Exhibit 10.4
EXECUTION COPY
CONTRIBUTION AND EXCHANGE AGREEMENT ("Agreement") made as of November
11, 2005 by and among Alleghany Insurance Holdings LLC, a Delaware limited
liability company ("AIHL"), Darwin Group, Inc., a Delaware corporation ("Darwin
Group"), and Darwin Professional Underwriters, Inc., a Delaware corporation
("DPUI").
WHEREAS, AIHL currently owns 10,000 shares of common stock of Darwin
Group, par value $.10 per share (the "Darwin Group Common Stock"), representing
all of the issued and outstanding shares of Darwin Group Common Stock; and
WHEREAS, AIHL intends to make a capital contribution to Darwin Group
(the "Capital Contribution") in the amount of $135,000,000; and
WHEREAS, as of the date hereof, AIHL owns 400,000 shares of common
stock of DPUI, par value $.10 per share (the "DPUI Common Stock"), representing
80% of the issued and outstanding shares of DPUI Common Stock, and 105,300
shares of Series A Preferred Stock of DPUI, par value $.10 per share (the
"Series A Preferred Stock"), representing all of the issued and outstanding
shares of Series A Preferred Stock; and
WHEREAS, pursuant to the terms of a restricted stock plan established
by DPUI (the "DPUI Restricted Stock Plan"), certain employees of the Darwin
Companies (as defined herein) (the "Restricted Stockholders") may be awarded an
aggregate of 100,000 restricted shares of DPUI Common Stock, representing 20% of
the issued and outstanding shares of DPUI Common Stock (the "Restricted DPUI
Shares"); and
WHEREAS, as of the date hereof, 91,250 Restricted DPUI Shares are
issued and outstanding under the DPUI Restricted Stock Plan; and
WHEREAS, pursuant to the terms of a long term incentive plan
established by DPUI (the "DPUI LTIP"), certain employees of the Darwin Companies
(as defined herein) (the "LTIP Participants") have been awarded interests in
annual profit pools established under the DPUI LTIP; and
WHEREAS, the parties contemplate that, on a date to be determined by
AIHL as soon as practicable after the completion of the 2005 audited financial
statements of Darwin Group and DPUI (the "Exchange Date"), (i) AIHL will
transfer, or cause to be transferred, to DPUI, either by exchange or by merger
of Darwin Group with and into DPUI (with DPUI as the surviving corporation in
the merger), all of the shares of Darwin Group Common Stock in exchange for
shares of a new series of DPUI preferred stock having an aggregate liquidation
preference equal to the GAAP Book Value (as defined herein) of Darwin Group on
December 31, 2005, such new series of preferred stock to be designated as Series
B Convertible Preferred Stock and to have the terms and conditions set forth on
Exhibit A hereto, including the payment of dividends on such Series B
Convertible Preferred Stock in the form of a new series of DPUI preferred stock
to be
designated as Series C Preferred Stock, and (ii) immediately following such
transfer of Darwin Group to DPUI (the "Darwin Group Transfer"), AIHL will
transfer to DPUI the 400,000 shares of DPUI Common Stock owned by AIHL in
exchange for additional shares of Series A Preferred Stock having an aggregate
liquidation preference equal to the GAAP Book Value of such 400,000 shares of
DPUI Common Stock on December 31, 2005; and
WHEREAS, in connection with the Capital Contribution and the Darwin
Group Transfer, DPUI has amended and restated the DPUI Restricted Stock Plan,
effective as of the date hereof, and has entered into an amended and restated
restricted stock award agreement with each of the Restricted Stockholders; and
WHEREAS, in connection with the Capital Contribution and the Darwin
Group Transfer, DPUI has amended and restated the DPUI LTIP, effective as of the
date hereof; and
WHEREAS, in connection with the Capital Contribution and the Darwin
Group Transfer, DPUI has entered into an amended and restated employment
agreement with each of Xxxxxxx X. Xxxxx and Xxxx X. Xxxxx, effective as of the
date hereof; and
WHEREAS, AIHL currently owns all of the issued and outstanding shares
of common stock of each of Capitol Indemnity Corporation, Capitol Specialty
Insurance Corporation and Platte River Insurance Company (collectively, the
"Capitol Companies"); and
WHEREAS, each of Darwin Group and DPUI acknowledges that the Capital
Contribution is to a large extent a bridge financing and that AIHL desires,
although AIHL is not required, to reduce its equity interest in Darwin Group
(prior to the Exchange Date) and/or in DPUI (subsequent to the Exchange Date) as
soon as reasonably practicable; and
WHEREAS, in connection with the Capital Contribution and the Darwin
Group Transfer, AM, Darwin Group and DPUI desire to enter into the covenants and
agreements provided for herein; and
NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, the parties hereto agree as follows:
1. Capital Contribution.
On the a date to be mutually agreed by Darwin Group and AIHL (the
"Contribution Date"), but prior to the Exchange Date, AIHL will make the Capital
Contribution in the amount of $135,000,000 to Darwin Group.
2. Darwin Group Transfer; Exchange of DPUI Common Stock.
(a) AIHL agrees to transfer, or cause to be transferred, to DPUI on
the Exchange Date, either by exchange or by merger of Darwin Group with and into
DPUI
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(with DPUI as the surviving corporation in the merger), all of the shares of
Darwin Group Common Stock in exchange for shares of a new series of DPUI
preferred stock having an aggregate liquidation preference equal to the GAAP
Book Value of Darwin Group on December 31, 2005, such new series of preferred
stock to be designated as Series B Convertible Preferred Stock and to have the
terms and conditions set forth on Exhibit A hereto (the "Series B Preferred
Stock"), including the payment of dividends on such Series B Preferred Stock in
the form of a new series of DPUI preferred stock to be designated as Series C
Preferred Stock, which Series C Preferred Stock shall have the terms and
conditions set forth on Exhibit B hereto (the "Series C Preferred Stock"). DPUI
agrees to issue such shares of Series B Preferred Stock to AIHL on the Exchange
Date.
(b) On the Exchange Date, immediately following the Darwin Group
Transfer, AIHL agrees to transfer to DPUI the 400,000 shares of DPUI Common
Stock owned by AIHL in exchange for additional shares of Series A Preferred
Stock having an aggregate liquidation preference equal to the GAAP Book Value of
such 400,000 shares of DPUI Common Stock on December 31, 2005. DPUI agrees to
issue such additional shares of Series A Preferred Stock to AIHL on the Exchange
Date.
3. Reduction of AIHL Ownership.
Each of Darwin Group and DPUI acknowledges and agrees that the Capital
Contribution is to a large extent a bridge financing and that AIHL desires,
although AIHL is not required, to reduce its equity interest in Darwin Group
(prior to the Exchange Date) and/or its equity interest in DPUI (subsequent to
the Exchange Date) as soon as reasonably practicable, either through sales of
securities of Darwin Group and/or DPUI by AIHL to Third Parties or in an IPO the
proceeds of which are used to redeem shares of Series B Preferred Stock held by
AIHL. In the event that, prior to the Exchange Date, AIHL sells shares of DPUI
Common Stock, AIHL shall cause the purchaser of such shares of DPUI Common Stock
to agree to transfer such shares of DPUI Common Stock to DPUI, on the Exchange
Date, in exchange for shares of Series B Preferred Stock on the terms set forth
in Section 2(a) above.
4. Related Party Transactions.
Each of AIHL, Darwin Group and DPUI acknowledges and agrees that
certain of the Darwin Companies have engaged and will continue to engage in
various transactions with the Capitol Companies and other Affiliates of AIHL in
respect of insurance policies underwritten by the Darwin Companies and other
business arrangements (the "Related Party Transactions") and that, while such
parties have been wholly-owned Subsidiaries of AIHL, such Related Party
Transactions have not necessarily reflected arm's-length arrangements. In this
regard, and in contemplation of the transfer of Darwin Group to DPUI (whereupon
Darwin Group will no longer be a wholly-owned Subsidiary of AIHL), each of
Darwin Group and DPUI, for itself and for all of the Darwin Companies, does
hereby consent and agree to the modifications of the existing arrangements
between the Darwin Companies and the Capitol Companies described on Exhibit C
hereto.
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5. Registration Rights Agreement.
DPUI agrees to enter into a registration rights agreement with AIHL
(which shall be assignable by AIHL to any Person or Persons who become holders
of Series B Preferred Stock) providing for customary demand registration rights
prior to and following an IPO, and for customary demand and piggy-back
registration rights subsequent to an IPO.
6. Certain Activities.
(a) Each of Darwin Group and DPUI, for itself and for all of the
Darwin Companies, does hereby consent and agree that AIHL and its Affiliates (as
defined herein), officers, directors, employees and agents (including without
limitation those officers, directors, employees and agents of AIHL and its
Affiliates who serve as officers and/or directors of any of the Darwin
Companies) may, alone or in combination with any other Person (as defined
herein), engage in activities or businesses, make or retain investments in and
acquisitions of any Person, and enter into partnerships and joint ventures with
any Person, whether or not competitive now or in the future with the businesses
or activities of the Darwin Companies, and none of the Darwin Companies shall
have the right to disclosure of any information in regard thereto, to
participate therein, or to derive any profits therefrom. Notwithstanding the
foregoing, this Section 6(a) shall not permit AIHL to use confidential
information with respect to the Darwin Companies in connection with any of the
activities described in the preceding sentence, unless such information (i) was
developed by or provided to a Darwin Company by AIHL or an Affiliate of AIHL,
(ii) is or becomes available in the public domain other than as a result of
disclosure by AIHL or an Affiliate of AIHL, or (iii) is acquired from a Person
who is not known by AIHL or its Affiliate receiving such information to be in
breach of an obligation of confidentiality to a Darwin Company.
(b) Each of Darwin Group and DPUI, for itself and for all of the
Darwin Companies, does hereby consent and agree that neither AIHL nor any of its
Affiliates, officers, directors, employees or agents shall have any obligation
to refer to the Darwin Companies any business opportunity presented or developed
by any of them and that the Darwin Companies have no expectation of any such
business opportunity.
7. Regulatory Matters.
AIHL and each of Darwin Group and DPUI, for itself and for all of the
Darwin Companies, agrees to cooperate in connection with any determinations
required to be made by any of them concerning actions required to be taken
(including but not limited to the submission of applications for the licensing
or qualification of natural and other Persons by Governmental Authorities (as
defined herein) having jurisdiction over the business of the Darwin Companies
and to the submission of applications regarding the acquisition of ownership of
shares of capital stock of Darwin Group or DPUI by Third Parties), and in the
taking of such actions, so that the Darwin Companies, AIHL and any Third Parties
acquiring ownership of shares of capital stock of Darwin Group and/or DPUI and,
to the extent required by applicable law, their respective Affiliates,
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shall be in compliance with all applicable law and the rules and regulations
prescribed thereunder relating to the conduct of the business of the Darwin
Companies and to the ownership of shares of capital stock of Darwin Group and/or
DPUI.
8. Representations and Warranties.
(a) Each of AIHL, Darwin Group and DPUI hereby represents and warrants
to the other parties as follows:
(i) it has full power and authority to execute, deliver and
perform its obligations under this Agreement; and
(ii) this Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
(b) DPUI hereby represents and warrants to each of AIHL and Darwin
Group as follows:
(i) DPUI has amended and restated the DPUI Restricted Stock Plan,
effective as of the date hereof, in the form attached as Exhibit D hereto, and
each of the Restricted Stockholders has consented to such amendment and
restatement of the DPUI Restricted Stock Plan;
(ii) DPUI has entered into an amended and restated restricted
stock award agreement, effective as of the date hereof, in the form attached as
Exhibit E hereto, with each of the Restricted Stockholders;
(iii) DPUI has amended and restated the DPUI LTIP, effective as
of the date hereof, in the form attached as Exhibit F hereto, and each of the
LTIP Participants has consented to such amendment and restatement of the DPUI
LTIP;
(iv) DPUI has entered into an amended and restated employment
agreement with Xxxxxxx X. Xxxxx, effective as of the date hereof, an executed
copy of which has previously been delivered to each of AIHL and Darwin Group;
and
(v) DPUI has entered into an amended and restated employment
agreement with Xxxx X. Xxxxx, effective as of the date hereof, an executed copy
of which has previously been delivered to each of AIHL and Darwin Group.
9. Definitions.
"Affiliate," when used with reference to any Person, shall mean
another Person that directly, or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified. The term "control" (including the terms "controlled by" and "under
common control with") means the
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ability, directly or indirectly, to direct or cause the direction of the
management and policies of the Person in question; provided, however, that for
purposes hereof, (i) none of the Darwin Companies shall be deemed to be an
Affiliate of AIHL or of any Affiliate of AIHL and (ii) neither AIHL nor any
Affiliate of AIHL shall be deemed to be an Affiliate of any of the Darwin
Companies.
"Darwin Companies" means, collectively, Darwin Group, the Subsidiaries
of Darwin Group, and DPUI.
"Employee Representative" means Xxxxxxx X. Xxxxx or, in the event of
Xxxxxxx X. Xxxxx' unavailability to serve as the Employee Representative, such
other Person who is a holder of Restricted DPUI Shares as is elected to serve as
the Employee Representative by holders of a majority of the number of Restricted
DPUI Shares then outstanding.
"GAAP" means generally accepted accounting principles as in effect as
of the date of reference.
"GAAP Book Value" means net book value determined in accordance with
GAAP.
"Governmental Authorities" means the government of the United States
of America and any state, commonwealth, territory, possession, county, or
municipality thereof, or the government of any political subdivision of any of
the foregoing, any foreign government, or any entity, authority, agency,
ministry or other similar body exercising executive, legislative, judicial,
regulatory or administrative authority or functions of or pertaining to
government, including any authority or other quasigovernmental entity
established to perform any of such functions, including without limitation all
governmental authorities or agencies with regulatory control or jurisdiction
over the insurance operations of the Darwin Companies.
"IPO" means the initial public offering of DPUI Common Stock pursuant
an effective registration statement under the Securities Act of 1933, as
amended, in connection with which the DPUI Common Stock becomes listed on a U.S.
national securities exchange or traded on the Nasdaq National Market System.
"Person" means any natural person, corporation, partnership, limited
partnership, limited liability company, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or any other
entity.
"Subsidiary" means, with respect to any Person, (i) a corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation are at the time
owned, directly or indirectly, through one or more intermediaries, by such
Person, or (ii) in the case of unincorporated entities, any such entity with
respect to which such Person has the power, directly or indirectly, to designate
more than 50% of the individuals exercising functions similar to a board of
directors.
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"Third Party" means any Person other than AIHL or an Affiliate of
AIHL.
10. Further Assurances.
Each of AIHL, Darwin Group and DPUI agrees, at any time or from time
to time after the date hereof, to cooperate with the other parties hereto, and
at the request of any other party hereto, to execute and deliver any further
instruments or documents and to take all such further action as any other party
may reasonably request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out the purposes
hereof. Without limitation of the foregoing, DPUI agrees to amend the terms of
the Series A Preferred Stock to provide that the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall rank pari passu.
11. Amendment and Waiver.
No modification, amendment or waiver of any provision of this
Agreement shall be effective unless such modification, amendment or waiver is
approved in writing by each of AIHL, Darwin Group and DPUI; provided, however,
that any changes to the modifications of the arrangements between the Darwin
Companies and the Capitol Companies described on Exhibit C hereto shall also
require the approval in writing of the Employee Representative. The failure of
any party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
12. Entire Agreement.
This Agreement, together with the exhibits hereto and the other
writings referred to herein or delivered pursuant hereto, which form a part
hereof, contain the entire agreement and understanding among the parties with
respect to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related, to the subject matter hereof in any way.
13. Successors and Assigns.
This Agreement shall bind and inure to the benefit of and be
enforceable by AIHL, Darwin Group, DPUI and each of their respective successors,
assigns, heirs and personal representatives. AIHL shall have the right to assign
all or part of its rights and obligations under this Agreement, without the
consent of Darwin Group or DPUI, to any Third Party that acquires shares of
capital stock of Darwin Group and/or DPUI in connection with an AIHL Sale.
Except as provided in the preceding sentence, no party shall have the right to
assign all or part of its rights and obligations under this Agreement without
the consent of the other parties hereto. Upon any such assignment, such assignee
shall have and be able to exercise and enforce all rights of the assigning party
which are assigned to it and, to the extent such rights are assigned, any
reference to the assigning party shall be treated as a reference to the
assignee.
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14. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
15. Remedies.
Each party shall be entitled to enforce its rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that each
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
16. Notices.
All notices, requests and other communications pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given, if
delivered in person or by courier, or sent by express, registered or certified
mail, postage prepaid, to AIHL or to Darwin Group or to DPUI at the address set
forth below:
If to AIHL:
Alleghany Insurance Holdings LLC
c/o Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Chairman
with a copy to:
Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
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If to Darwin Group:
Darwin Group, Inc.
0 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chairman
with a copy to:
Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
If to DPUI:
Darwin Professional Underwriters, Inc.
0 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chairman
with a copy to:
Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
Any party may, by written notice to the other party hereto, change the address
to which notices to such party are to be delivered or mailed.
17. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each of the
parties hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the state and federal courts located in
the State of Delaware for the purposes of enforcing this Agreement. The parties
shall take such actions as are within their control to cause any matter
contemplated hereby to be assigned to the Chancery Court of the State of
Delaware. In any action, suit or other proceeding, each of the parties hereto
irrevocably and unconditionally waives and agrees not to assert by way of
motion, as a defense or otherwise any claim that it is not subject to the
jurisdiction of the above courts, that such action or suit is brought in an
inconvenient forum or that the venue of such action, suit or other proceeding is
improper. Each of the parties hereto also agrees that any final and unappealable
judgment against a party hereto in connection with any action,
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suit or other proceeding shall be conclusive and binding on such party and that
such award or judgment may be enforced in any court of competent jurisdiction,
either within or outside of the United States. A certified or exemplified copy
of such award or judgment shall be conclusive evidence of the fact and amount of
such award or judgment. Each of the parties hereto hereby irrevocably waives any
and all right to trial by jury in any legal proceeding arising out of or related
to this Agreement or the transactions contemplated hereby.
18. Descriptive Headings.
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
19. Survival of Representations and Warrants.
All representations and warranties contained in this Agreement or made
in writing by any party in connection herewith shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby regardless of any investigation made by, or on behalf of, the other party
hereto.
20. Counterparts.
This Agreement may be executed in separate counterparts each of which
shall be an original and all of which taken together shall constitute one and
the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first above written.
ALLEGHANY INSURANCE HOLDINGS LLC
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
DARWIN GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
DARWIN PROFESSIONAL UNDERWRITERS, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
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