, adequacy and
suitability of its employees (including, without limitation, steps to
ensure that any of its employees whose functions include advising
clients, handling clients' money or effecting or assisting in
effecting transactions on behalf of clients are of a suitable
character as to work for a Lloyd's broker as required by the Brokers
Byelaw) comply in all material respects with the requirements laid
down from time to time by Lloyd's.
(p) RML has complied with and has not breached any conditions imposed on
it or its Controller (as defined in the Brokers Byelaw) by Lloyd's
relating to the possession and maintenance by RML of appropriate
financial resources.
(q) All of the directors of RML have complied with the requirements of
paragraph 15 of the Brokers Byelaw.
(r) Save as disclosed in the Disclosure Letter, none of the directors of
RML is also a director of or partner in an insurance company or a
director of or partner in a person (other than an underwriting agent
registered as such under the Lloyd's Byelaws) which underwrites
insurance business as agent for an insurance company.
(s) Save as disclosed in the Disclosure Letter, RML has entered into no
transactions to which paragraph 19 (Disclosure of transactions with
related parties) of the Brokers Byelaw apply.
(t) RML has taken out and maintained such insurance as is from time to
time prescribed by Lloyd's under paragraph 46 of the Brokers Byelaw
and at all times such compulsory insurance has complied with Lloyd's
requirements.
(u) RML has made and has kept proper records in respect of each contract
of insurance arranged by it and those records comply with the
requirements of Lloyd's under paragraph 47 of the Brokers Byelaw.
70
(v) Details of all deeds or other instruments required to be executed by
RML under paragraph 50 of the Brokers Byelaw for the purpose of
ensuring the protection of the interests of creditors of RML whose
claims arise out of or in connection with insurance transactions are
disclosed in the Disclosure Letter.
1.5 IBRC COMPLIANCE
(a) RML is registered on the list maintained by the IBRC and, so far as
any of the Sellers is aware, there are no reasons to believe that the
Registrar of the IBRC will, or is likely to, remove the entry from the
list in respect of RML.
(b) Other than ▇▇▇▇▇ ▇▇▇▇, the directors of RML are all registered under
the Insurance Brokers (Registration) ▇▇▇ ▇▇▇▇ as insurance brokers and
all of the directors of RML have satisfied the IBRC that they hold
qualifications approved or recognised by the IBRC, have satisfied the
IBRC as to their character and suitability to be registered insurance
brokers and have satisfied the IBRC of their practical experience in
the work of an insurance broker.
(c) RML has at all times complied with the Code of Conduct from time to
time laid down by the IBRC.
1.6 NON-CONTRAVENTION
The execution, delivery and performance by the Sellers, ▇▇▇▇▇ and RML of
this Agreement and each other agreement to be entered into at or before
Closing in connection with this Agreement, and the consummation of the
other transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Governing Documents of ▇▇▇▇▇ or RML;
(b) result in a breach of, or constitute a default under, any agreement to
which any Seller or any member of the Group is a party or by which any
Seller or any member of the Group is bound; or
(c) result in a breach of any order, judgment or decree of any court of
governmental agency to which any Seller or any member of the Group is
a party or by which any Seller or any member of the Group is bound; or
(d) require the consent, in the case of MRI, of its shareholders, or the
shareholders of a company in the same group or of any other person;
(e) assuming compliance with the matters referred to in Warranty 1.3,
contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to any member of the Group or any Seller;
71
(f) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the
termination or cancellation of or loss of a material benefit under, or
right to accelerate, any material agreement, contract or other
instrument binding upon any member of the Group or any material
licence, franchise, permit or other similar authorisation held by any
member of the Group; or
(g) result in the creation or imposition of any Encumbrance on any
material asset of ▇▇▇▇▇ or RML,
except, with respect to clauses (e),(f) and (g) above, for contraventions,
defaults, losses, Encumbrances and other matters referred to in such
clauses that in the aggregate would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the relevant
member of the Group.
1.7 CAPITALISATION; BONUS RIGHT
(a) The entire authorised share capital of ▇▇▇▇▇ consists of 625,000
ordinary shares,(pound)1 nominal amount per share, of which all
625,000 shares are issued and outstanding. The entire authorised share
capital of RML consists of 500,000 ordinary "A" class shares
of(pound)1 each and 500,000 "B" class shares of(pound)1 each, of which
all 500,000 "A" shares are issued and outstanding and 250,000 of the
"B" shares are issued and outstanding. All of the issued and
outstanding shares of RML (the "RML Shares") and all of the issued
shares of PMS are owned by ▇▇▇▇▇ free of any Encumbrances. The entire
authorised share capital of PMS consists of 100,000 ordinary "A" class
shares of(pound)1 each, 100,000 ordinary "B" class shares of(pound)1
each and 300,000 ordinary "C" class shares of(pound)1 each, of which 2
of the "A" shares are issued and outstanding.
(b) All outstanding shares set forth in (a) above have been duly
authorised and validly issued and are fully paid. Except for the ▇▇▇▇▇
Shares owned by the Sellers, for ▇▇▇▇▇ there are outstanding (i) no
other shares, (ii) no securities convertible into or exchangeable for
shares in ▇▇▇▇▇, (iii) no options or other rights to acquire from
either ▇▇▇▇▇ or the Sellers, and no obligation to issue any further
shares, or securities convertible into or exchangeable for its shares
(the items in clauses (i), (ii) and (iii) being referred to
collectively as "▇▇▇▇▇ Securities"), (iv) no obligations to
repurchase, redeem or otherwise acquire any of ▇▇▇▇▇ Securities and
(v) no contractual rights of any person or entity to include any such
securities in any registration statement, prospectus or listing
particulars proposed to be filed by the Sellers under the securities
laws of the United Kingdom or the United States. Except for the RML
Shares owned by ▇▇▇▇▇, for RML there are outstanding (1) no other
shares, (2) no securities convertible into or exchangeable for shares
in RML, (3) no options or other rights to acquire from either RML,
▇▇▇▇▇ or the Sellers, and no obligation to issue any further shares or
securities
72
convertible into exchangeable for its shares (the items in clauses
(1), (2) and (3) being referred to collectively as "RML Securities"),
(4) no obligation to repurchase, redeem or otherwise acquire any RML
Securities, and (5) no contractual rights of any person or entity to
include any such securities in any registration statement, prospectus
or listing particulars proposed to be filed by the Sellers under the
securities laws of the United Kingdom or the United States.
1.8 SUBSIDIARIES AND ANY OTHER RELATED ENTITIES
(a) For purposes of this Warranty 1.8, (i) "Subsidiary" has the meaning
given in section 736 of the Companies ▇▇▇ ▇▇▇▇ and (ii) "Joint
Venture" means, with respect to any entity, any corporation,
partnership or other organisation (other than such entity and any
subsidiary thereof) of which such entity or any Subsidiary thereof is,
directly or indirectly, the beneficial owner of 25% or more of any
class of equity securities or equivalent profit participation
interest.
(b) Except for RML and PMS, ▇▇▇▇▇ has no subsidiaries or Joint Ventures
which are material to the business of ▇▇▇▇▇ or RML. RML has no
Subsidiaries or Joint Ventures which are material to the business of
RML or ▇▇▇▇▇. Other than ▇▇▇▇▇' investment in RML and PMS, neither
▇▇▇▇▇ nor RML owns, directly or indirectly, any outstanding capital
stock or equity interest in any corporation, partnership, limited
liability company, business trust, joint venture or any other entity.
1.9 ▇▇▇▇▇ FINANCIAL STATEMENTS
▇▇▇▇▇ has delivered to HCC ▇▇▇▇▇' audited consolidated balance sheet (the
"▇▇▇▇▇ Balance Sheet") as of April 30, 1998 (the "Balance Sheet Date"),
▇▇▇▇▇' audited consolidated income statements for the years ended April 30,
1998 and April 30, 1997 (the "▇▇▇▇▇ Income Statement" together with ▇▇▇▇▇
Balance Sheet, the "Audited Financial Statements") and ▇▇▇▇▇'▇ unaudited
unconsolidated balance sheet (the "Interim Balance Sheet") and income
statement for the eight (8) month period ended December 31, 1998
(collectively, the "▇▇▇▇▇ Financial Statements"). The Audited Financial
Statements are prepared in accordance with the generally accepted
accounting principles of the United Kingdom ("U.K. GAAP") consistently
applied (except as indicated in the notes thereto) and present a true and
fair view of the consolidated financial position of ▇▇▇▇▇ as of the Balance
Sheet Date and results of operations and cash flows for the periods therein
indicated. The Interim Balance Sheet is sufficient to enable a reasonable
judgment to be made as to the amount of:-
(i) profits, losses, assets and liabilities; and
(ii) share capital and reserves (including undistributable reserves)
73
of ▇▇▇▇▇ as at and for the 8 month period ended on December 31, 1998.
Neither ▇▇▇▇▇ nor RML has any material debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, that is not reflected, reserved against or disclosed in
the ▇▇▇▇▇ Balance Sheet, including the notes thereto, except for (i) those
that are not required to be reported in accordance with U.K. GAAP; (ii)
normal or recurring liabilities incurred since April 30, 1998 in the
ordinary course of business or (iii) liabilities under this Agreement or as
disclosed in the Disclosure Letter. The accounting records relative to
▇▇▇▇▇ and RML comply in all material respects with the requirements of the
Companies Act, including, without limitation, the provisions of section 221
thereof. The statutory books (including all registers, minute books and
accounting books and records) of ▇▇▇▇▇ and RML contain a record which is
accurate in all material respects of the matters which should be dealt with
in these books and no notice or allegation that any of them is incorrect or
should be rectified has been received.
1.10 ABSENCE OF CERTAIN CHANGES
Since April 30, 1998, each of ▇▇▇▇▇ and RML has, in all material respects,
conducted its business in the ordinary and usual course and there has not
been:
(a) any Material Adverse Change with respect thereto;
(b) any declaration, setting aside or payment or any dividend or other
distribution in respect of any shares of capital stock of ▇▇▇▇▇ or
RML.
(c) any repurchase, redemption or other acquisition by either ▇▇▇▇▇ or RML
of any outstanding shares in ▇▇▇▇▇ or RML or other securities of or
other ownership interests in either ▇▇▇▇▇ or RML;
(d) any amendment of any term of any outstanding securities of ▇▇▇▇▇ or
RML;
(e) any damage, destruction or other property or casualty loss (whether or
not covered by insurance) affecting the business, assets, liabilities,
earnings or prospects of ▇▇▇▇▇ or RML, which, individually or in the
aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on ▇▇▇▇▇ or RML;
(f) any increase in indebtedness for borrowed money or capitalised lease
obligations of ▇▇▇▇▇ or RML, except in the ordinary and usual course
of business;
(g) any sale, assignment, transfer or other disposition of any tangible or
intangible asset having a value in excess of (pound)50,000 except in
the ordinary and usual course OF business on arm's length terms;
74
(h) any amendment, termination or waiver by either ▇▇▇▇▇ or RML of any
right of substantial value under any agreement, contract or other
written commitment to which it is a party or by which it is bound
which is material to the business of the Group as a whole;
(i) any material reduction in the amounts of coverage provided by existing
casualty and liability insurance policies with respect to the business
or properties of ▇▇▇▇▇ or RML;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of ▇▇▇▇▇ or RML, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer
or employee with a basic salary in excess of(pound)25,000 per annum of
▇▇▇▇▇ or RML, (iii) any increase in benefits payable under any
existing severance or termination pay policies or employment
agreements, or (iv) any increase in compensation, bonus or other
benefits payable to directors, officers or employees of ▇▇▇▇▇ or RML,
in each case other than in the ordinary and usual course of business
consistent with past practice;
(k) any new or amendment to or alteration of any existing bonus,
incentive, compensation, severance, share option, share appreciation
right, pension, matching gift, profit-sharing, employee share
ownership, retirement, pension group insurance, death benefit, or
other fringe benefit plan, arrangement or trust agreement adopted or
implemented by ▇▇▇▇▇ or RML which would result in a material increase
in cost;
(l) any non-budgeted expenditures in excess of (pound)50,000 or any
capital expenditures, capital additions or capital improvements in
excess of (pound)100,000, except for such expenditures contained in a
written budget, previously provided to HCC, and incurred in the
ordinary course of business;
(m) no asset of a value in excess of (pound)50,000 has been acquired or
has been agreed to bE acquired by any member of the Group;
(n) no debts or other receivables and no plant, machinery or equipment of
any member of the Group have been factored or sold or agreed to be
sold;
(o) no resolution of any member of the Group in general meeting has been
passed other than resolutions relating to the routine business of
annual general meetings;
(p) no change in the accounting reference period of any member of the
Group has been made; or
75
(q) the entering into of any agreement by ▇▇▇▇▇ or RML or any person on
behalf of ▇▇▇▇▇ or RML to take any of the foregoing actions, except as
permitted by this Agreement or disclosed in the Disclosure Letter.
1.11 NO UNDISCLOSED LIABILITIES
There are no existing liabilities of any member of the Group of any kind
whatsoever that are, individually or in the aggregate, material to the
Group, other than:
(a) liabilities disclosed, reserved against, or provided for in the
Interim Balance Sheet (including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since April 30, 1998; and
(c) liabilities under this Agreement or indicated in the Disclosure
Letter.
1.12 LITIGATION AND BREACH OF LAW
(a) The Disclosure Letter sets forth all actions, suits, proceedings,
claims or investigations pending against ▇▇▇▇▇ or RML or relating to
their respective business. Neither ▇▇▇▇▇, RML nor any Seller has
received written notice of a claim threatened against ▇▇▇▇▇ or RML.
Neither ▇▇▇▇▇ nor RML has received written notice that it is subject,
or in default with respect, to any writ, order, judgment, injunction
or decree which could, individually or in the aggregate, have a
Material Adverse Effect on ▇▇▇▇▇ or RML.
(b) Except for any claims in connection with the collection of debts by
▇▇▇▇▇ or RML which claim amount individually does not
exceed(pound)5,000 and which collectively do noT exceed an aggregate
amount of(pound)25,000, no member of the Group is engaged in any
litigation or arbitration, administrative or criminal proceedings,
whether as plaintiff, defendant or otherwise, and no litigation or
arbitration, administrative or criminal proceedings by or against any
member of the Group, or any of their assets or against or involving
any of their officers or employees in connection with the business or
affairs of ▇▇▇▇▇ or RML, including, without limitation, any such
claims for indemnification arising under any agreement to which ▇▇▇▇▇
or RML is a party, is pending or threatened and, so far as any of the
Sellers is aware, there is no fact or circumstance likely to give rise
to any such litigation or arbitration, administrative or criminal
proceedings or to any proceedings against any director or employee
(past or present) of any member of the Group in respect of any act or
default for which that member might be vicariously liable.
(c) No member of the Group has committed or is liable for any criminal,
illegal, unlawful or unauthorised act or breach of any obligation or
duty whether imposed by or pursuant to statute, contract or otherwise,
and no claim that it has or is remains outstanding against any such
member.
(d) So far as any of the Sellers is aware, no member of the Group has
received notification that any investigation or inquiry is being or
has been conducted by any governmental or other body in respect of the
affairs of any member of the Group and none of the Sellers is aware of
any circumstances which are likely to give rise to such investigation
or inquiry.
(e) There is no outstanding judgment, arbitral award or decision of a
court, tribunal, arbitrator or governmental agency in any jurisdiction
against ▇▇▇▇▇ or RML which is material to the operation of its
business.
(f) No Seller has, in relation to the business of ▇▇▇▇▇ or RML given any
undertaking to, nor is subject to any order of or investigation by,
nor has received any request for information from, any court or
governmental authority (including without limitation any national
competition authority and the Commission of the European Communities)
(the "European Commission") under any anti-trust or similar
legislation in any jurisdiction in which that business has assets or
carries on business.
1.13 TAXES
(a) ▇▇▇▇▇ Balance Sheet and Tax
(i) Save as fully disclosed or provided for in the ▇▇▇▇▇ Balance
Sheet, no member of the Group has any outstanding liability
for:-
(1) taxation in any part of the world assessable or payable by
reference to profits, gains, income or distributions
earned, received or paid or arising or deemed to arise on
or at any time prior to the Balance Sheet Date or in
respect of any period starting before the Balance Sheet
Date; or
(2) for purchase, value added, sales or other similar Tax in
any part of the world referable to transactions effected
on or before the Balance Sheet Date.
(ii) The amount of the provision for deferred Taxation or deferred
Taxation asset in respect of each member of the Group contained
in the ▇▇▇▇▇ Balance Sheet was, at the Balance Sheet Date,
adequate and fully in accordance with accountancy practices
generally accepted in the United Kingdom and commonly adopted by
companies carrying on businesses similar to those carried on by
that member of the Group and, in particular, was in accordance
with SSAP 15 (or any replacement of it instituted by the
Accounting Standard Board).
77
(iii) If all facts and circumstances which are now known to each
member of the Group or any of the Sellers had been known at the
time the ▇▇▇▇▇ Balance Sheet was drawn up, the deferred Taxation
asset that would be contained in the ▇▇▇▇▇ Balance Sheet would
be no less than the asset which is so contained.
(b) Tax Events Since the Balance Sheet Date
Since the Balance Sheet Date:-
(i) no member of the Group has declared, made or paid any
distribution within the meaning of ICTA 1988;
(ii) no accounting period of any member of the Group has ended;
(iii) there has been no disposal of any asset (including trading
stock) or supply of any service or business facility of any kind
(including a loan of money or the letting, hiring or licensing
of any property whether tangible or intangible) in circumstances
where the consideration actually received or receivable for such
disposal or supply was less than the consideration which could
be deemed to have been received for Tax purposes;
(iv) no event has occurred which will give rise to a Tax liability on
any member of the Group calculated by reference to deemed (as
opposed to actual) income, profits or gains or which will result
in any member of the Group becoming liable to pay or bear a Tax
liability directly or primarily chargeable against or
attributable to another person, firm or company (other than any
other member of the Group);
(v) no disposal has taken place or other event occurred which will
or may have the effect of crystallising a liability to Taxation
which should have been included in the provision for deferred
Taxation contained in the ▇▇▇▇▇ Balance Sheet if such disposal
or other event had been planned or predicted at the Balance
Sheet Date;
(vi) no member of the Group has made any payment or incurred any
obligation to make a payment which will not be deductible in
computing trading profits for the purposes of corporation Tax,
or be deductible as a management expense of an investment
company;
78
(vii) no member of the Group has been a party to any transaction for
which any Tax clearance provided for by statute has been or
should have been obtained;
(viii) no member of the Group has paid or become liable to pay any
interest or penalty in connection with any Tax, has otherwise
paid any Tax after its due date for payment or owes any Tax the
due date for payment of which has passed.
(c) Tax Returns, Disputes, Records and Claims, etc.
(i) Each member of the Group has in the past six years so far as is
material made or caused to be made all proper returns required
to be made, and has supplied or caused to be supplied all
information required to be supplied, to any revenue authority,
including (but without limitation) the Inland Revenue and HM
Customs and Excise.
(ii) So far as the Shareholders are aware there is no material
dispute or disagreement outstanding nor is any contemplated at
the date of this agreement with any revenue authority regarding
liability or potential liability to any Tax or duty (including
in each case penalties or interest) recoverable from any member
of the Group or regarding the availability of any relief from
Tax or duty to any member of the Group and so far as the
Shareholders are aware there are no circumstances which make it
likely that any such dispute or disagreement will commence.
(iii) Each member of the Group in the past six years has duly
submitted all material claims and disclaimers which have been
assumed to have been made for the purposes of the ▇▇▇▇▇ Balance
Sheet.
(iv) The amount of Tax chargeable on any member of the Group during
any accounting period ending on or within six years before the
Balance Sheet Date has not, to any material extent, depended on
any concession other than any generally applicable published
concession, agreement or other formal or informal arrangement
with any revenue authority, including (but without limitation)
the Inland Revenue or the Customs and Excise.
(v) No member of the Group has received any notice from any revenue
authority, including the Inland Revenue, which required or will
or may require such member to withhold Tax from any payment made
since the Balance Sheet Date or which will or may be made after
the date of this agreement.
(d) Stamp Duty and Stamp Duty Reserve Tax
79
(i) All documents which are required to be stamped and which are in
the possession of any member of the Group and by virtue of which
any member of the Group has any right have been duly stamped.
(ii) Since the last Balance Sheet Date no member of the Group has
incurred any liability to stamp duty reserve Tax.
(e) Value Added Tax
(i) Each member of the Group is treated for the purposes of section
43 VATA 1994 as a member of a group of companies (the "VAT
Group") of which the representative member is RML (the
"Representative Member") and no company which is not a member of
the Group is a member of the VAT Group nor has any such company
been a member of the VAT Group within the last six years.
(ii) The Representative Member has in the past six years made, given,
obtained and kept full, complete, correct and up-to-date
returns, records, invoices and other documents appropriate or
required for the purposes of VATA 1994 and is not in arrears
with any payments or returns due and has not in the past six
years been required by the Commissioners of Customs and Excise
to give security under paragraph 4 of Schedule 11 VATA 1994.
(iii) The Representative Member has not, since the date 12 months
before the Balance Sheet Date, been in default in respect of any
prescribed accounting period as mentioned in section 59 or
section 59A VATA 1994.
(iv) No member of the Group has, within the six years ending on the
Balance Sheet Date, been registered for the purposes of VATA
1994 otherwise than as part of the VAT Group referred to in
(e)(i) above and no such member has, within that period, been a
member of any other group for the purposes of VATA 1994.
(v) The Representative Member has complied with the provisions of
Part XIX Value Added Tax Regulations 1995 in making any claim
for bad debt relief under Section 36 VATA 1994.
(vi) No member of the Group has made an election to waive exemption
in relation to any land in accordance with paragraph 2 of
Schedule 10 VATA 1994.
(vii) The Disclosure Letter contains full details of any assets of
each member of the Group to which the provisions of Part XV
Value
80
Added Tax Regulations 1995 (the Capital Goods Scheme) apply and
in particular:-
(a) the identity (including, in the case of leasehold
property, the term of years), date of acquisition and cost
of the asset; and
(b) the proportion of input Tax for which credit has been
claimed (either provisionally or finally in a Tax year and
stating which).
(viii) Neither the Representative Member nor any other member of the
Group has, at any time within the last six years, acted as agent
of any person not resident in the United Kingdom for the
purposes of section 47 VATA 1994 or been appointed as a VAT
representative of any person for the purposes of section 48 VATA
1994.
(f) Duties, etc.
All value added Tax, import duty and other taxes or charges payable to
H.M. Customs and Excise upon the importation of goods and all excise
duties payable to H.M. Customs and Excise in respect of any assets
(including trading stock) imported, owned or used by any member of the
Group have been paid in full.
(g) Tax on Disposal of Assets
On a disposal of all its assets by any member of the Group for:-
(i) in the case of each asset owned by that member of the Group at
the Balance Sheet Date, a consideration equal to the value
attributed to that asset in preparing the Balance Sheet; or
(ii) in the case of each asset acquired since the Balance Sheet Date,
a consideration equal to the consideration given for the
acquisition
then either:-
(1) in respect of any asset falling within (I) above, the
liability to tax (if any) which would be incurred by that
member of the Group in respect of that asset would not
exceed the amount taken into account in respect of that
asset in computing the maximum liability to deferred
Taxation as stated in the Balance Sheet; or
81
(2) in respect of any asset within (ii) above, no tax
liability would be incurred by that member of the Group in
respect of that asset.
(h) Replacement of Business Assets
Full particulars of each claim under section 115 or 116 CGTA 1979 or
under sections 152 or 153 TCGA 1992 made prior to the date of this
Agreement to which section 117 CGTA 1979 or section 154 TCGA 1992
applies and which affects any asset which was owned by any member of
the Group on or after the Balance Sheet Date have (except where the
held over gain is treated as having accrued prior to the Balance Sheet
Date) been disclosed in writing to the Purchaser.
(i) Distributions
(iii) Since April 6 1965, no member of the Group has made any
repayment of share capital to which section 210(1) ICTA 1988
applies or issued any share capital or other security as paid up
otherwise than by the receipt of new consideration within the
meaning of Part VI ICTA 1988.
(iv) No part of the amount payable on redemption of any share capital
or security at par will be a distribution, as defined in ICTA
1988.
(j) Close Company
(i) No member of the Group is or has ever been a close company as
defined in ICTA 1988.
(ii) No member of the Group has outstanding any loan to which the
provisions of section 419 ICTA 1988 would apply (loans to
participators etc.).
(iii) No member of the Group is a close investment-holding company as
defined in section 13A ICTA 1988.
(vi) The Company does not have any interest whether direct or
indirect in any company on the disposal of the assets of which a
liability could arise under section 13 TCGA.
(k) Non-Deductible Revenue Outgoings
No member of the Group is under any obligation to make any future
payment which will be prevented (whether on the grounds of being a
distribution or for any other reason) from being deductible for
corporation Tax purposes, whether as a deduction in computing the
82
profits of a trade or as an expense of management or as a charge on
income or as a non-trading debit under Chapter II Part IV Finance ▇▇▇
▇▇▇▇, by reason of any statutory provision, other than section
74(1)(f) ICTA 1988 (capital).
(l) Deductions and Withholdings
Each member of the Group has in the past six years made all deductions
in respect, or on account, of any Tax from any payments made by it
which it is obliged to make and has accounted in full to the
appropriate authority for all amounts so deducted.
(m) Intra-Group Transactions
No member of the Group has, at any time within the last six years,
acquired any asset from any other company (including another member of
the Group) which was, at the time of the acquisition, a member of the
same group of companies as that member for the purposes of Section 170
TCGA.
(n) Residence
The United Kingdom is the only country whose Tax authorities seek to
charge Tax on the worldwide profits or gains of any member of the
Group and no member of the Group has in the past six years paid Tax on
income profits or gains to any Tax authority in any other country
except the United Kingdom.
(o) Group Arrangements
No member of the Group has in the past six years received any payment
in respect of a surrender of group relief or of surplus advance
corporation Tax or of a Tax refund which could, in any circumstances,
be due to be repaid to any company other than another member of the
Group.
(p) Demerger
No member of the Group has in the past six years been concerned in an
exempt distribution (as defined in section 214(4) ICTA 1988).
(q) Non-Arm's Length Transactions
No member of the Group is a party to any transaction or arrangement
(other than with another member of the Group) under which it may be
denied relief for Tax purposes on the grounds that it has paid for any
asset or services or facilities of any kind an amount which is in
excess of the market value of that asset or services or facilities or
will be subject to
83
Tax on the supply or provision of any asset or services or facilities
by reference to an amount which exceeds the consideration received for
such asset or services or facilities.
1.14 BENEFIT PLANS
(a) The Disclosure Letter lists all pension and retirement benefit plans
of ▇▇▇▇▇ and RML or under which ▇▇▇▇▇ or RML is paying, or is under
any liability (actual or contingent) to pay or secure (other than by
payment of employers' contributions under national insurance or social
security legislation), any pension or other benefit on retirement or
death (the "Retirement Benefit Plans"). With the exception of the
Retirement Benefit Plans listed in the Disclosure Letter, there are
not outstanding (i) any agreements or arrangements for the provision
of any pension, annuity, lump sum, gratuity or life benefit to be
given on retirement or in anticipation of retirement or after
retirement in connection with past service for any officers or
employees of ▇▇▇▇▇ or RML or any dependants of any such person, (ii)
any informal or EX GRATIA pension arrangements or schemes involving
any of the officers or employees of ▇▇▇▇▇ or RML, or (iii) any
unapproved top-up arrangements or schemes (whether funded or unfunded)
designed to provide benefits in excess of the earnings cap as defined
in s.590C ICTA 1988.
(b) The Disclosure Letter lists all profit sharing, stock purchase, stock
option, bonus, incentive compensation, disability or ill-health and
other employee benefit plans of ▇▇▇▇▇ and RML (the "Employee Benefit
Plans").
(c) Details of each Employee Benefit Plan and each Retirement Benefit Plan
(together, the "Benefit Plans") described in the Disclosure Letter
have been provided to HCC in the form of (i) copies of all current
Trust Deeds and Rules or other documents governing or constituting or
relating to such employee benefit plans and (ii) copies of the current
explanatory booklets and any announcements not incorporated into the
current explanatory booklets or documentation governing the Benefit
Plan relating to benefits or contributions issued to employees of
▇▇▇▇▇ or RML.
(d) Except as otherwise disclosed in the Disclosure Letter, no discretion
or power has been exercised under any such Benefit Plan in respect of
any of the officers or employees of ▇▇▇▇▇ or RML to (i) augment
benefits, (ii) admit to membership an officer or employee who would
not otherwise have been eligible for admission to membership, (iii)
provide a benefit which would not otherwise be provided, or (iv) pay a
contribution which would not otherwise have been paid.
(e) There are no actions, suits or claims outstanding, and neither ▇▇▇▇▇
or RML nor any Seller has received written notice of a claim pending
or
84
threatened against ▇▇▇▇▇ or RML or (so far as any of the Sellers is
aware) the Trustee of any Benefit Plan in respect of any act, event,
omission or other matter arising out of or in connection with the
Benefit Plans identified in the Disclosure Letter.
(f) All contributions to any of the Benefit Plans identified in the
Disclosure Letter whether due from ▇▇▇▇▇ or RML or any of their
employees have been made in accordance with the provisions of such
Benefit Plans and those which fall due for payment before the Closing
Date will have been paid by that date. Full details of the level of
contributions currently payable in respect of any of the employees of
▇▇▇▇▇ or RML to any such benefit plan are set out in the Disclosure
Letter.
(g) To the extent required, each Benefit Plan identified in the Disclosure
Letter is approved by the Board of Inland Revenue for the purpose of
ICTA 1988 and neither ▇▇▇▇▇, RML nor any Seller is aware of any
circumstances which might give the Inland Revenue reason to withdraw
such approval.
(h) Each Retirement Benefit Plan identified in the Disclosure Letter has
complied in all material respects with and has been administered in
all material respects in accordance with (i) the preservation
requirements within the meaning of Chapter I, Part IV of the ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, (ii) the equal treatment requirements of sections
62-66 of the Pensions ▇▇▇ ▇▇▇▇ and regulations made thereunder, and of
(so far as any of the Sellers is aware) Article 119 of the Treaty of
Rome, and (iii) where applicable, the contracting-out requirements of
Part III of the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇; and all other relevant
pension schemes legislation and subject thereto in accordance with the
trust powers and provisions of the Retirement Benefit Plans identified
in the Disclosure Letter.
(i) Neither ▇▇▇▇▇ nor RML has participated in any occupational pension
scheme (as defined in section 1 of the Pension Schemes Act 1993) other
than any money purchase schemes, (as defined in section 181 of the
Pension Schemes Act 1993).
1.15 EMPLOYEES
(a) The list of employees contained in the Disclosure Bundle is an
accurate list of the employees of RML as at the Closing Date and there
is no omission which makes it misleading. The list includes, in
respect of each employee named therein,
(i) full details of emoluments;
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(ii) the age and the date of commencement of continuous employment
(within the meaning of the Employment Rights Act 1996);
(iii) reasonable details of any benefit to which he is entitled
otherwise than in cash; and
(iv) reasonable details of any benefit to which he is entitled in
cash which is related to sales, profits or performance, or which
is otherwise variable (other than normal overtime).
▇▇▇▇▇ does not have any employee as at the Closing.
(b) There is no profit related pay scheme in force in relation to any of
the Current Employees which has been registered (or for which an
application has been made to register it) under Chapter III of Part V
of ICTA 1988.
(c) The contract of employment of each employee may be terminated by the
employer without damages or compensation (other than that payable by
statute) by giving at any time of not more than three months' notice.
(d) No employee has made or threatened (or so far as any of the Sellers is
aware is expected to do so) any litigation, arbitration or mediation,
administration or criminal proceeding in connection with or arising
from his employment and there is no obligation or amount due to or in
respect of any employee in connection with or arising from his
employment which is in arrear or unsatisfied other than his normal
salary or other remuneration or commission for part of the month (or
other payment period) current at the date of this agreement.
(e) (i) No trade union, works council, staff association or other body
representing employees is recognised in any way for bargaining,
information or consultation purposes in relation to the
employees.
(ii) There are no agreements (whether legally binding or not) with
any such representative body in relation to the employees and
there is no dispute with any such representative body pending,
threatened or expected in relation to ▇▇▇▇▇ or RML.
(f) There is no liability to pay to any governmental or regulatory
authority in any jurisdiction any contribution, taxation or other
impost arising in connection with the employment or engagement of
personnel by ▇▇▇▇▇ or RML which is in arrears other than normal
monthly or quarterly returns.
86
(g) (i) All obligations under statute and otherwise concerning the
health and safety at work of the employees have been complied
with in all material respects.
(ii) There are no litigation, arbitration or mediation or
administrative or criminal proceedings pending, threatened or,
so far as any of the Sellers is aware, expected against ▇▇▇▇▇ or
RML by any employee or third party in respect of any
work-related accident or injury which are not fully covered by
insurance.
1.16 MATERIAL AGREEMENTS
(a) The Disclosure Letter includes or refers to all contracts, agreements,
leases, and instruments to which either ▇▇▇▇▇ or RML is a party or by
which either or their respective properties or assets are bound which
individually involve net payments or receipts in excess
of(pound)50,000 per annum (the "Material Agreements"), other than
Material Agreements which are contracts entered into with customers
but including all Material Agreements which are contracts with
suppliers or that pertain to employment or severance benefits for any
officer, director or employee of ▇▇▇▇▇ or RML, whether written or
oral.
(b) Neither ▇▇▇▇▇ nor RML, nor, so far as any of the Sellers is aware, any
other party is in default under any Material Agreement and no event
has occurred which (after notice or lapse of time or both) would
become a breach or default under, or would permit modification,
cancellation, acceleration or termination of any Material Agreement or
result in the creation of any security interest upon, or any person
obtaining any right to acquire, any properties, assets or rights of
▇▇▇▇▇ or RML, which, in any such case, has had or would reasonably be
expected to have a Material Adverse Effect.
(c) To the knowledge of ▇▇▇▇▇ and RML, each such Material Agreement is
valid and binding and there are no material unresolved disputes
involving or with respect to any Material Agreement. Except as
described in the Disclosure Letter, no party to a Material Agreement
has advised ▇▇▇▇▇ or RML or any of the Sellers that it intends either
to terminate a Material Agreement or to refuse to renew a Material
Agreement upon the expiration of the term thereof. No representation
or warranty is made that all benefits contemplated in the Material
Agreements will be received.
(d) Neither ▇▇▇▇▇ nor RML is in violation of, or in default with respect
to, any term of its Governing Documents.
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(e) Contracts and Commitments
(i) No member of the Group is a party to any Material Agreement
which the Sellers reasonably consider cannot readily be
performed by such member of the Group on time.
(ii) No member of the Group is a party to or has any liability
(present or future) under:
(A) any guarantee or indemnity or letter of credit; or
(B) any leasing, hiring, hire purchase, credit sale or
conditional sale agreement where in the case of such
leasing, hiring, hire purchase, credit sale or conditional
sale agreement involves payment of more than (pound)10,000
per annum.
(iii) No member of the Group is a party to any contract or arrangement
which restricts its freedom to carry on its business as carried
on from time to time in the 24 month period prior to the Closing
Date in any part of the world in such manner as it may think
fit, or to any agency, distributorship or management agreement.
(iv) No member of the Group is a party to any contract which can be
terminated in the event of any change in the underlying
ownership or control of the that member or would be breached by
such change;
and for this purpose "CONTRACT" includes any understanding,
arrangement or commitment however described.
(f) Insider Contracts
There is not, and there has not at any time during the last 24 months
been, any contract or arrangement to which any member of the Group is,
or was, a party and in which any Seller or any director of any member
of the Group or RMI or any person connected with any such director is,
or has been, interested, either directly or indirectly, and no member
of the Group is a party to, nor have its profits or financial position
during that period been affected by, any contract or arrangement which
was not of an entirely arm's length nature; in particular, without
limitation, no member of the Group has transferred any assets to
another such member except at market value.
88
(g) Powers of Attorney
No member of the Group has given any power of attorney or other
authority (express, implied or ostensible) which is still outstanding
or effective to any person to enter into any contract or commitment on
its behalf other than to its directors, officers or employees to enter
into routine trading contracts in the normal course of their duties.
1.17 PROPERTIES
(a) The immovable properties referred to in Schedule 5 (Property Leases)
are the only immovable properties in any part of the world owned, used
or occupied by any members of the Group or in respect of which any
member of the Group has any estate interest right or liability.
(b) All leases of immovable property to which ▇▇▇▇▇ or RML is a party (the
"Property Leases") are in full force and effect and brief details of
each are set out in Schedule 5.
(c) ▇▇▇▇▇ or RML is in physical possession and actual occupation of each
of the Property Leases for the purpose of their respective business.
(d) Each Property Lease is used for the purpose (the "Current Use")
referred to in Schedule 5 (Property Leases) which, so far as the
Sellers, ▇▇▇▇▇ or RML is aware, is a permitted or lawful use under
town and country planning legislation and no notice has been given or
received or is expected by the Sellers, ▇▇▇▇▇ or RML which casts
significant doubt on the right of ▇▇▇▇▇ or RML (as the cases may be)
as to the continuation of the Current Use.
(e) So far as the Sellers, ▇▇▇▇▇ or RML is aware, neither ▇▇▇▇▇ nor RML is
in default under any Property Lease, nor does there exists any default
under such Property Leases by any other party thereto, nor does there
exist any event which with notice or lapse of time or both would
constitute a default thereunder, which default would have a Material
Adverse Effect and no party to a Property Lease has advised ▇▇▇▇▇ or
RML of any such default or that it intends to terminate any such
Property Lease.
(f) All of the Property Leases owned by ▇▇▇▇▇ or RML are owned free and
clear of any Encumbrance, agreement for sale, agreement for lease,
estate contract, option or right of pre-emption, except for
Encumbrances described in the Disclosure Letter or Encumbrances which
do not have a Material Adverse Effect.
(g) RML has under its control all title deeds and documents necessary to
prove its title to each of the Property Leases.
89
(h) RML has good title with respect to the Property Leases free of any
Encumbrance, agreement for sale, agreement for lease, estate contract,
option or right of pre-emption other than those described in the
Disclosure Letter or Encumbrances permitted under this Warranty 1.17
to the extent necessary for the conduct of the business of the Group
other than to the extent that the failure to have such title would not
have a Material Adverse Effect.
(i) No Property Lease is subject to the payment of any outgoings other
than business rates, usual utilities charges and the rents and other
sums reserved by the relevant Property Lease all sums invoiced have
been paid up to the Closing Date.
(j) Neither the Sellers nor ▇▇▇▇▇ or RML expects expenditure of any
substantial sum of money being required in respect of any Property
Lease within twelve months of the date of this Agreement.
1.18 ENVIRONMENTAL MATTERS
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"ENVIRONMENTAL LAWS" shall mean any and all applicable statutes, laws,
regulations, ordinances, orders, decrees, codes, guidance, permits,
consents, permissions, certificates, approvals, registrations,
authorisations, licences, agreements and governmental restrictions of
any applicable Governmental Authority relating to human health, the
environment or to emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances (as hereinafter defined) or wastes
into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation at any time.
"ENVIRONMENTAL LIABILITIES" shall mean all liabilities, obligations,
commitments, losses, fines, damages penalties, sanctions, costs,
expenses, including expenses representing the payment of money by way
of indemnification, settlement, hold harmless or reimbursement
agreements, whether vested or unvested, contingent or fixed, actual or
potential, which (i) arise under or relate to Environmental Laws and
(ii) relate to actions occurring or conditions existing on or prior to
the Closing Date.
"HAZARDOUS SUBSTANCES" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing characteristics.
90
"REGULATED ACTIVITY" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous
Substances by either ▇▇▇▇▇ or RML.
(b) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been
filed, no penalty has been assessed and no investigation or review is
pending, or to the knowledge of any Seller, has been threatened by any
Governmental Authority or other party with respect to any (i) alleged
violation of any Environmental Law by either ▇▇▇▇▇ or RML, (ii)
alleged failure to have any environmental permit, consent, permission,
concession, grant, franchise, certificate, licence, approval,
registration or authorisation required in connection with the conduct
of the business or with respect to any of their respective properties
or (iii) Regulated Activity.
(c) Neither ▇▇▇▇▇ nor RML has any material Environmental Liabilities and
so far as any of the Sellers is aware there has been no release of
Hazardous Substances into the environment by either ▇▇▇▇▇ or RML or
with respect to any of their respective properties which has had, or
would reasonably be expected to have, a Material Adverse Effect.
1.19 LABOUR MATTERS
Neither ▇▇▇▇▇ nor RML is a party to any collective bargaining agreement or
other trade union contract applicable to persons employed by either ▇▇▇▇▇
or RML, nor does any Seller know of any activities or proceedings of any
trade union to organise any such employees.
1.20 SALE OF ▇▇▇▇▇ OR RML
Except as contemplated by this Agreement, there are currently no
discussions to which ▇▇▇▇▇, RML or any Seller is a party relating to (a)
the sale of any material portion of the assets of ▇▇▇▇▇ or RML, (b) any
merger, consolidation, share exchange, liquidation, dissolution or similar
transaction involving ▇▇▇▇▇ or RML, or (c) the transfer or issuance of any
▇▇▇▇▇ Securities or RML Securities.
1.21 BROKER'S FEES
Neither ▇▇▇▇▇ or RML or PMS nor any Seller nor anyone acting on the behalf
or at the request thereof has any liability to any broker, finder,
investment banker or agent, or has agreed to pay any brokerage fees,
arranger's fees or commissions, or to reimburse any expenses of any broker,
finder, investment banker or agent in connection with this Agreement.
91
1.22 INVESTMENTS
(a) The Disclosure Letter sets forth a true and complete list of all
bonds, stocks, mortgages and other investments of any type owned by
▇▇▇▇▇ or RML as of the date hereof (collectively, the "Scheduled
Investments"). ▇▇▇▇▇ or RML has good and marketable title to each of
the Scheduled Investments.
(b) Except as set forth in the Disclosure Letter, none of the Scheduled
Investments is currently in default in the payment of principal or
interest, and, to the knowledge of the Sellers, no event has occurred
which reasonably would be expected to result in a diminution of the
value of any non-publicly traded security owned by ▇▇▇▇▇ or RML.
(c) There are no Encumbrances in any of the Scheduled Investments, except
for (i) those Scheduled Investments deposited with governmental
authorities, as indicated on the Disclosure Letter, (ii) Encumbrances
which do not materially detract from the value of the Scheduled
Investments subject thereto, and (iii) assets pledged to secure
assumed reinsurance contract obligations which assets are listed on
the Disclosure Letter.
(d) Neither ▇▇▇▇▇, RML nor any Seller has taken or omitted to take, any
action which would result in ▇▇▇▇▇ or RML being unable to enforce the
terms of any Scheduled Investment or which would cause any Scheduled
Investment to be subject to any valid offset, defence or counterclaim
against the right of ▇▇▇▇▇ or RML to enforce the terms of such
Scheduled Investment.
(e) Since April 30, 1998, neither ▇▇▇▇▇ nor RML has (i) purchased or
otherwise invested in, or committed to purchase or otherwise invest
in, any interest in real property (including without limitation any
extension of credit secured by a mortgage or deed of trust), (ii)
purchased or otherwise invested in, or committed to purchase or
otherwise invest in, bonds, notes, debentures or other evidences of
indebtedness rated lower than "Baa" by ▇▇▇▇▇'▇ Investors Service Inc.,
or "BBB" by Standard & Poor's Corporation at the time of purchase,
(iii) entered into any contract, agreement or arrangement with any
affiliate with respect to the purchase or other acquisition, sale or
other disposition or allocation of any Scheduled Investment or (iv)
entered into any contract, agreement or arrangement with respect to
any investment outside of the United Kingdom.
1.23 LICENCES
Neither ▇▇▇▇▇, RML nor any Seller has received notification of any
revocation or modification of any material licences, certificates,
authorisations or permits necessary for the ownership of the properties of
any member of the Group or
92
the conduct of their respective business and so far as any of the Sellers
is aware no such licence, certificate, authorisation or permit is likely
not to be renewed in the ordinary course subject to the payment of renewal
fees (none of which is due as at Closing) and submission of renewals
documentation (the time for submission of which has not been exceeded as at
Closing).
1.24 INTERNAL CONTROLS
Each of ▇▇▇▇▇ and RML maintains a system of internal accounting controls,
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorisation;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with U.K. GAAP and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorisation; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.
1.25 INSURANCE
Copies of the insurance policies effected by members of the Group in
respect of which any member of the Group has an interest as an insured
party have been disclosed in writing to the Purchaser, all such policies
are in full force and effect and are not void or voidable, no claims in
excess of (pound)100,000 are outstanding and no event has occurred which
might give rise to any claim in excess of (pound)100,000.
1.26 RECEIVABLES
All of the receivables of ▇▇▇▇▇ and RML (including accounts receivable,
loans receivable and advances) which are reflected on the ▇▇▇▇▇ Financial
Statements, and all such receivables which will have arisen since the date
of the ▇▇▇▇▇ Financial Statements, are valid and genuine and have arisen
solely from BONA FIDE transactions in the ordinary course of business
consistent with past practices. The receivables reflected on the ▇▇▇▇▇
Financial Statements do not include any receivables which, to the present
knowledge of ▇▇▇▇▇, RML or any Seller, should be written off as an
uncollectible receivable. To the knowledge of any of the Sellers, all of
the receivables reflected on the ▇▇▇▇▇ Financial Statements are
collectible, and none of such receivables is subject to valid defences,
set-offs or counterclaims except for the reserves reflected in the ▇▇▇▇▇
Financial Statements. The Disclosure Letter lists, as of December 31, 1998,
all receivables (and the amounts thereof) of ▇▇▇▇▇ and RML which are more
than two months overdue, the name of the party from whom such receivable is
owing, and any security in favour of ▇▇▇▇▇ or RML for the repayment of such
receivable which ▇▇▇▇▇ and RML purport to have.
93
1.27 OTHER INTERESTS OF SELLERS
No Seller nor any director of or person connected with any Seller has any
interest, direct or indirect, in any business which competes or is likely
to compete with any business now carried on by the Group or intends to
acquire any such interest.
1.28 WORKING CAPITAL
The existing bank and other facilities set out in the Disclosure Letter
provide each member of the Group with sufficient working capital for its
present requirements (that is to say, to enable it to continue to carry on
its business in its present form and at its present level of turnover) and
for the purpose of performing in accordance with their terms all orders,
projects and contractual obligations which have been placed with or
undertaken by it.
1.29 ACCURACY AND ADEQUACY OF INFORMATION
(a) To the best of each of the Sellers' knowledge, information and belief,
all information which has been given in writing by or on behalf of the
Sellers to HCC or to the advisers or agents of HCC before or during
the negotiations leading to this Agreement is in all material respects
accurate and not misleading in any material respect save that:-
(i) to the extent the information so provided contains matters of
opinion, each of the Sellers warrants only that the relevant
opinions were honestly and reasonably held by the person(s)
giving them at the relevant time;
(ii) where certain information contained in a document provided to
HCC, its advisers or agents conflicts with other information
which can be reasonably determined on its face to relate to the
same subject matter contained in any document provided
subsequently, the Warranty contained in this paragraph 1.29(a)
shall apply only in relation to the information provided
subsequently; and
(iii) no warranty (express or implied) is given in this paragraph as
to any forecasts, or financial projections, budgets or
management accounts which have been provided in relation to any
member of the Group other than as follows:-
(A) the Interim Balance Sheet is warranted under paragraph
1.9;
(B) such forecasts, financial projections, budgets and
management accounts were prepared with reasonable care;
and
94
(C) the budget for the period of 12 months ending May 1, 1999
and the financial projections for the period of 24 months
ending May 1, 2000 in the document in the Disclosure
Bundle labelled "Plan" (together the "Budget and Plan")
contain the expectations of the Sellers in respect of the
performance or state of affairs of the Group before
acquisition by HCC for that period on the basis of current
London insurance and reinsurance market conditions and
that such expectations are honestly and reasonably held by
the Sellers provided that no warranty is hereby given as
to the outcome).
(b) To the best of each of the Sellers' knowledge information and belief,
the information referred to in the Disclosure Letter (including,
without limitation, the contents of the Disclosure Bundle) is accurate
in all material respects and is not misleading in any material respect
save that:-
(i) to the extent the information so provided contains matters of
opinion, each of the Sellers warrants only that the relevant
opinions were honestly and reasonably held by the person(s)
giving them at the relevant time; and
(ii) no warranty (express or implied) is given in this paragraph as
to any forecasts, or financial projections, budgets or
management accounts which have been provided in relation to any
member of the Group other than as follows:-
(A) the Interim Balance Sheet is warranted under paragraph
1.9;
(B) such forecasts, financial projections, budgets and
management accounts were prepared with reasonable care;
and
(C) the Budget and Plan contain the expectations of the
Sellers in respect of the performance or state of affairs
of the Group before acquisition by HCC for that period on
the basis of current London insurance and reinsurance
market conditions and that such expectations are honestly
and reasonably held by the Sellers provided that no
warranty is hereby given as to the outcome.
(c) All documents which should have been delivered by each member of the
Group to the Registrar of Companies have been properly so delivered.
Copies of the memorandum and articles of association of the members of
the Group which have been supplied to HCC or its solicitors are
complete and accurate in all material respects and fully set out the
rights
95
and restrictions attaching to each class of share capital of the
company to which they relate.
(d) The accounting records of each member of the Group have been kept on a
proper and consistent basis with no change in the methods or bases of
valuation or accountancy treatment having been made for at least two
years prior to the Balance Sheet Date or since.
1.30 GRANTS AND ALLOWANCES
No member of the Group has applied for or received any grant, allowance,
aid or subsidy from any supranational, national or local authority or
government agency during the last six years.
1.31 TERMS OF TRADE
(a) So far as any of the Sellers is aware, no substantial customer or
supplier of any member of the Group has during the 12 months preceding
the date of this agreement indicated an intention to cease trading
with or supplying to that member or is likely to reduce substantially
its trading with or supplies to that member. There is no contract to
which any member of the Group is a party which by reason of the sale
of the ▇▇▇▇▇ Shares gives any other contracting party the right to
terminate any contract of, or to impose any obligation (whether to
make payment or otherwise) on, any member of the Group. So far as any
of the Sellers is aware the attitude or actions of customers,
suppliers, employees and other persons with regard to the Group will
not be prejudicially affected by the execution of this agreement or
Closing to the extent which in the aggregate will have a Material
Adverse Effect on the Group.
A "substantial customer" means a customer accounting for not less than
(pound)100,000 of commission income earned by the Group per annum and
"substantial supplier" means a supplier receiving not less than
(pound)100,000 per annum from the Group.
(b) No member of the Group uses or otherwise carries on its business under
any name other than its corporate name.
1.32 BANK ACCOUNTS AND BORROWINGS
(a) Details of all bank accounts maintained or used by each member of the
Group (including, in each case, the name and address of the bank with
whom the account is kept and the number and nature of the account) are
set out in or contained in the Disclosure Bundle.
(b) Details of all overdraft, loan and other financial facilities
available to any member of the Group and the amounts outstanding under
them as at January 29 1999 are set out in the Disclosure Letter and no
Seller or
96
any member of the Group has done anything whereby the continuance of
any of those facilities might be affected or prejudiced.
(c) The total amount borrowed by each member of the Group from its bankers
does not exceed its financial facilities and the total amount borrowed
from whatsoever source does not exceed any limitation on its borrowing
contained in its the relevant member's Governing Documents.
1.33 SOLVENCY OF ▇▇▇▇▇ AND RML
(a) No order has been made and no resolution has been passed for the
winding up of any member of the Group or for a provisional liquidator
to be appointed in respect of any member of the Group and no petition
has been presented and no meeting has been convened for the purpose of
winding up any member of the Group.
(b) No administration order has been made and no petition for such an
order has been presented in respect of any member of the Group.
(c) No receiver (which expression shall include an administrative
receiver) has been appointed in respect of any member of the Group or
all or any of its assets.
(d) No member of the Group is insolvent, or unable to pay its debts within
the meaning of section 123 of the Insolvency ▇▇▇ ▇▇▇▇, or has stopped
paying its debts as they fall due.
(e) No voluntary arrangement has been proposed under section 1 of the
Insolvency ▇▇▇ ▇▇▇▇ in respect of any member of the Group.
(f) No event analogous to any of the foregoing has occurred in or outside
England.
(g) No unsatisfied judgment is outstanding against any member of the
Group.
1.34 SOLVENCY OF SELLERS
(a) No bankruptcy order has been made in respect of any of the Sellers or
a petition for such an order presented.
(b) No application has been made in respect of any of the Sellers for an
interim order under section 253 of the Insolvency ▇▇▇ ▇▇▇▇.
(c) None of the Sellers are unable to pay or to have no reasonable
prospect of being able to pay any debt as those expressions are
defined in section 268 of the Insolvency ▇▇▇ ▇▇▇▇.
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(d) No person has been appointed by the court to prepare a report in
respect of any of the Sellers under section of the 273 Insolvency ▇▇▇
▇▇▇▇.
(e) No interim receiver has been appointed of the property of any of the
Sellers under section 286 Insolvency ▇▇▇ ▇▇▇▇.
1.35 LIABILITY FOR SERVICES
No member of the Group has provided any product or service which does not
in any material respect (i) comply with all applicable laws, regulations or
standards; or (ii) accord with any representation or warranty, express or
implied, given in respect of it.
1.36 OWNERSHIP AND CONDITION OF ASSETS
(a) Each member of the Group owns or has the right to use all assets used
by any member of the Group in the course of its business (other than
real property) or which are necessary for the continuation of that
business as it is now carried on.
(b) Each of the assets included in the Interim Balance Sheet or acquired
by any member of the Group since the Balance Sheet Date is owned both
legally and beneficially by a member of the Group free from any third
party rights, and each of those assets capable of possession is in the
possession or under the control of a member of the Group.
(c) All plant and machinery (including fixed plant and machinery),
vehicles and office equipment used by any member of the Group in
connection with its business are in good condition and working order
and have been regularly maintained and (save for any in the process of
being serviced or repaired) are capable of being properly used in
connection with the business of the relevant part of the Group and, so
far as any of the Sellers is aware, none is dangerous or obsolete.
1.37 INTELLECTUAL PROPERTY
(a) Accurate details of all registered and material unregistered
Intellectual Property owned or used by ▇▇▇▇▇ or RML are set out in the
Disclosure Letter. All renewal fees and steps required for the
maintenance, protection and enforcement of the Intellectual Property
owned or used by ▇▇▇▇▇ or RML have been paid or taken. So far any of
the Sellers is aware, all such rights are valid, subsisting and
enforceable and no such rights are being or have been challenged or
attacked by any third party or competent authority. For the purpose of
this Warranty "Intellectual Property" means patents, trade marks and
service marks, rights in designs, trade or business names, copyrights,
database rights and topography rights (whether or not any of these is
registered and including applications for registration of any such
thing) and right under
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licences and consents in relation to any such thing and all rights or
forms of protection of a similar nature or having equivalent or
similar effect to any of these which may subsist anywhere in the
world.
(b) Details of all licences, agreements, settlements, undertakings and
other arrangements in respect of any Intellectual Property (the
"Intellectual Property Agreements")entered into by ▇▇▇▇▇ or RML are
set out in the Disclosure Letter and are valid and enforceable. None
of the Intellectual Property Agreements are capable of termination on
a change in the management control or shareholding of ▇▇▇▇▇ or RML or
otherwise by reason of the transactions contemplated by this
Agreement.
(c) So far as any of the Sellers is aware, neither ▇▇▇▇▇ nor RML nor any
third party is in breach of any Intellectual Property Agreement.
(d) So far as any of the Sellers is aware, no third party is infringing or
making unauthorised use or has infringed or made unauthorised use of
any Intellectual Property owned or used by ▇▇▇▇▇ or RML.
(e) All Intellectual Property owned or otherwise required for the business
of ▇▇▇▇▇ or RML is in the possession or under the control of ▇▇▇▇▇ or
RML.
(f) So far as any of the Sellers is aware, the processes and methods
employed, the services provided or the businesses conducted and the
products used or dealt in by ▇▇▇▇▇ within the last three years do not,
and/or at the time of being employed, provided, conducted, used or
dealt in did not, infringe the rights of any other person in any
Intellectual Property.
1.38 INFORMATION TECHNOLOGY
(a) Details of the Information Technology owned or used by ▇▇▇▇▇ or RML
and all agreements or arrangements relating to the maintenance and
support (including escrow agreements relating to the deposit of source
codes), security, disaster recovery management and utilisation
(including facilities management and computer bureau services
agreements) of the Information Technology owned or used by ▇▇▇▇▇ have
been disclosed in the Disclosure Letter. For the purposes of this
Warranty 1.38, "Information Technology" means computer hardware,
software, networks and/or other information technology used or
required to carry out the respective businesses of ▇▇▇▇▇ and RML of a
business which relies on computer hardware, software, networks and/or
other information technology (whether embedded or otherwise).
(b) ▇▇▇▇▇ and RML own or have the right to use all Information Technology
used by or required to carry on the business of ▇▇▇▇▇ and RML and
fulfil its existing contracts and commitments.
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(c) No records, systems, controls data or information of ▇▇▇▇▇ and RML are
recorded, stored, maintained, operated or otherwise wholly or partly
dependent on or held by any means (including any electronic,
mechanical or photographic process whether computerised or not) which
(including all means of access thereto and therefrom) are not under
the exclusive ownership or control of ▇▇▇▇▇ or RML.
(d) There are no material bugs, breakdowns or viruses which have caused
material disruption to the business of ▇▇▇▇▇ and RML and so far as
each of the Sellers is aware the Information Technology owned or used
by ▇▇▇▇▇ and RML has the capacity and performance necessary to fulfil
the present and foreseeable requirements of ▇▇▇▇▇ and RML. For the
avoidance of doubt, this warranty is not given in relation to any Year
2000 Issue.
(e) Each of ▇▇▇▇▇ and RML has evaluated its operations and systems to
review the risk of computer hardware and software used by it becoming
unable to recognise and properly execute date-sensitive functions
involving certain dates prior to and any dates after December 31, 1999
(the "Year 2000 Issue") and based on the findings of such review has
determined that the computer hardware and software used by it is
capable of operating in all material respects in such a manner that a
change to, reference to or use of a date after December 31 1999 in
their operation will not have a Material Adverse Effect; and neither
the Sellers nor (so far as any of the Sellers is aware) any member of
the Group has been notified by any of its substantial suppliers,
substantial customers or financial institutions utilised by ▇▇▇▇▇ or
RML, that such supplier, customer or financial institution has or is
likely to have any Year 2000 Issue, which together would have a
Material Adverse Effect on the Group.
(f) The Sellers have not disclosed to any third party any source code or
algorithms relating to any software owned (either solely or jointly)
by ▇▇▇▇▇ or RML.
1.39 DORMANT COMPANY
PMS is a dormant company and is not carrying on trade or business, is not a
party to any subsisting contract, does not have any outstanding liability
or obligation to any party (whether actual or contingent), is not in
dispute with any party; those of its assets whose value is included in the
Interim Balance Sheet are beneficially owned free of all encumbrances; and
it has not entered into any agreements or arrangements (whether in respect
of Taxation or otherwise) with any Seller or any employee.
1.40 BONUS RIGHTS
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No Seller has any right (whatsoever and howsoever arising) to receive any
Bonus from any member of the Group.
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SCHEDULE 4
LIMITATIONS ON SELLERS LIABILITY
1. For the purposes of this Schedule 4:
1.1 "HCC GROUP COMPANY" means HCC, or a company which is, from time to time, a
subsidiary, subsidiary undertaking, associated undertaking or holding
company of HCC or a subsidiary or associated undertaking of a holding
company of HCC;
1.2 "RELEVANT AGREEMENTS" means this Agreement and the Tax Covenant;
1.3 "RELEVANT CLAIM" means a claim by HCC involving or relating to a breach of
a Warranty;
1.4 "SELLER UNCAPPED CLAIM" means a claim by HCC involving or relating to a
breach of Warranty 1.2(b) of Schedule 3; and
1.5 "TAX WARRANTIES" means the Warranties in Warranty 1.13 of Schedule 3.
2. The maximum aggregate liability of the Sellers under or in connection with
the Relevant Agreements (including, for the avoidance of doubt, Section 8.1
of this Agreement) in respect of all claims on any ground whatsoever shall
not exceed (pound)22,000,000 (the "Sellers' Cap") save that any liability
of any Seller if Warranty 1.2(b) of Schedule 3 is breached, untrue or
misleading shall not be subject to the Sellers' Cap.
3.1 HCC shall not be entitled to damages or other payments in respect of a
Relevant Claim (other than a Relevant Claim relating to a Tax Warranty if
and to the extent that the Relevant Claim arises in respect of Tax on
income, profits or gains earned, accrued or received on or before December
31, 1998 or Tax in respect of an event occurring on or before December 31,
1998) or under Section 8.1 (except where the claim under Section 8.1 is in
respect of a breach of Section 7.2) unless the aggregate amount of all
Relevant Claims (other than Relevant Claims relating to such Tax Warranties
or to claims under Section 8.1 in respect of a breach of Section 7.2) and
all claims under Section 8.1 exceed(pound)250,000 in which event the
Sellers shall be liable merely for the excess.
3.2 HCC shall not be entitled to damages or other payments in respect of a
Relevant Claim (other than a Relevant Claim relating to a Tax Warranty if
and to the extent that the Relevant Claim arises in respect of Tax on
income, profits or gains earned, accrued or received on or before December
31, 1998 or Tax in respect of an event occurring on or before December 31,
1998) or under Section 8.1 which does not exceed (either on its own or when
aggregated with one or more other Relevant Claims in respect of or arising
from the same or substantially the same matter or
circumstances)(pound)5,000.
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3.3 To the extent that a Relevant Claim in respect of a Warranty other than a
Tax Warranty relates to a Tax liability, clause 3 (Limits on Clause 2) of
the Tax Covenant (other than clause 3(vii) of the Tax Covenant) will apply
to the Relevant Claim mutatis mutandis as if set out herein.
4.1 The maximum liability of each of the Sellers in respect of all Relevant
Claims and in respect of all other claims under or in connection with this
Agreement or the Tax Covenant (all Relevant Claims together with all such
other claims are referred to as "Applicable Claims") other than any Seller
Uncapped Claim is limited as follows:
(a) Axel: (pound)46,200;
(b) ▇▇▇▇: (pound)7,662,500;
(c) ▇▇▇▇▇▇▇: (pound)2,673,000;
(d) ▇▇▇▇: (pound)2,233,000;
(e) Rattner: (pound)330,000;
(f) MRI: (pound)4,573,800;
(g) ▇▇▇▇▇: (pound)2,402,500; and
(h) ▇▇▇▇▇: (pound)2,079,000.
4.2 If more than one Seller is liable in respect of any Applicable Claim then
(subject to the limitations set out in paragraph 4.1 above) such Seller's
liability in respect of that Applicable Claim shall be limited to that
proportion of the Applicable Claim as the maximum liability of such Seller
as set out in paragraph 4.1 bears to the aggregate maximum liability as set
out in paragraph 4.1 above of the Sellers who are liable for the Applicable
Claim. Without limitation of any other provision of this Agreement or any
other document referred to herein (and subject to such limitations) all the
Sellers are liable in respect of every Warranty which is breached, untrue
or misleading save for Warranties as to title to their own ▇▇▇▇▇ Shares and
the authority and capacity of a Seller to sell.
5. Subject to paragraph 13, a Seller shall not be liable in respect of a
Relevant Claim unless HCC has given such Seller or the Representative
written notice of the Relevant Claim (stating so far as reasonably
practicable the nature of the Relevant Claim in reasonable detail and the
amount claimed) on or before:
5.1 subject to the Relevant Claims falling within paragraph 5.3, January 31,
2006 for Relevant Claims for breach of any Tax Warranty;
5.2 subject to the Relevant Claims falling within paragraph 5.3, January 31,
2002 for all other Relevant Claims; and
103
5.3 the expiration of the applicable statutory limit (if any) for the Relevant
Claims where they relate to or arise out of fraud, fraudulent
misrepresentation or dishonesty on the part of such Seller.
6. A Seller is not liable in respect of any Relevant Claim to the extent that
such claim is contingent unless and until such contingent liability shall
have become an actual liability provided that this paragraph shall not
operate to avoid a Relevant Claim in respect of a contingent liability made
before the expiry of the relevant period of time specified in paragraph 5
if a written notice of the Relevant Claim (stating so far as reasonably
practicable the nature of the Relevant Claim in reasonable detail and the
amount claimed) has been given before the expiry of such time period even
if such liability shall not become an actual liability until after expiry
of the relevant period.
7. A Seller is not liable in respect of a Relevant Claim (other than a
Relevant Claim relating to a Tax Warranty) or a claim under Section 8.1:
7.1 If and to the extent that the matter giving rise to a Relevant Claim arises
or if and to the extent any amount payable in relation to a Relevant Claim
is increased as a result of the passing after the date of this Agreement
of, or a change after the date of this Agreement in, a law, or any rule,
regulation, or published administrative practice of a government,
governmental department, agency or regulatory body (including, without
limitation, any change after the date of this Agreement in such a practice
in relation to extra statutory concessions) or an increase after the date
of this Agreement in the Tax rates or an imposition of Tax, in each case
not in force at the date of this Agreement;
7.2 if and to the extent that the matter giving rise to the Relevant Claim
arises from or if and to the extent any amount payable in relation to a
Relevant Claim is increased by any voluntary act done or omitted to be done
by any member of the Group after Closing or at the written request of, or
with the prior written consent of, HCC before Closing provided that no act
or omission shall be regarded as voluntary if it is done or omitted:-
(a) in order to comply with law or rules or regulations of any Government
Authority; or
(b) to satisfy or discharge a binding commitment or agreement created on
or before Closing; or
(c) to enable any member of the Group to carry on its business in the
ordinary course;
7.3 if and to the extent that such Relevant Claim would not have arisen but for
a voluntary change of accounting policy or practice of a member of the
Group after Closing;
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7.4 to the extent that the matter giving rise to the Relevant Claim was taken
into account in computing the amount of a specific provision in the ▇▇▇▇▇
Financial Statements or was specifically referred to in the ▇▇▇▇▇ Financial
Statements or in the notes to the ▇▇▇▇▇ Financial Statements; or
7.5 to the extent that the matter giving rise to the Relevant Claim is fairly
disclosed in the Disclosure Letter; or
7.6 (subject to paragraph 7.2) if and to the extent that such Relevant Claim
would not have arisen or would have been reduced but for:-
(a) a claim, election, surrender or disclaimer made, or notice or consent
given, or another thing done, after Closing (other than one the
making, giving or doing of which was taken into account in computing a
provision for Tax or Tax asset in the ▇▇▇▇▇ Balance Sheet);
(b) a member of the Group's failure or omission to make a claim, election,
surrender or disclaimer, or give a notice, or consent to do another
thing, under, or in connection with, a provision of an enactment or
regulation relating to Tax after Closing, the anticipated making,
giving or doing of which was taken into account in computing a
provision for Tax or Tax asset in the ▇▇▇▇▇ Balance Sheet.
8. In assessing any damages or other amounts recoverable by an HCC Group
Company for a Relevant Claim there shall be taken into account any
corresponding net saving or net benefit which that HCC Group Company
receives from any person which is directly referable to the matter giving
rise to the Relevant Claim.
9. In calculating the liability of a Seller in relation to a Relevant Claim,
there shall be taken into account (by way of reduction of the amount of
such liability) the amount (if any) by which any Tax for which an HCC Group
Company is liable to be assessed or accountable is reduced or extinguished
as a direct result of the matter giving rise to such Relevant Claim and the
timing of such reduction or extinguishment.
10.1 If ▇▇▇▇▇▇▇ ▇. Way or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ of HCC or any other employee of HCC
(any such employee being referred to as a "Relevant Employee") who is (a)
responsible for monitoring whether the Warranties were breached, untrue or
misleading or (b) appointed to the board of directors of any member of the
Group or (c) has direct management responsibility within HCC for the Group
(provided that, for the avoidance of doubt, no Seller shall be treated as a
Relevant Employee) has actual knowledge of any claim against any member of
the Group by any third party which gives rise to a Relevant Claim (the
"Applicable Relevant Claim") other than a Relevant Claim relating to a Tax
Warranty, HCC shall give written notice of that claim to the Representative
and it will further procure that the relevant member of the Group takes
such action as any Seller may reasonably request to avoid, dispute, resist,
compromise or
105
defend a Notifiable Claim (as defined below) (such action is referred to
below as "Defending Action") provided that neither HCC nor any member of
the Group shall be required to take any Defending Action at any Seller's
request unless:-
(i) the Seller has admitted liability for the Applicable Relevant Claim
subject to the terms of this Agreement;
(ii) the Seller has first obtained an opinion indicating that any
Defending Action he requests HCC or any member of the Group to take
has a reasonable prospect of success from a Counsel approved in
advance by HCC (such approval not to be unreasonably withheld or
delayed);
(iii) any Defending Action any Seller requests HCC or any member of the
Group to take is not materially prejudicial to the interests of any
HCC Group Company including any member of the Group provided that if
the Seller in question has satisfied the requirements contained in
paragraphs (i), (ii) and (iv) when this paragraph (iii) applies, the
amount of the Applicable Relevant Claim shall be reduced:
(A) in any case where the interests of a member of the Group would
be materially prejudiced by the taking of Defending Action
against a third party, by one half of the amount which, on the
balance of probabilities, HCC or the relevant member of the
Group could reasonably have been expected to recover under such
Defending Action or by which the liability of the Applicable
Relevant Claim could reasonably have been expected to be reduced
by such Defending Action; and
(B) in any case where the interests of the Group would not be
materially prejudiced by the taking of Defending Action against
a third party, the whole of the amount which, on the balance of
probabilities, HCC or the relevant member of the Group could
reasonably have been expected to recover under such Defending
Action or by which the liability of the Applicable Relevant
Claim could reasonably have been expected to be reduced by such
Defending Action; and
(iv) the Seller indemnifies and provides security to HCC and the Group on
an after Tax basis to their reasonable satisfaction against all
liabilities, costs, damages, charges and expenses which may be
incurred thereby or, at HCC's option, provides HCC and each relevant
member of the Group with funds to their reasonable satisfaction to
cover, on an after Tax basis, any reasonably foreseeable costs,
liabilities, damages, costs, expenses or charges which may be
incurred.
Any claim brought by any third party against any member of the Group in
respect of which HCC is under an obligation under this paragraph 10.1 to
notify
106
the Sellers is referred to as a "Notifiable Claim". Failure by HCC to
notify the Representative of a Notifiable Claim shall not relieve any
Seller from any liability that he may have to HCC, any member of the Group
or any other HCC Group Company under this Agreement except (subject to the
sentence below) to the extent that such Seller demonstrates that the
defence of such Notifiable Claim is materially prejudiced by HCC's failure
to give notice to the Representative and/or that such failure or delay has
substantially increased the liability of such Seller in respect of such
claim (such exceptions are referred to as "Exceptions to Liability").
Failure by HCC to notify the Representative of a Notifiable Claim shall not
relieve any Seller from any liability that he may have to HCC, any member
of the Group or any other HCC Group Company under this Agreement if any
Seller has knowledge of such Notifiable Claim and, in such a case, the
Exceptions to Liability shall not apply.
10.2 Subject to the provisos in paragraph 10.1 above, HCC shall not settle or
admit, and shall ensure that no member of the Group settles or admits
liability in respect of a Notifiable Claim in respect of which any Seller
has requested HCC and/or any member of the Group to take any Defending
Action without the prior written consent of that Seller or the
Representative such consent not to be unreasonably withheld or delayed
provided that HCC and any member of the Group may settle any Notifiable
Claim if HCC reasonably considers that the terms of such settlement are
reasonable and any continuing defence of such Notifiable Claim is likely to
be materially prejudicial to the interests of any HCC Group Company
(including any member of the Group).
11. If the Seller(s) pay to an HCC Group Company an amount in respect of a
Relevant Claim other than a Relevant Claim relating to a Tax Warranty and
an HCC Group Company subsequently recovers from another person an amount
which is referable to the matter giving rise to the Relevant Claim:
11.1 if the aggregate amount paid by the Seller(s) in respect of the Relevant
Claim is more than the Sum Recovered, HCC shall immediately pay to the
Representative the Sum Recovered; and
11.2 if the aggregate amount paid by the Seller(s) in respect of the Relevant
Claim is less than or equal to the Sum Recovered, HCC shall immediately pay
to the Representative an amount equal to the amount paid by the Seller(s).
11.3 Where more than one Seller has paid to an HCC Group Company an amount in
respect of a Relevant Claim, any amounts payable by HCC under paragraph
11.1 or 11.2 shall be apportioned between each such Seller in the
proportion which each such Seller's contribution to the Relevant Claim
bears to the total amount paid by all such Sellers in respect of the
Relevant Claim but provided that if any amount payable by any HCC Group
Company under this paragraph 11 is paid as the Representative shall direct,
such payment shall constitute complete discharge of the obligation of such
HCC Group Company and such HCC Group Company shall not be concerned to see
that the payment is applied in paying the Sellers in accordance with their
respective entitlements.
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11.4 For the purposes of this paragraph 11, "SUM RECOVERED" means an amount
equal to the total of the amount recovered from the other person (less any
Tax suffered by any HCC Group Company in respect thereof and all costs
properly incurred by any HCC Group Company in recovering the amount from
the person) plus any interest (at LIBOR at the start of the period referred
to below) in respect of such net amount for the period following the
recovery of the amount from that person and after the payment by the
Seller(s) of the Relevant Claim.
12.1 Subject to paragraph 12.2, a Seller is not liable in respect of a Relevant
Claim or a claim under Section 8.1 if and to the extent that ▇▇▇▇▇▇▇ ▇. Way
or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ of HCC or any other Relevant Employee has actual
knowledge that a member of the Group has a right of recovery against a
third party (other than another HCC Group Company), there is a reasonable
prospect of success and HCC does not procure that such member of the Group
has taken reasonable steps to enforce such right.
12.2 Paragraph 12.1 shall not apply where the provisions of such paragraph would
otherwise jeopardise the member of the Group's entitlement to make recovery
against the relevant third party or where the relevant Warranty is
breached, untrue or misleading by reason of Tax on income, profits or
gains, earned, accrued or received on or before December 31, 1998 or Tax in
respect of an event occurring on or before December 31, 1998; and
12.3 Paragraph 12.1 shall not apply unless:
(i) (subject to HCC's compliance with paragraph 12.1) the Seller has
admitted liability for the Relevant Claim or claim under Section 8.1
subject to the terms of this Agreement;
(ii) the Seller has first obtained an opinion indicating that the relevant
member of the Group has a reasonable prospect of success from a
Counsel approved in advance by HCC (such approval not to be
unreasonably withheld or delayed);
(iii) the exercise of any such right of recovery is not materially
prejudicial to the interests of any HCC Group Company including any
member of the Group provided that if the Seller in question has
satisfied the requirements contained in paragraphs (i), (ii) and (iv)
when this paragraph (iii) applies, the amount of the claim against
such Seller shall be reduced:
(A) in any case where the interests of a member of the Group would
be materially prejudiced by the exercise of such right of
recovery against a third party which is a customer of the Group,
by one half of the amount which, on the balance of
probabilities, HCC or the relevant member of the Group could
reasonably have been expected to recover or by which the
liability of the claim against
108
the relevant Seller could reasonably have been expected to be
reduced by such recovery; and
(B) in any case where the interests of an HCC Group Company (other
than a member of the Group) would not be materially prejudiced
by the exercise of such right of recovery against a third party,
the whole of the amount which, on the balance of probabilities,
HCC or the relevant member of the Group could reasonably have
been expected to recover or by which the liability of the claim
against the relevant Seller could reasonably have been expected
to be reduced by such recovery; and
(iv) the Seller indemnifies and provides security to HCC and the Group on
an after Tax basis to their reasonable satisfaction against all
liabilities, costs, damages, charges and expenses which may be
incurred thereby or, at HCC's option, provides HCC and each relevant
member of the Group with funds to their reasonable satisfaction to
cover, on an after Tax basis, any reasonably foreseeable costs,
liabilities, damages, costs, expenses or charges which may be
incurred.
12.4 Nothing in paragraphs 12.1 to 12.3 shall prevent HCC from bringing a
Relevant Claim or Claim under Section 8.1 subsequently (and whether or not
the relevant time periods referred to in paragraph 5 have expired provided
always that written notice of such claim was given to the relevant
Seller(s) in accordance with paragraph 5) if after the relevant member of
the Group has taken steps to enforce the right of recovery against a third
party it becomes clear that such recovery is unlikely to be successful and
HCC has obtained an opinion from a Counsel reasonably acceptable to the
Sellers indicating such an opinion or if and to the extent that the
relevant member of the Group has not made full recovery against the
relevant third party within 2 years of first taking steps to enforce such
rights.
13. If HCC or any member of the HCC Group (including any member of the Group)
is taking any steps to enforce any right of recovery against a third party
in respect of any matter or circumstance which gave rise to a Relevant
Claim then that part of the time period for notifying the Relevant Claim as
set out in paragraph 5.1 or 5.2 has not elapsed at the date of first taking
steps to enforce against the third party shall be suspended during the
period in which the HCC or such member of the HCC Group is taking steps to
enforce its right of recovery against the third party.
14. HCC is not entitled to recover more than once in respect of the same damage
or loss suffered.
15. Any payment in respect of a Relevant Claim shall be treated as a reduction
in the purchase price payable under the Agreement and in the amount
received by the relevant Seller to the extent of such payment.
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16. Nothing in this Schedule 4:
(a) (subject to paragraph (b) below), restricts or limits the general
obligation of HCC at law to mitigate any loss or damage which it may
incur in consequence of a matter giving rise to a Relevant Claim; or
(b) (subject to paragraphs 10.1(iii)(A) and (B) and paragraph 12.3(iii)(A)
and (B)), requires HCC or any other HCC Group Company including any
member of the Group to do anything which would be materially
prejudicial to its interests.
17. If at any time after the date of this Agreement a Seller wishes to insure
against its liability in respect of Relevant Claims, subject to that Seller
reimbursing all the costs properly incurred by HCC to comply with this
paragraph and to the Seller and the relevant prospective insurer executing
and delivering such document(s) reasonably acceptable to HCC confirming
that they will keep confidential all information provided to them by HCC
and any HCC Group Company, HCC shall promptly provide such information in
relation to itself and/or any HCC Group Company as a prospective insurer
may reasonably require before effecting the insurance provided that for the
avoidance of doubt nothing in this paragraph shall require any HCC Group
Company to disclose any information in breach of a duty to a third party to
keep such information confidential.
18. Notwithstanding any other provision of this Agreement, no Tax relief, Tax
saving or other Tax benefit will be taken into account in reducing any
claim which HCC may have against a Seller under this Agreement or will give
rise to an obligation on the part of HCC to make a payment to any Seller
under this Agreement to the extent that it has been taken into account in
reducing any claim made by HCC under the Tax Covenant or given rise to a
payment or an increased payment by HCC under the Tax Covenant or would have
reduced such claim or given rise to such payment or increased payment but
for the application of the(pound)25,000 limit in clause 6(A) or clause
3(vii) thereof.
SCHEDULE 5
PROPERTY LEASES
PROPERTY LEASES WITH UNREGISTERED TITLES
---------------------------------------- --------------------- -------------------- ---------------- ------------------
PRESENT LESSEE (OWNER) DATE OF LEASE PARTIES TERM CURRENT ANNUAL
RENTAL
---------------------------------------- --------------------- -------------------- ---------------- ------------------
RML 5.12.1994 (together The Prudential 29.9.1994 to (pound)144,193
with Deeds of Assurance Company 28.9.2009
Variation dated Limited (1)
20.4.1995 and RML (2)
15.1.1999)
---------------------------------------- --------------------- -------------------- ---------------- ------------------
RML 15.1.1999 The Prudential 15.1.1999 to(pound)156,752 (but
Assurance Company 28.9.2009 rent free to
Limited (1) 14.4.1999)
RML (2)
---------------------------------------- --------------------- -------------------- ---------------- ------------------
PROPERTY LEASES WITH UNREGISTERED TITLES
---------------------------------------- ------------------------- --------------------
PRESENT LESSEE (OWNER) SHORT DESCRIPTION CURRENT USE
---------------------------------------- ------------------------- --------------------
RML Third Floor and Offices and
Basement Storerooms C basement storage
and ▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇
---------------------------------------- ------------------------- --------------------
RML Second Floor and Offices and
Basement Storerooms Q basement storage
and J, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇
---------------------------------------- ------------------------- --------------------
SCHEDULE 6
HCC'S OBLIGATIONS PENDING REDEMPTION OF THE INITIAL SHORT TERM LOAN NOTES
Pending redemption of the Initial Short Term Loan Notes or, if later,
enforcement by the Representative of the rights vested in him under and in
accordance with the terms of the Deed of Charge, HCC shall procure that (except
with the prior written consent of the Representative) each member of the Group
will carry on its business in the ordinary course consistent with past practices
with a view to maintaining the business of the relevant company as a going
concern and without prejudice to the generality of the foregoing HCC shall
procure that:
(a) each member of the Group shall use reasonable endeavours to keep available
the services of its present officers and employees and use reasonable
endeavours to preserve the goodwill of those having business relationships
with it;
(b) no dividend or other distribution shall be declared, made or paid by any
member of the Group otherwise than to another member of the Group;
(c) no share or loan capital (or options to subscribe to the same) shall be
allotted, issued, redeemed or purchased or agreed to be allotted, issued,
redeemed or repurchased by any member of the Group;
(d) no member of the Group shall sell or otherwise dispose of the whole or any
part of its business or assets other than in the ordinary course of its
trading;
(e) each member of the Group shall take all reasonable steps to comply with the
terms of all contracts in the ordinary and usual course consistent with
past practice and will not make any material alteration to the terms of any
existing contract;
(f) no member of the Group shall incur or guarantee, except in the ordinary
course of business consistent with past practice, any obligation for
borrowed money or cancel or compromise any debts owed to it or waive or
release any rights of material value;
(g) no member of the Group will purchase, acquire, sell or otherwise dispose of
(whether by grant of lease or otherwise) or create any security interest,
lien or other encumbrance over any company, shares or securities, business
or property;
(h) each member of the Group shall maintain in full force and effect all
insurance coverage in force at Closing;
(i) no amendment is made to the memorandum or articles of association of any
member of the Group;
(j) no member of the Group pays any management or similar charge to any other
member of the HCC Group;
(k) unless it is unable to pay its debts within the meaning of Section 123(a)
and (b) of the Insolvency ▇▇▇ ▇▇▇▇ at the date of this Agreement, there is
no winding up of any member of the Group;
(l) neither the shares in nor business and assets of ▇▇▇▇▇ or RML shall be
transferred, assigned, sold or otherwise disposed of nor shall any security
interest, lien or other encumbrance be created over any such shares or
assets; and
(m) no member of the Group will agree to do anything that is not permitted in
accordance with the above.
HCC further agrees and undertakes to procure that after the security under the
Deed of Charge has become enforceable and for so long as it remains enforceable,
HCC and each member of the HCC Group (including each member of the Group) shall
take all necessary steps to give full effect to the rights of the Representative
under the Deed of Charge.
HCC INSURANCE HOLDINGS, INC.
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Title: Executive Vice President
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, INC.
By: ▇.▇. ▇▇▇▇ as attorney for
Name: ▇.▇. ▇▇▇▇
Title: CEO
▇.▇. ▇▇▇▇ as attorney for
▇▇▇▇▇▇ ▇▇▇▇, Individually
▇.▇. ▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇, Individually
▇.▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Individually
▇▇▇▇▇▇▇▇▇▇▇ F.B. ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇, Individually
▇.▇. ▇▇▇▇ as attorney for
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Individually
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, Individually
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇, Individually