Exhibit 10.1
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is entered into on
the 1st day of April, 2003, by and among M. Xxxxx Xxxxx, and any successor
thereto, in her, or his capacity as the statutory Liquidator (the "Liquidator")
of Reliance Insurance Company ("Reliance"), and the Official Unsecured Bank
Committee (the "Bank Committee") and the Official Unsecured Creditors' Committee
(collectively with the Bank Committee, the "Committees") of Reliance Group
Holdings, Inc. ("RGH") and Reliance Financial Services Corp. ("RFSC" and,
together with RGH, the "Debtors").
RECITALS
WHEREAS, the parties hereto have been involved in various
disputes with respect to: (A) the ownership interests of the Debtors' estates,
on the one hand, and the Liquidator's Reliance estate, on the other hand,
relating to: (i) directors and officers insurance policies and the proceeds
thereof; (ii) cash now or hereafter held by the Debtors; (iii) the NOLs (as
defined below); and (iv) the ss. 847 Refunds (as defined below); and (B) the
amount of the Liquidator's allowed claim in the Debtors' bankruptcy proceedings;
and
WHEREAS, the parties do not concede or admit the merits of any
of the foregoing disputes; and
WHEREAS, in the interest of avoiding the cost of further
litigation and conserving the assets of the liquidation estate of Reliance and
the bankruptcy estates of RGH and RFSC, the parties wish to settle and resolve
all their differences on the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereto agree as follows:
1. Effectiveness of Settlement. The terms of this Agreement effectuating the
settlement as set forth herein shall be effective upon the satisfaction of each
of the following conditions on or prior to August 31, 2003:
a. the United States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court") shall have entered an order pursuant to the Rule 9019
Motion (as defined in Section 7(d) hereof) approving this Agreement and
containing all provisions specifically required in this Agreement to be included
therein, and such order shall otherwise be consistent in all material respects
with this Agreement; and
b. the Commonwealth Court of Pennsylvania (the "Commonwealth Court") shall have
entered an order approving this Agreement and containing all provisions
specifically required in this Agreement to be included therein, and such order
shall otherwise be consistent in all material respects with this Agreement;
provided that, in the event such conditions are not so
satisfied, this Agreement shall terminate without any obligation or liability of
any kind by any party to another party or to RGH or RFSC, except for any breach
of any party's obligations under Section 7(b), 7(c), 7(d), 7(f), 7(g) or 7(h) of
this Agreement.
2. ss. 847 Refunds. Reliance, RGH and RFSC are members of a
consolidated group for federal income tax purposes (the "RGH Tax Group"). A new
consolidated federal income tax group with RFSC as the common parent and with
Reliance as a member will be formed (the "RFSC Tax Group"). Reliance and any of
its subsidiaries which are currently members of the RGH Tax Group hereby agree
to join in the filing and will execute and deliver the necessary consents to
file a consolidated federal income tax return as part of the RFSC Tax Group and
RFSC hereby agrees to and will file a consolidated return with Reliance and any
such subsidiaries. The members of such RFSC Tax Group hereby further agree not
to take any actions that would cause a disaffiliation of Reliance from the RFSC
Tax Group. The RGH Tax Group has amended or will amend certain past tax returns
(including, but not necessarily limited to, the 1988-1992 tax years) in order to
designate certain tax payments as "special estimated tax payments" under ss. 847
of the Internal Revenue Code of 1986, as amended (the "IRC"). Such payments may
become available for refund pursuant to IRC ss. 847 (the "New ss. 847 Refunds").
In addition to the New ss. 847 Refunds created by amending those certain tax
returns, Reliance, through the RGH Tax Group, has made significant other
"special estimated tax payments" under IRC ss. 847 (the "Original 847 Refunds"
and together with the New ss. 847 Refunds, the "ss. 847 Refunds"). The RGH Tax
Group will be terminated as part of a plan or plans of reorganization of RGH and
RFSC (the "Plan(s) of Reorganization"). Each of the RGH Tax Group (until its
termination), the RFSC Tax Group (upon its formation) and the Committees will
take all steps necessary to maximize the receipt of ss. 847 Refunds. The
recipient of the ss. 847 Refunds shall be deemed to hold: (i) fifty percent
(50%) of each of such ss. 847 Refunds in trust for the sole benefit of the
Liquidator and the Liquidator will promptly be paid such fifty percent (50%)
share of the amount of each of such ss. 847 Refunds actually received, without
set-off or offset; and (ii) fifty percent (50%) of each of such ss. 847 Refunds
in trust for the sole benefit of a liquidating trustee to be appointed under the
Plan(s) of Reorganization (the "Liquidating Trustee"), and the Liquidating
Trustee will promptly be paid such fifty percent (50%) share of the amount of
each of such ss. 847 Refunds actually received, without set-off or offset.
3. NOLs. The RGH Tax Group has substantial net operating
losses for federal income tax purposes and may generate additional such losses
prior to its termination. The RFSC Tax Group will inherit substantial portions
of such losses from the RGH Tax Group and may generate additional net operating
losses in the future (together, all such RGH Tax Group losses inherited by the
RFSC Tax Group and all subsequent losses generated by the RFSC Tax Group, the
"NOLs"). The Liquidator has informed the Committees that the NOLs attributable
to the operations of Reliance are estimated to exceed $2 billion through the end
of 2001. RGH, RFSC and Reliance (to cover the period during which the RGH Tax
Group remains in existence and Reliance remains a member) and RFSC and Reliance
(to cover the period beginning when the RFSC Tax Group is created) will enter
into certain Tax Sharing Agreements to govern the sharing of the respective
group's consolidated tax liability and various other tax matters. The Tax
Sharing Agreements will provide, and the parties to this Agreement also agree,
that: (i) NOLs attributable to the operations of Reliance of not less than $1.25
billion will be made available for RGH and RFSC (the "Base NOLs"); (ii) NOLs
attributable to the operations of Reliance, whether now existing or hereafter
created, in excess of the Base NOLs, shall remain available for the use of
Reliance in offsetting income generated in connection with the liquidation of
Reliance, including its ongoing insurance operations (the "Reliance NOLs");
(iii) in the event that Reliance, in its reasonable sole discretion, determines
that it no longer requires all or a portion of the Reliance NOLs, Reliance shall
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make such excess NOLs (the "Excess NOLs") available to RGH or RFSC; (iv) if and
to the extent that RGH creditors or RFSC creditors, through the utilization of
Base NOLs and/or Excess NOLs (after reduction of such NOLs by any cancellation
of indebtedness income realized in connection with the implementation of the
Plan(s) of Reorganization), receive any distribution other than the ss. 847
Refunds, or any distribution is received for their benefit by, inter alia, a
Liquidating Trustee, the Liquidator shall receive an amount equal to such
distribution (it being agreed and understood that, other than for the payments
provided under this subsection (iv), RGH and RFSC shall not be required to make
any payments to Reliance under the Tax Sharing Agreements, nor shall the amount
of income taxes otherwise payable by Reliance under the Tax Sharing Agreements
be reduced, on account of the Base NOLs and/or Excess NOLs); and (v) to the
extent that Reliance utilizes any of the Base NOLs (other than for offsetting
the Base NOLs against any taxable income resulting from the ss. 847 Refunds), or
to the extent that Reliance utilizes any of the Excess NOLs, Reliance shall pay
the Liquidating Trustee in cash $0.35 for every $1.00 of such NOLs utilized by
Reliance, and fifty percent (50%) of such payment shall be returned to the
Liquidator consistent with subsection (iv) of this Section, except and to the
extent that: (a) Reliance utilizes any Base NOLs or Excess NOLs that would
otherwise have been utilizable to offset either any taxable income resulting
from the ss. 847 Refunds or the cancellation of indebtedness income realized in
connection with implementation of the Plan(s) of Reorganization (both with
respect to the taxable year that the NOLs are utilized by Reliance and with
respect to future taxable years); or (b) the utilization of the Base NOLs or the
Excess NOLs by Reliance actually results in tax liability to the RFSC Tax Group
(with respect to the taxable year that the NOLs are utilized by Reliance and/or
future taxable years) that would otherwise not have been due had such Base NOLs
or Excess NOLs not been utilized by Reliance, but only where Reliance has
received or it is reasonably anticipated that Reliance will receive payment
regarding such Base NOLs or Excess NOLs under subsection (iv) of this Section.
It is understood that the actual use of the Base NOLs and Excess NOLs shall be
determined by RGH and RFSC in consultation with Reliance. For purposes of
calculating the amount of "any distribution" as used in paragraph (iv) above,
such calculations shall be made without regard to expenses incurred by any of
the parties hereto, the estates of RGH, RFSC, and any Liquidating Trustee. In
particular, to the extent the amount of "any distribution" has been reduced by
reason of an administrative expense of RGH, RFSC, or the Liquidating Trustee,
the amount payable to the Liquidator shall be increased to eliminate the effect
of such administrative expense. The parties further acknowledge that it is their
intent under this Agreement and the Tax Sharing Agreements that: (i) any taxable
income resulting from generation of the ss. 847 Refunds and cancellation of
indebtedness income realized in connection with implementation of the Plan(s) of
Reorganization (other than cancellation of indebtedness income realized by RGH
to the extent such income does not offset NOLs) shall be offset with Base NOLs
for purposes of this Agreement; and (ii) RGH and RFSC, and their successors and
assigns, shall not manage, operate, or structure the affairs of RGH, RFSC, or
any successor entity, including by consolidation, merger, partnership, or other
association, in such a way that will result in the utilization of the Reliance
NOLs; and RGH, RFSC and Reliance and their successors and assigns shall not
manage, operate or structure the affairs of RGH, RFSC, Reliance or any successor
entity, including by consolidation, merger, partnership or other association, in
such a way that will impair in any way the ability of the parties to utilize the
Base NOLs to offset income generated in connection with the ss. 847 Refunds.
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4. D&O Litigation.
a. The Actions. On June 24, 2002, the Liquidator commenced an
action against certain former officers and directors ("Defendants") of Reliance
(the "Reliance D&O Action") in the Commonwealth Court. So long as this Agreement
is in full force and effect, the Committees, RGH, RFSC, the Liquidating Trustee
or any other estate representative agree that they will not commence any action
against the Defendants (except for a preference action as hereinafter defined)
without the prior written consent of the Liquidator, which shall include the
Liquidator's consent as to the venue of such action.
b. Division of Proceeds. (i) Unless altered by the conditions
set forth in subsection (ii) of this Section 4(b), the gross proceeds (i.e.
before payment of any costs, contingent or other attorneys fees, etc.) realized
by the Liquidator, the Committees, RGH, RFSC, the Liquidating Trustee, or other
estate representative arising out of any litigation, claims, or causes of action
against any director or officer of RGH, RFSC, or Reliance under any of the
insurance policies listed on Exhibit A to this Agreement or from such directors
or officers, including any Defendant in the Reliance D&O Action (the
"Proceeds"), will be divided forty percent (40%) to the Liquidating Trustee (or
other appropriate representative of the Debtors' estates) and sixty percent
(60%) to the Liquidator; it being understood that the division of the Proceeds
shall be without any deduction, reduction, or diminution with respect to any
expenses, legal or otherwise, in connection with such litigation, provided,
however, that, it is specifically agreed that proceeds derived from or allocable
to claims of receipt of preferential payments, fraudulent transfers, or similar
causes of action ("preference actions"), so long as they are not derived from or
received through or under the insurance policies listed on Exhibit A to this
Agreement, brought in any forum against one or more Defendants, either in their
capacity as officers and directors of RGH, RFSC, or Reliance, or as individuals
or otherwise, are specifically excluded from division or allocation under this
Agreement and will be retained by the party who brings such a preference action.
(ii) In the event that an action or actions is initiated against one or more
Defendants or other directors or officers of the Debtors by the Committees, RGH,
RFSC, any Liquidating Trustee, or other RGH or RFSC estate representative
consistent with Section 4(a) of this Agreement, the Liquidator shall be given
the option to pay all expenses of such action or actions. If the Liquidator
exercises that option, all Proceeds (consistent with the definition above)
recovered from such action or actions shall be divided in accordance with
subsection (i) of this Section 4(b). If the Liquidator declines the option to
pay these expenses, the net Proceeds recovered from such action or actions (i.e.
after payment of any costs, contingent or other attorneys fees, etc.) shall be
divided fifty percent (50%) to the Liquidating Trustee (or other appropriate
representative of the Debtors' estates) and fifty percent (50%) to the
Liquidator.
c. Distribution of Proceeds. Proceeds shall be promptly
distributed in accordance with the terms of this Agreement.
d. D&O Settlement. In the event the Liquidator wishes to
settle the Reliance D&O Action, she shall first seek the consent of the
Committees or, upon confirmation of the Plan(s) of Reorganization, the
Liquidating Trustee, which consent shall not be unreasonably withheld.
Individual members of the Committees shall have no right to consent or withhold
consent under this Section. The Liquidator shall provide to the Committees or
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the Liquidating Trustee notice in writing setting forth the material terms of
the proposed settlement, and the Committees or the Liquidating Trustee shall
respond with consent or refusal to consent in writing within 48 hours of receipt
of the notice, which, in the event of a refusal to consent, shall set forth: (i)
each reason for the refusal to consent; and (ii) alternative terms to which
consent would be given. The Liquidator may either abandon such settlement or
submit the reasonableness of the settlement to the dispute resolution process
set forth in Section 7(h) herein, provided that all parties agree that the
dispute resolution proceeding on this issue shall be expedited and shall be
commenced and concluded in no more than 48 hours. In any such proceeding under
Section 7(h), the Committees or the Liquidating Trustee shall bear the burden of
proving, by clear and convincing evidence, that the settlement is, when taken as
a whole, unreasonable and inadequate, and if that burden is met, and the refusal
to consent is sustained by the arbitrator, the arbitrator shall determine what
monetary or other terms would be reasonable and adequate. The Liquidator, the
Committees, and the Liquidating Trustee will be bound by the determination of
the Section 7(h) proceeding. Upon any settlement, all parties bound by this
Agreement (including but not limited to, upon effectiveness of the settlement as
provided in Section 1, RGH and RFSC) agree to be bound by the settlement and to
take all actions necessary to effectuate such settlement, including by using all
commercially reasonable efforts to obtain any requisite court approval, signing
all necessary documents, and implementing the division of proceeds as agreed to
hereunder.
e. The Standstill Agreement. There is currently in effect a
standstill agreement, originally dated March 12, 2002 and as amended from time
to time, among the Liquidator, the Debtors, and the Committees (the "Standstill
Agreement"), applicable to certain litigation pending between the Liquidator and
the Debtors, including that certain litigation filed in the Commonwealth Court
and subsequently removed to the United States District Court for the Eastern
District of Pennsylvania (the "PA Litigation") and the litigation concerning an
order to show cause pending in the Bankruptcy Court (the "NY Litigation"). The
Standstill Agreement, as extended from time to time by the parties thereto,
shall remain in effect until the effectiveness of the settlement as provided in
Section 1, at which time the Standstill Agreement shall by joint stipulation
terminate and the PA Litigation and the NY Litigation shall be dismissed with
prejudice upon joint motion or stipulation of the parties. Notwithstanding the
foregoing, the parties agree that the Emergency Petition for Preservation of
Insurance Policy Assets of Estate (the "Emergency Petition"), filed by the
Liquidator in the Commonwealth Court within matter No. 269 M.D. 2001, removed to
the United States District Court for the Eastern District of Pennsylvania (the
"EDPa Court"), and transferred to the Bankruptcy Court (which transfer was
appealed to the EDPa Court), shall not be dismissed, but shall remain pending in
the Bankruptcy Court (and the appeal shall remain pending in the EDPa Court),
and the parties agree that no party shall file any further brief, motion,
application, complaint, or proceeding, or take any other action, in any court or
other tribunal, that seeks any ruling or order of any kind with respect to the
subject matter of the Emergency Petition until such time as the parties agree to
a dismissal or other resolution of the matter. Nothing in this Section shall be
construed to prohibit any party from making any appropriate response or filing
in any action or proceeding commenced by nonparties to this Agreement regarding
the subject matter of the Emergency Petition, including the matter captioned
Xxxxxx X. Xxxxx, et al. v. Syndicate 1212 at Lloyd's, London, et al, pending in
the Bankruptcy Court at No. 01-03572, or to prohibit any party from commencing a
new action or proceeding to prevent the payment of proceeds from the insurance
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policies that are the subject of the Emergency Petition, or to prohibit any
party from opposing or otherwise responding to or proceeding in any such new
action or proceeding. In the event that either the Bankruptcy Court or the EDPa
Court takes any action inconsistent with the foregoing, the parties shall use
their best efforts to reach agreement regarding a disposition of the Emergency
Petition that will not be unduly prejudicial to the estate of either Reliance or
the Debtors. Nothing in this Section shall be construed to alter the
distribution of the Proceeds set forth in Sections 4(b) and 4(c) of this
Agreement, or the dispute resolution procedure set forth in Section 7(h) of this
Agreement.
f. Records of the Debtors. The Committees agree to use their
best efforts to ensure that any order entered by the Bankruptcy Court approving
this Agreement include a provision substantially in the following form: "The
automatic stay extant pursuant to Section 362 of the Bankruptcy Code is hereby
modified for the limited purpose of permitting the Liquidator to serve and
enforce any request for the production of documents and things under Rules 34
and 45 of the Federal Rules of Civil Procedure and Rules 7034 and 9016 of the
Federal Rules of Bankruptcy Procedure."
5. Cash.
a. Allocation and Distribution of Current Cash. The Committees
represent that they have been advised by the Debtors that cash on hand/current
assets (the "Current Cash") in the Debtors' estates as of February 28, 2003 is
ninety-two million, three-hundred and twenty-seven thousand dollars
($92,327,000). From this amount, the fixed sum of $45 million shall be held by
RGH for the benefit of the Liquidator, shall be invested at the direction of the
Liquidator, and shall be distributed, along with accumulated interest thereon,
but less any tax withholding or losses from the investment thereof, to the
Liquidator upon the occurrence of the earliest of the following:
(A) The effective date of the Plan of Reorganization of
RGH;
(B) Any interim distribution to creditors of RGH estate;
(C) March 31, 2004;
(D) The appointment of a trustee or examiner with powers
of a trustee for either RGH or RFSC (other than upon
motion by the Liquidator), but not an examiner
appointed upon motion of any government agency or a
trustee or examiner appointed for the limited purpose
of evaluating whether to bring or initiate litigation
against third parties; or
(E) Conversion of Chapter 11 case of either RGH or RFSC
to Chapter 7 case, or dismissal of either of such
cases (other than upon motion by the Liquidator).
The order of the Bankruptcy Court approving the Rule 9019
Motion shall provide, inter alia, that RGH shall not distribute any such moneys
held for the Liquidator without the Liquidator's prior written consent and that
such moneys shall be held in investments as directed by the Liquidator, subject
to the approval of the Bankruptcy Court.
b. Definition of New Cash. "New Cash" means all cash and other
assets that are equivalent to or readily convertible into cash ("cash
equivalents") received after the execution of this Agreement into either the RGH
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or the RFSC estate before final confirmation of the Plan of Reorganization
applicable to that estate and all cash and cash equivalents received by the
Reorganized Debtors after final confirmation of the Plan(s) of Reorganization on
account of assets that were property of either of the Debtors' estates on June
12, 2001 (the "Petition Date"), but not including: (i) the assets described in
Sections 2, 3, 4 and 5(a) herein; (ii) any cash or cash equivalents received
into the RGH or RFSC estates as a result of any litigation, claims, rights of
set-off or causes of action; (iii) to the extent the Reorganized Debtors
generate income from business operations conducted after the confirmation of the
Plan(s) of Reorganization, any such net after-tax income; or (iv) any cash
transferred between RGH and RFSC. It is expected that RGH will receive certain
cash representing the net aggregate tax refund resulting from the final
resolution of all outstanding tax liabilities of RGH and RFSC (whether federal,
state or local), which may be attributable to claims under Sections 507(a)(8) or
503(b) of the Bankruptcy Code or otherwise. New Cash shall include any such net
aggregate tax refund received by the Debtors' estates, but only after giving
effect to such netting. New Cash shall also include cash and cash equivalents
if, rather than being received into the Debtors' estates, such cash or cash
equivalents are paid directly to a creditor or other person to satisfy an estate
obligation.
c. Distribution of New Cash. Any New Cash that is received
(which, with respect to assets in form other than cash, means the receipt of the
cash proceeds upon conversion of such assets to cash) shall be distributed in
the following order:
first, to the extent that the final resolution of all
outstanding tax claims against RGH and RFSC (whether federal, state or local)
does not result in a net aggregate tax refund, but instead results in net
aggregate tax liabilities attributable to claims under Section 507(a)(8) or
503(b) of the Bankruptcy Code, to the payment of such net aggregate tax
liabilities;
second, to RGH or its designee under the Plan(s) of
Reorganization until RGH or such designee has received an amount equal to $12
million; and
third, on a pro rata basis: (a) 50% of the remaining New Cash
to RGH or its designee under the Plan(s) of Reorganization; and (b) 50% of the
remaining New Cash to the Liquidator.
Distributions of New Cash under this Agreement shall continue
regardless of the total amount of New Cash received and regardless of the total
amount of money already paid to the Liquidator. It shall not be a defense to
payment to the Liquidator of her share of New Cash that she shall have been
allegedly "paid in full" for the Liquidator's claim against the Debtors existing
as of the Petition Date. The parties to this Agreement acknowledge that while
there is an agreed allowed claim by the Liquidator of $288 million, the
Liquidator will continue to be entitled to and continue to receive distributions
of New Cash regardless of the total amount of her recoveries under this
Agreement and from any other source.
6. Effect of Prior Order. The order of the Commonwealth Court
approving the Petition (as defined in Section 7(f) below) shall provide, among
other things, that the prior order of the Commonwealth Court, dated October 3,
2001, requiring property of Reliance held by other parties to be turned over to
Reliance, shall not have any effect on, or be applicable to, any property of the
Debtors or the Liquidating Trustee, except as otherwise specifically provided in
this Agreement.
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7. Miscellaneous.
a. No Impact On Claims or Debts of Third Parties. Consistent
with the terms of ss. 524(e) of the Bankruptcy Code, this Agreement and the
Plan(s) of Reorganization are not intended to have and shall not have any direct
or indirect effect upon or directly or indirectly waive any claims against
persons not actually parties to this Agreement. Neither this Agreement nor the
Plan(s) of Reorganization shall directly or indirectly release, discharge,
reduce the liability of, or reduce the damages attributable to, the current or
former officers and directors of RGH or RFSC, the former officers and directors
of Reliance, or any other party for any debts or liabilities or causes of action
or claims existing against them, including any such debts owed simultaneously by
the Debtors and such non-released third parties, except as specifically stated
in this Agreement. Notwithstanding the foregoing, it is understood that the
Plan(s) of Reorganization may contain customary exculpation provisions
releasing: (i) the Committees, their representatives, and their counsel for all
actions taken prior to and since the Petition Date in respect of the prosecution
of and preparation for the Debtors' restructurings and Chapter 11 cases; and
(ii) the Debtors, their officers and directors, their representatives, and their
counsel for all actions taken since the Petition Date in respect of the Debtors'
restructurings and Chapter 11 cases.
b. Court Approval. Each of the parties hereto agree to use
appropriate and commercially reasonable efforts to obtain court approval in
accordance with the provisions of Section 1 hereto, but no party guarantees or
warrants that such approval will be obtained.
c. Approval of the Agreement and the Plan(s) of
Reorganization. The Liquidator and the Committees agree to do everything
reasonably necessary to implement the terms of this Agreement. The terms of this
Agreement will be implemented on the part of the Committees and the Liquidator
through the Rule 9019 Motion, the Petition (as defined in Section 7(f) below),
the confirmed Plan(s) of Reorganization, and any plan of rehabilitation or
liquidation for Reliance. The Committees agree that they or the Debtors shall
provide the Liquidator in advance with a draft of the Plan(s) of Reorganization.
The Plan(s) submitted to the Bankruptcy Court for approval, and the Order
confirming such Plan(s) of Reorganization shall be consistent with the terms of
this Agreement. In the event of any dispute as to whether the Plan(s) of
Reorganization are consistent with this Agreement, the Plan(s) shall not be
filed for approval and the parties agree to resolve the dispute through the
dispute resolution procedure set forth in Section 7(h) hereto. Assuming that the
Plan(s) of Reorganization are consistent with the terms of this Agreement, as
determined by the Liquidator or in a final and binding arbitration award, the
Liquidator agrees, for consideration as set forth in this Agreement, that she
will support such Plan(s) of Reorganization. Each party hereto agrees to use its
commercially reasonable efforts to consummate the transactions contemplated
herein as of the earliest practicable dates and to maximize the benefits of this
Agreement to all parties.
d. Approval by the Bankruptcy Court. A copy of the motion
seeking approval by the Bankruptcy Court of the settlement set forth in this
Agreement (the "Rule 9019 Motion") of certain disputes (including without
limitation the NY Litigation and the PA Litigation) with respect to the
ownership interest of the Debtors' estates relating to: (i) any directors and
officers insurance policies and the proceeds thereof; (ii) the Current Cash and
the New Cash; (iii) the NOLs; and (iv) the ss. 847 Refunds, and fixing the
Liquidator's allowed claim at $288 million, shall be provided to the Liquidator
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for her review and written approval prior to the filing of such motion with the
Bankruptcy Court. The parties shall use their commercially reasonable efforts to
obtain an order approving the Rule 9019 Motion by the Bankruptcy Court on or
before August 31, 2003, although no party guarantees, warrants, or represents
such order will be entered by said date. The effectiveness of the settlement
pursuant to Section 1 shall constitute a settlement of the NY Litigation and the
PA Litigation and a termination of the Standstill Agreement under Section 4(e),
except as otherwise provided in this Agreement.
e. Priority. Any claim resulting from a breach of any
obligation under this Agreement, including without limitation any payment
obligation, by the Liquidator or Reliance, if upheld, shall be treated as a
first priority administrative claim with respect to the Liquidator or Reliance
in the liquidation proceedings in the Commonwealth Court. A provision requiring
that all payments or payment obligations of the Liquidator or Reliance to the
Debtors or the Liquidating Trustee under this Agreement shall be given first
priority administrative status shall be included in the final order of the
Commonwealth Court approving the Petition (as defined in Section 7(f) below) and
in any plan of rehabilitation or liquidation for Reliance entered in, or
approved by, the Commonwealth Court. Likewise, any claim resulting from a breach
of any obligation under this Agreement, including without limitation any payment
obligation, by the Committees, the Debtors, or the Liquidating Trustee, if
upheld, shall be treated as a first priority administrative claim with respect
to the Debtors' bankruptcy proceeding. A provision requiring that all payments
or payment obligations of the Debtors, the Liquidating Trustee, or the
Committees to the Liquidator or Reliance under this Agreement shall be given
first priority administrative status shall be included in the final Plan(s) of
Reorganization and the order approving this Agreement by the Bankruptcy Court.
f. Commonwealth Court Petition. A copy of the petition seeking
approval of this Agreement by the Commonwealth Court (the "Petition") shall be
provided to the Debtors and the Committees for their review prior to filing the
Petition with the Commonwealth Court. The parties shall use their commercially
reasonable efforts to obtain an order approving the Petition by the Commonwealth
Court on or before August 31, 2003, although no party guaranties, warrants or
represents that such order will be entered by said date.
g. Jurisdiction of the Commonwealth Court. The Liquidator
hereby agrees to submit to the jurisdiction of the Bankruptcy Court solely for
the purpose of any proceedings to implement and enforce the Rule 9019 Motion or
Plan(s) of Reorganization, to the extent such submission does not conflict with
the jurisdiction of the Commonwealth Court.
h. Dispute Resolution. In the event a dispute should arise in
respect of any provision of this Agreement or in respect of any party's
compliance with any provision of this Agreement, the parties agree that they
will use their best efforts to resolve such dispute in a consensual manner. In
the event they cannot resolve any such dispute consensually, the parties agree
that any and all such disputes shall be submitted to final and binding
arbitration in accordance with the Rules of the American Arbitration Association
("AAA") and the Federal Arbitration Act, before one arbitrator from outside the
Second and Third Circuits (unless otherwise agreed by the parties). In selecting
an arbitrator, the Liquidator and the Committees or, upon confirmation of the
Plan(s) of Reorganization, the Liquidating Trustee, may elect one neutral
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arbitrator that is acceptable to both parties. In the event an agreement on one
neutral arbitrator cannot be reached, each party shall select one arbitrator and
both arbitrators shall select a third neutral arbitrator. This provision
constitutes consent to arbitration by each of the parties hereto and a waiver of
its respective rights to seek relief in any forum other than that specified in
this Section 7(h). In the event any party hereto or any of their respective
successors or assigns should seek relief in any court or administrative tribunal
or commences any proceeding other than one specified herein, this provision
constitutes such party's consent to stay or dismissal of such action or, as may
be appropriate, to have such dispute transferred to an arbitration to be
conducted in accordance with the Commercial Rules of the AAA and the provisions
of this Section 7(h).
i. Limitation on Recoveries. No signatory to this Agreement,
nor the Debtors, shall pursue a claim against another signatory to this
Agreement or the Debtors with respect to any matter which is inconsistent with
this Agreement and with respect to the claims between Reliance and the
Liquidator on the one hand and the other parties to this Agreement on the other
hand, and each party agrees that, with respect to the matters specifically dealt
with herein, they shall be limited to the recoveries specified under this
Agreement, except that the parties may pursue claims to enforce or secure
performance under this Agreement.
j. Assertion of Claims. Pursuant to the Plan(s) of
Reorganization, and upon confirmation of such Plan(s) of Reorganization, RGH,
RFSC, and RGH's and RFSC's subsidiaries, and the Liquidator and Reliance and its
subsidiaries shall be permanently enjoined from pursuing claims against each
other, except for their rights under this Agreement and the Plan(s) of
Reorganization.
k. No Proof of Claim. There will be no requirement for the
Liquidator to file a proof of claim in order to effectuate this Agreement.
l. Claims of the Liquidator. The parties agree that the claims
of the Liquidator shall be separately classified in the Plan(s) of
Reorganization. For purposes of receiving the agreed allocations to the parties
hereto, the parties further agree to an allowed claim by the Liquidator in the
amount of $288 million and that distribution on that allowed claim shall be as
provided in this Agreement. The parties hereto acknowledge that the Liquidator
contends that her claims are or may be far in excess of $288 million, but the
Liquidator agrees not to further assert other claims against the Debtors or
their respective subsidiaries, the Committees or the Committees' representatives
and the Committees' counsel; it being agreed, however, that such claims shall
nevertheless survive and may be asserted by the Liquidator against any other
parties who may be liable with respect thereto.
m. No Attorney-Client Relationship. Other than as expressly
set forth in this Agreement, nothing contained herein shall be construed in any
way to create any duties, legal, equitable, ethical, or otherwise, running from
the Liquidator or Reliance, or their counsel, to the RGH creditors, the RFSC
creditors, the Committees, RGH, RFSC, or Reorganized RGH or Reorganized RFSC. By
way of example, and without excluding any other type of duty, nothing contained
in this Agreement, in the Plan(s) of Reorganization, or in the Disclosure
Statement(s) shall be deemed to create an attorney-client relationship between
the Liquidator's counsel on one hand and the RGH creditors, the RFSC creditors,
the Committees, RGH, RFSC, or Reorganized RGH or Reorganized RFSC, on the other
hand. No parties, other than the signatories to this Agreement, the Debtors
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(upon effectiveness of the settlement pursuant to Section 1), and the
Liquidating Trustee, and their successors and assigns, shall have any rights
under this Agreement. There are no intended or other third party beneficiaries
to this Agreement.
n. Distributions. To the extent funds are received by either
party and such funds cannot be distributed pursuant to the terms of this
Agreement because: (i) the Commonwealth Court has not approved this Agreement;
or (ii) the Plan(s) of Reorganization of RFSC and RGH have not become effective,
all such funds shall be held in interest bearing accounts (in investments
acceptable to the party to which such funds are owed) pending distribution as
set forth in this Agreement.
o. Recovery of Distributed Funds. Once funds have been
distributed by the Liquidator, RGH or RFSC, each party shall limit its remedies
in respect of such distributed funds to an adjustment to future distributions.
In no event shall any party hereto or any person that they may distribute funds
to be required to disgorge any payments which have been made pursuant to this
Agreement.
p. Members of Committees. The Committees shall provide to the
Liquidator a current list of their members within five (5) business days of the
date hereof and the Committees warrant and represent that the list is accurate
and complete as of the date provided. The Committees further warrant and
represent that, subject only to the approval of the Bankruptcy Court in the form
of an order approving the Rule 9019 Motion, they have authority to enter into
this Agreement.
q. Power and Authority. Each of the parties to this Agreement
hereby represents and warrants to the other that, subject to the approval of
this Agreement by the Commonwealth Court and the confirmation of the Plan(s) of
Reorganization by the Bankruptcy Court, such party has the power and authority
to enter into this Agreement and, in the case of the Committees, to propose the
Plan(s) of Reorganization and to perform all obligations and fulfill all
covenants required of such party as set forth herein and therein.
r. Severability. The provisions of this Agreement are not
severable.
s. Notices. All notices, consents, or other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or one
business day after being sent by a nationally recognized overnight delivery
service, postage or delivery charges prepaid, or five business days after being
sent by registered or certified mail, return receipt requested, postage charges
prepaid. Notices also may be given by facsimile and shall be effective on the
date transmitted if a copy is sent within 48 hours thereafter by one of the
means provided in the preceding sentence. Notices to the Liquidator shall be
sent to Liquidator, Reliance Insurance Company, 0000 Xxxxxxxxxx Xxxxxx,
Xxxxxxxxxx, XX, 00000, with copies sent simultaneously to Xxxxx Xxxxxx, Blank
Rome LLP, Xxx Xxxxx Xxxxxx, Xxxxxxxxxxxx, XX, 00000, and to Chief Counsel,
Pennsylvania Insurance Department, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxxxxxx, XX,
00000. Notices to the Official Unsecured Bank Committee shall be sent to Xxxxxx
X. Xxxxxxx, Managing Director, XX Xxxxxx Chase Bank, 000 Xxxx Xxx., 00xx Xxxxx,
Xxx Xxxx, XX, 00000, with a copy to Xxxxxx XxXxxxxx, White & Case LLP, 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX, 00000. Notices to the Official Unsecured
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Creditors' Committee shall be sent to the Liquidating Trustee, c/o Xxxxxx
Xxxxxxxxx, Xxxxxx Xxxxxxxxxx & Xxxxxxxxx LLP, 000 Xxxxx Xxx., Xxx Xxxx, XX,
00000. Any party may change its address for notice and the address to which
copies must be sent by giving notice of the new addresses to the other parties
in accordance with this Section 7, provided that any such change of address
notice shall not be effective unless and until received.
t. Entire Agreement; Amendments. This Agreement, together with
the Exhibit hereto, states the entire understanding among the parties with
respect to the subject matter hereof, and supersedes all prior oral and written
communications and agreements, and all contemporaneous oral communications and
agreements, with respect to the subject matter hereof including all
confidentiality agreements and letters of intent previously entered into among
some or all of the parties hereto. No amendment or modification of this
Agreement shall be effective unless in writing and signed by the party against
whom enforcement is sought.
u. Successors and Assigns. This Agreement shall bind, benefit,
and be enforceable by and against the Liquidator, the Committees, and, after
effectiveness of this Agreement pursuant to Section 1, the Debtors and Debtors'
estates, their respective successors and assigns, any Liquidating Trustee, and
any successor trustee in a proceeding under Chapter 7 of the Bankruptcy Code. No
party shall in any manner assign any of its rights or obligations under this
Agreement without the express prior written consent of the other parties.
v. Waivers. Except as otherwise expressly provided herein, no
waiver with respect to any provision of this Agreement shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise of, any
right, power or remedy.
w. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof. Delivery of an
executed counterpart hereof by facsimile or other electronic means shall be
equally effective as delivery of an originally executed counterpart.
x. Governing Law. THIS AGREEMENT IS MADE UNDER, AND EXCEPT TO
THE EXTENT THAT FEDERAL BANKRUPTCY LAW APPLIES, SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
y. Neutral Construction. In view of the fact that each of the
parties hereto have been represented by their own counsel and this Agreement has
been fully negotiated by all parties, the legal principle that ambiguities in a
document are construed against the draftsperson of that document shall not apply
to this Agreement.
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z. Binding Effect of Court Approval. Upon effectiveness of
this settlement pursuant to Section 1, this Agreement shall also be binding upon
the Debtors and the Debtors' estates. The Order approving this Agreement
pursuant to the Rule 9019 Motion shall specifically state its binding effect
upon the parties hereto and the Debtors and the Debtors' estates.
aa. Service of Motion and Petition. The Rule 9019 Motion and
the Petition to approve this Agreement filed in the Bankruptcy Court and the
Commonwealth Court, respectively, shall be served consistent with the
requirements of each Court.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement on the day and year first written above.
RELIANCE INSURANCE COMPANY
(IN LIQUIDATION)
By: /s/ Xxxxxxx X. Xxxxxx Date: 4-1-03
--------------------------------------- ----------------------------
Xxxxxxx X. Xxxxxx
Authorized signatory for
and on behalf of M. Xxxxx
Xxxxx, Insurance
Commissioner of The
Commonwealth of
Pennsylvania, in her
capacity as Liquidator of
Reliance Insurance Company
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/s/ Xxxxxx Xxxxxx Date: 4/1/03
------------------------------------------ ------------------------
Xxxxxx Xxxxxx
----------------, on behalf of the Official
Unsecured Bank Committee
/s/ Xxxx Xxxxxxx Date: 4/1/03
------------------------------------------ ------------------------
Xxxx Xxxxxxx
---------------, on behalf of the Official
Unsecured Creditors' Committee
/s/ Xxxxx X. Pharmalker Date: April 1, 2003
------------------------------------------ ------------------------
Xxxxx X. Pharmalker
---------------, on behalf of the Official
Unsecured Creditors' Committee
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EXHIBIT A
List of Insurance Policies
Lloyd's Policy Nos.
823/FD9701593
542/F01201D96
823/F01307D97
823/FD9798178
823/FD9900896
Greenwich Insurance Company Policy Nos.
ELU 82236-01
ELU 82237-01
Clarendon National Insurance Company Policy No.
MAG 14 400579 50000
