Exhibit 99.1
CONFORMED COPY
PURCHASE AGREEMENT
by and among
HARTFORD FIRE INSURANCE COMPANY
and
HARTRE COMPANY, L.L.C.
(collectively, the "Sellers")
AND
ENDURANCE REINSURANCE CORPORATION OF AMERICA
(the "Purchaser")
Dated as of May 15, 2003
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS .................................................................. 1
Section 1.1 Definitions ............................................................. 1
Section 1.2 Other Defined Terms ..................................................... 5
Section 1.3 Interpretation .......................................................... 6
ARTICLE II SALE AND PURCHASE OF TRANSFERRED ASSETS ...................................... 7
Section 2.1 Sale and Purchase of Transferred Assets ................................. 7
Section 2.2 Closing ................................................................. 7
Section 2.3 Retrocession Agreement .................................................. 7
Section 2.4 Payment of the Net Cash Transfer Amount ................................. 7
Section 2.5 Consideration ........................................................... 7
Section 2.6 Claims Handling Agreement ............................................... 8
Section 2.7 Seller Retained Liabilities ............................................. 8
Section 2.8 Transfer Taxes .......................................................... 8
Section 2.9 Savings Clause Adjustment ............................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS ................................ 9
Section 3.1 Organization and Good Standing .......................................... 9
Section 3.2 Authorization of Agreement .............................................. 9
Section 3.3 Governmental Authorization .............................................. 10
Section 3.4 Conflicts ............................................................... 10
Section 3.5 Absence of Certain Changes .............................................. 10
Section 3.6 Litigation .............................................................. 11
Section 3.7 Compliance with Laws .................................................... 11
Section 3.8 Properties and Assets ................................................... 11
Section 3.9 Regulatory Filings ...................................................... 11
Section 3.10 Employee and Benefit Plan Matters ....................................... 12
Section 3.11 Reinsured Contracts ..................................................... 12
Section 3.12 Books and Records ....................................................... 13
Section 3.13 Certain Fees ............................................................ 13
Section 3.14 Solvency; Adequate Capitalization; Ability to Pay Debts ................. 13
Section 3.15 Financial Information ................................................... 13
Section 3.16 Disclosure .............................................................. 13
Section 3.17 Third Party Reinsurance Contract ........................................ 14
Section 3.18 No Other Representations or Warranties .................................. 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER .............................. 14
Section 4.1 Organization and Good Standing .......................................... 14
Section 4.2 Authorization of Agreement .............................................. 14
Section 4.3 Governmental Authorization .............................................. 14
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Section 4.4 Conflicts ............................................................... 14
Section 4.5 Litigation .............................................................. 15
Section 4.6 Certain Fees ............................................................ 15
Section 4.7 Solvency; Adequate Capitalization; Ability to Pay Debts ................. 15
Section 4.8 Financial Ability ....................................................... 15
Section 4.9 Data Room ............................................................... 15
Section 4.10 No Other Representations or Warranties .................................. 15
Section 4.11 No Guaranteed Renewals .................................................. 15
Section 4.12 Special Termination Acknowledgement ..................................... 16
ARTICLE V COVENANTS OF THE SELLERS ..................................................... 16
Section 5.1 Noncompetition; Nonsolicitation ......................................... 16
Section 5.2 Employee Confidentiality ................................................ 19
Section 5.3 Public Announcements .................................................... 19
Section 5.4 Renewal Rights .......................................................... 19
Section 5.5 Exclusivity ............................................................. 20
Section 5.6 Notices of Certain Events ............................................... 20
Section 5.7 Execution of Documents .................................................. 20
Section 5.8 USAIG Aviation Pool ..................................................... 20
Section 5.9 Books and Records ....................................................... 21
Section 5.10 Cooperation ............................................................. 21
ARTICLE VI COVENANTS OF THE PURCHASER ................................................... 21
Section 6.1 Public Announcements .................................................... 21
Section 6.2 Cooperation ............................................................. 21
Section 6.3 Access to Books and Records ............................................. 22
ARTICLE VII MUTUAL COVENANTS OF THE PURCHASER AND THE SELLERS ............................ 22
Section 7.1 Employees ............................................................... 22
Section 7.2 Confidentiality ......................................................... 22
Section 7.3 Occupancy Arrangements .................................................. 23
ARTICLE VIII CLOSING DELIVERIES ........................................................... 23
Section 8.1 Deliveries by the Sellers to the Purchaser .............................. 23
Section 8.2 Deliveries by the Purchaser to the Sellers .............................. 24
ARTICLE IX SURVIVAL; INDEMNIFICATION .................................................... 24
Section 9.1 Survival ................................................................ 24
Section 9.2 Indemnification ......................................................... 24
Section 9.3 Procedures for Third Party Claims ....................................... 26
Section 9.4 Procedures for Direct Claims ............................................ 27
Section 9.5 Exclusive Remedy ........................................................ 27
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ARTICLE X MISCELLANEOUS PROVISIONS ..................................................... 28
Section 10.1 Entire Agreement ........................................................ 28
Section 10.2 Governing Law ........................................................... 28
Section 10.3 Specific Performance .................................................... 28
Section 10.4 Expenses ................................................................ 28
Section 10.5 Offset .................................................................. 28
Section 10.6 Jurisdiction ............................................................ 28
Section 10.7 Notices ................................................................. 29
Section 10.8 Severability and Validity ............................................... 30
Section 10.9 Assignment .............................................................. 30
Section 10.10 Amendments .............................................................. 31
Section 10.11 Counterparts ............................................................ 31
Section 10.12 Tax Treatment ........................................................... 31
Section 10.13 Further Assurances ...................................................... 31
INDEX OF EXHIBITS
Exhibit A - Quota Share Retrocession Agreement
Exhibit B - ▇▇▇▇ of Sale and Assignment Agreement
Exhibit C - Claims Handling Agreement
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INDEX OF SCHEDULES
Schedule 1.1(a) Seller Individuals
Schedule 1.1(b) Purchaser Individuals
Schedule 1.1(c) Reinsured Contracts
Schedule 1.1(d) Overlap Contracts
Schedule 1.1(e) Specified Third Party Reinsurance Contract
Schedule 3.5 Absence of Certain Changes
Schedule 3.9(b) Required Permits
Schedule 3.10 Employment Contracts
Schedule 3.11(b) Reinsured Contract Disputes
Schedule 3.15 Seller Financial Information
Schedule 7.1 Transferred Employees
Schedule 7.3 Occupancy Terms
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT, dated as of May 15, 2003, is entered into by and
among Hartford Fire Insurance Company, a company organized under the laws of the
State of Connecticut (together with its successors and permitted assigns, the
"Seller Insurer Party"), HartRe Company, L.L.C. (together with its successors
and permitted assigns, "HartRe LLC"), a Connecticut limited liability company
(and together with the Seller Insurer Party, the "Sellers") and Endurance
Reinsurance Corporation of America, a company organized under the laws of the
State of New York (together with its successors and permitted assigns, the
"Purchaser").
RECITALS:
WHEREAS, the Purchaser desires to acquire from the Sellers and the Sellers
desire to sell to the Purchaser the exclusive right to renew certain contracts
constituting the Business (as defined herein); and
WHEREAS, in connection therewith, (i) the Sellers desire to transfer to
the Purchaser and the Purchaser desires to acquire from the Sellers, certain
assets relating to the Business, (ii) the Purchaser and/or its Affiliates desire
to hire the Sellers' employees set forth on Schedule 7.1 and (iii) the Seller
Insurer Party and the Purchaser desire to enter into the Retrocession Agreement,
the ▇▇▇▇ of Sale and Assignment Agreement and the Claims Handling Agreement,
attached hereto as Exhibits A, B and C, respectively.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements set forth herein and in
the Related Documents (as defined herein), the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms, when used in this Agreement,
shall have the meanings set forth in this Section 1.1. The terms defined below
shall be deemed to refer to the singular or plural, as the context requires.
An "Affiliate" of any Person shall mean another Person that directly or
indirectly controls, is controlled by, or is under common control with, such
first Person, where "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise.
"Agreement" shall mean this Purchase Agreement, together with the exhibits
and the disclosure schedules hereto.
"Applicable Law" shall mean any applicable order, law, statute,
regulation, rule, ordinance, writ, injunction, directive, judgment, decree,
principle of common law, constitution or treaty enacted, promulgated, issued,
enforced or entered by any Governmental Body applicable
to the parties hereto, or any of their respective businesses, properties or
assets, as may be amended from time to time.
"Applicable Renewal Percentage" shall mean the applicable percentage with
respect to each Reinsured Contract set forth under the column denoted "HartRe
Renewal Comm." in Schedule 1.1(c).
"▇▇▇▇ of Sale and Assignment Agreement" shall mean the ▇▇▇▇ of Sale and
Assignment Agreement in the form attached hereto as Exhibit B.
"Books and Records" shall mean the copies of all contracts, cover notes,
slips, instruments, filings, customer lists and data (including data relating to
renewals by the Reinsureds and contract expirations and information concerning
Reinsureds' identities, Reinsureds' performance, marketing and rating
methodology, models and all underwriting, actuarial and claims files related to
the Reinsured Contracts), lists of all Producers, administrative and pricing
manuals, records (including claim records, sales records and underwriting
records, and print-outs of all electronic mail to and from all underwriting and
claims personnel) and other materials relating to the Reinsured Contracts, in
each such case, only to the extent in the possession of the Sellers, their
Affiliates or any of their respective representatives, whether stored or
otherwise available or retrievable in hardcopy form or on magnetic, optical or
other media; provided, however, that the Books and Records shall not include any
electronic mail other than electronic mail that the Sellers are able to produce
without searching, accessing or retrieving electronic mail from back-up tapes at
the time of the delivery of the Books and Records to the Purchaser in accordance
with Section 5.9; and provided further, however, that material in which the
Sellers do not have sufficient proprietary right to or proprietary interest in
that is in the possession of non-affiliated third parties shall not be deemed
Books or Records.
"Business" shall mean the Reinsured Contracts and all of the Sellers'
right, title and interest in the expiration and renewals of the Reinsured
Contracts.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which commercial banks in the State of Connecticut or in the State of New
York in the United States of America are authorized or required by law to be
closed.
"Claims Handling Agreement" shall mean the Claims Handling Agreement in
the form attached hereto as Exhibit C.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ESIL" shall mean Endurance Specialty Insurance Ltd., a company organized
under the laws of Bermuda.
"Excluded Liabilities" shall have the meaning assigned to such term in the
Retrocession Agreement.
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"Governmental Body" shall mean any court or governmental or regulatory
agency or entity, domestic or foreign.
"Knowledge" or "knowledge" shall mean, (i) with respect to the Sellers,
the actual knowledge of any person listed on Schedule 1.1(a) and (ii) with
respect to the Purchaser, the actual knowledge of any person listed on Schedule
1.1(b).
"Legal Proceeding" shall mean any action, suit, proceeding or arbitration.
"Lien" shall mean any mortgage, lien, security interest, pledge or other
charge or encumbrance of any kind.
"Material Adverse Effect" shall mean:
(i) with respect to a Seller, any change, effect, event, condition or
development, occurrence or state of facts that has a material adverse effect on
the Business or the ability of such Seller to perform its obligations under this
Agreement; provided, however, that any such change, effect, event, condition or
development, occurrence or state of facts resulting from or arising in
connection with (a) this Agreement or the transactions contemplated hereby or
the public announcement thereof, (b) any public announcement with respect to the
Sellers' decision to exit the property and casualty assumed reinsurance
business, (c) changes generally affecting the insurance or reinsurance industry,
(d) changes in economic or market conditions generally, (e) changes in laws,
regulations or accounting principles of general applicability or (f) changes
resulting from actions or omissions of a party hereto taken with the prior
written consent of the other parties in contemplation of this Agreement or the
transactions contemplated by this Agreement shall not constitute a Material
Adverse Effect for purposes of this Agreement, and
(ii) with respect to the Purchaser, any change, effect, event, condition
or development, occurrence or state of facts that has a material adverse effect
on the ability of the Purchaser to perform its obligations under this Agreement;
provided, however, that any such change, effect, event, condition or
development, occurrence or state of facts resulting from or arising in
connection with (a) this Agreement or the transactions contemplated hereby or
the public announcement thereof, (b) changes generally affecting the insurance
or reinsurance industry, (c) changes in economic or market conditions generally,
(d) changes in laws, regulations or accounting principles of general
applicability or (e) changes resulting from actions or omissions of a party
hereto taken with the prior written consent of the other parties in
contemplation of this Agreement or the transactions contemplated by this
Agreement shall not constitute a Material Adverse Effect for purposes of this
Agreement.
"Net Cash Transfer Amount" shall mean the "Net Cash Transfer Amount" under
and as defined in the Retrocession Agreement.
"Permit" shall mean any approval, authorization, consent, registration,
franchise, license, permit or certificate by any Governmental Body.
"Person" shall mean any individual, company, corporation, estate, limited
liability company, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof or other entity.
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"Preliminary Cash Settlement Statement" shall have the meaning set forth
in the Retrocession Agreement.
"Producers" shall mean any reinsurance intermediary, producer, broker or
sales representative of the Sellers involved in the placement or marketing of
the Reinsured Contracts.
"Profit Sharing Commission" shall mean the "Profit Sharing Commission"
under and as defined in the Retrocession Agreement.
"Reinsured" shall mean each named reinsured who is a party to a Reinsured
Contract.
"Reinsured Contracts" shall mean the contracts as set forth on Schedule
1.1(c) attached hereto. For the avoidance of doubt, the Reinsured Contracts only
include contracts listed on Schedule 1.1(c).
"Reinsured Liabilities" shall mean all "Reinsured Liabilities" under and
as defined in the Retrocession Agreement.
"Related Documents" shall mean (i) the Retrocession Agreement, (ii) the
▇▇▇▇ of Sale and Assignment Agreement and (iii) the Claims Handling Agreement,
as well as any other agreement, document, instrument or certificate contemplated
by this Agreement to be executed in connection with the consummation of the Sale
Transaction contemplated hereby.
"Renewal Contracts" shall mean all contracts, treaties, certificates,
binders, slips, covers and other agreements of reinsurance (including all
ancillary agreements in connection therewith) that are entered into or provide
coverage (whether (i) by the Purchaser, (ii) by the Purchaser's Affiliates,
(iii) by any other Person that has acquired from the Purchaser its right, title
or interest in or to any Reinsured Contract or to renew any such Reinsured
Contract or (iv) by the Seller Insurer Party or any of its Affiliates pursuant
to the fronting arrangements set forth in the Retrocession Agreement) at any
time during the Renewal Period to any Reinsured for coverage of substantially
the same subject business as covered under a Reinsured Contract, regardless of
whether the Reinsured Contract was proportional or excess of loss (or if there
is a change in the layers of coverage). For the avoidance of doubt, (i) all
coverage issued through the USAIG pool shall constitute Renewal Contracts and
(ii) Renewal Contracts shall not include any contract of reinsurance entered
into by the Purchaser with respect to a different line or type of business from
those covered by a Reinsured Contract.
"Renewal Period" shall mean the period commencing on the Closing Date and
ending on the second anniversary of the Closing Date.
"Renewal Premium Amount" shall mean: (i) with respect to the FM Global
Reinsured Contract identified on Schedule 1.1(d), an amount equal to the amount
by which the gross premium amount received for coverage under any Renewal
Contract with respect thereto exceeds the gross premium amount received by ESIL
in respect of its existing participation in such FM Global Reinsured Contract
(not including as a result of entering into the Retrocession Agreement), (ii) as
to any Renewal Contract with respect to any other Reinsured Contract which is
part of a program under which both the Purchaser or ESIL and the Seller Insurer
Party are reinsurers, as identified on Schedule 1.1(d), an amount equal to the
product of (a) the gross
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premium received for coverage under such Renewal Contract and (b) the quotient
of (x) the gross premium amount received by the Seller Insurer Party in respect
of such program for the program period preceding the Renewal Contract and (y)
the sum of the gross premium amount received by such Seller Insurer Party in
respect of such program for the program period preceding the Renewal Contract
and the gross premium amount received by the Purchasers or ESIL in respect of
such program for the program period preceding the Renewal Contract (not
including as a result of entering into the Retrocession Agreement); (iii) with
respect to the USAIG pool, the members' net premium as reported by the USAIG
pool; and (iv) with respect to any other Renewal Contract, 100% of the gross
premium amount received for coverage thereunder, in each case, net of any return
or cancellation premiums and, with respect to Ohio Schools Council business
only, any reinsurance premium paid to the reinsurer under the Specified Third
Party Reinsurance Contract.
"Renewal Rights" shall mean the Sellers' rights to (i) renew the Reinsured
Contracts upon the expiration or cancellation thereof (subject to the
Purchaser's and its Affiliates' underwriting and pricing guidelines, the terms
and conditions of their reinsurance contract forms, and their other
requirements), (ii) solicit renewals of and replacement coverages for the
Reinsured Contracts and (iii) replicate and use the products and contract forms
used in the Business.
"Retrocession Agreement" shall mean the Quota Share Retrocession Agreement
attached hereto as Exhibit A.
"Specified Third Party Reinsurance Contract" means the reinsurance
agreement listed on Schedule 1.1(e).
"Tax" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, any net income tax or franchise tax based on net
income, any alternative or add-on minimum taxes, any gross income, gross
receipts, premium, retaliatory, sales, use, ad valorem, value added, transfer,
profits, license, payroll, employment, withholding, excise, severance, stamp,
occupation, property, environmental or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment, together with any interest
credit or charge, penalty, addition to tax or additional amount imposed by the
Internal Revenue Service or any other Governmental Body responsible for the
administration of any Tax.
"Transferred Assets" shall mean all of the Sellers' right, title and
interest in (i) the Renewal Rights relating to the Reinsured Contracts; and (ii)
the Books and Records.
Section 1.2 Other Defined Terms. The following terms shall have the
respective meanings set forth in the sections indicated below:
Term Section
---- -------
Closing 2.2
Closing Date 2.2
Confidential Information 7.2(a)
Controlled Affiliate 5.1(a)
Damages 9.2(a)
Endurance Holdings 7.2(b)
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Term Section
---- -------
GAAP 3.15
HIG 5.1(a)
Indemnified Party 9.3(a)
Indemnifying Party 9.3(a)
Initial Advance Renewal Payment 2.5(b)
New York Court 10.6
Purchase Price 2.5(c)
Purchaser Preamble
Release Date 5.1(c)
Renewal Commissions 2.5(d)
Restricted Business 5.1(a)
Restricted Period 5.1(a)
Restricted Persons 5.1(a)
Sale Transaction 3.2
Second Advance Renewal Payment 2.5(d)
Sellers Preamble
Seller Insurer Party Preamble
Seller Retained Liabilities 2.8
Strategic Transaction 5.1(b)
Subsidiary 5.1(a)
Third Party Claims 9.3(a)
Transferred Employee 5.1(d)
USAIG 5.9
Section 1.3 Interpretation. (a) When a reference is made in this Agreement
to an Article, Section, Exhibit, or Schedule, such reference shall be to an
Article or Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. The Article and Section headings and table of contents
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes. References to a Person are also to its permitted successors and
assigns. The references in Section 2.5(d) and Section 9.2(c) to an
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amount or property "received" or "recovered" from a Person not a party to this
Agreement shall include constructive, as well as actual, receipt or recovery of
such amount or property where an amount due the recipient has been set-off
against an amount due or claimed to be due from such recipient.
(a) The parties have participated jointly in the negotiation and drafting
of this Agreement; consequently, in the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties thereto, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
ARTICLE II
SALE AND PURCHASE OF TRANSFERRED ASSETS
Section 2.1 Sale and Purchase of Transferred Assets. At the Closing, the
Sellers shall sell, assign, transfer, convey and deliver to the Purchaser, and
the Purchaser shall purchase, acquire, accept and take assignment and delivery
of, from the Sellers, all of the Transferred Assets. The sale, assignment and
transfer of the Transferred Assets shall be effected by the ▇▇▇▇ of Sale and
Assignment Agreement, attached hereto as Exhibit B.
Section 2.2 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date of the execution of this
Agreement (the "Closing Date").
Section 2.3 Retrocession Agreement. Concurrently with the execution and
delivery of this Agreement, the Seller Insurer Party and the Purchaser shall
execute and deliver the Retrocession Agreement attached hereto as Exhibit A.
Section 2.4 Payment of the Net Cash Transfer Amount. The Net Cash Transfer
Amount reflected on the Preliminary Cash Settlement Statement attached to the
Retrocession Agreement will be transferred, within 3 Business Days after the
Closing Date, by the Seller Insurer Party and shall be deposited into the Trust
Account established under the Retrocession Agreement by wire transfer of
immediately available funds.
Section 2.5 Consideration.
(a) The aggregate consideration paid by the Purchaser under this Agreement
shall be the Renewal Commissions.
(b) The Purchaser shall pay the Seller Insurer Party $10,000,000 as an
advance, nonrefundable payment of Renewal Commissions due to the Seller Insurer
Party (the "Initial Advance Renewal Payment"). The foregoing amount shall be
reflected on the Preliminary Cash Settlement Statement and paid in accordance
with Section 2.4. The remaining amount of the Renewal Commissions shall be paid
in accordance with Section 2.5(d).
(c) The amounts required to be paid under the Retrocession Agreement
within 3 Business Days after the Closing Date together with the Renewal
Commissions (collectively, the
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"Purchase Price") shall be reflected on the Preliminary Cash Settlement
Statement and paid in accordance with Section 2.4.
(d) (i) As additional consideration for the transactions contemplated by
this Agreement and the Related Documents, the Purchaser shall pay to the Seller
Insurer Party an aggregate amount equal to the Applicable Renewal Percentage of
the Renewal Premium Amount (the "Renewal Commission").
(i) The Purchaser and the Seller Insurer Party agree that in the
event that the aggregate amount of Renewal Commissions to be paid by the
Purchaser to the Seller Insurer Party on Renewal Contracts written during
the first one year period after the date of the Closing exceeds
$10,000,000, such excess Renewal Commission shall be paid by the Purchaser
to the Seller Insurer Party on a monthly basis within 10 days after the
end of each calendar month beginning with the calendar month during which
the aggregate Renewal Commissions exceed $10,000,000.
(ii) On the one year anniversary of the Closing, the Purchaser shall
pay to the Seller Insurer Party $5,000,000 as a second advance,
nonrefundable payment of any Renewal Commissions due to the Seller Insurer
Party (the "Second Advance Renewal Payment"). In the event that the
aggregate amount of Renewal Commissions to be paid by the Purchaser to the
Seller Insurer Party on Renewal Contracts written during the second
one-year period after the date of the Closing exceeds $5,000,000, such
excess Renewal Commission shall be paid by the Purchaser to the Seller
Insurer Party on a monthly basis within 10 days after the end of each
calendar month beginning with the calendar month during which the
aggregate Renewal Commissions exceed $5,000,000.
(iii) The aggregate sum of the Initial Advance Renewal Payment and
the Second Advance Renewal Payment made by the Purchaser to the Seller
Insurer Party is a minimum Renewal Commission and is not subject to
repayment by the Seller Insurer Party for any reason.
Section 2.6 Claims Handling Agreement. Concurrently with the execution and
delivery of this Agreement, the Seller Insurer Party and the Purchaser shall
execute and deliver the Claims Handling Agreement attached hereto as Exhibit C.
Section 2.7 Seller Retained Liabilities. The parties hereby agree that,
notwithstanding any other provision in this Agreement or the Related Documents
to the contrary, all liabilities (including the Excluded Liabilities) of the
Sellers (other than the Reinsured Liabilities and those liabilities expressly
assumed by the Purchaser under this Agreement and the Related Documents) shall
remain with the Sellers and are the sole responsibility of the Sellers (the
"Seller Retained Liabilities").
Section 2.8 Transfer Taxes. Any Tax specifically imposed on the transfer,
sale or recording of the Transferred Assets shall be borne equally between the
Purchaser and the Sellers; provided, however, each party seeking payment
pursuant to this Section 2.8 must receive written approval from the other party
before paying the Tax. Written approval will not be unreasonably withheld by the
Purchaser or the Sellers if the party seeking payment under this Section 2.8
8
provides the other party with sufficient proof that such payment relates to this
Agreement and provides the other party with an opportunity to defend the
imposition of any such Tax. Notwithstanding the foregoing, the Purchaser is
solely responsible for the United States foreign insurers excise tax pursuant to
Section 4371 of the Code pursuant to Section 10.12.
Section 2.9 Savings Clause Adjustment. In addition, the Purchaser hereby
agrees to pay as an adjustment to the aggregate consideration to be paid to the
Seller Insurer Party under this Agreement the amount that the Seller Insurer
Party would have been entitled to receive under the Retrocession Agreement but
for the effect of the "Savings Clause" (Section 2.1.(b)) of the Retrocession
Agreement. The adjustment contained in the prior sentence is not subject to the
indemnification limitations set forth in Section 9.2(b) and any amount due to
the Seller Insurer Party under this Section 2.9 shall be immediately payable by
the Purchaser to the Seller Insurer Party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby jointly and severally represent and warrant to the
Purchaser as of the time of Closing as follows:
Section 3.1 Organization and Good Standing. Each Seller (i) is an
organization duly organized, validly existing and in good standing under the
laws of its state of organization, (ii) has all requisite corporate or limited
liability company power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, (iii) has all
material governmental licenses, authorizations, Permits, consents and approvals
required to carry on its business as now conducted, and (iv) is duly qualified
to do business as a foreign organization and is in good standing in each
jurisdiction where such qualification is necessary, or is duly licensed to do
business and is in good standing in each jurisdiction where such licensing is
necessary, as the case may be, except, in the case of each of clauses (ii)
through (iv), as would not individually or in the aggregate have a Material
Adverse Effect. The Sellers have heretofore delivered or made available to the
Purchaser true and complete copies of their certified charters and by-laws as in
effect on the date hereof. Neither Seller is in violation of any of the
provisions of its charter or by-laws with respect to the conduct of the
Business.
Section 3.2 Authorization of Agreement. Each Seller has the requisite
corporate or limited liability company power and authority to execute and
deliver this Agreement and each Related Document to which it is a party (the
transactions contemplated by this Agreement and the Related Documents being
hereinafter referred to, collectively, as the "Sale Transaction") and to perform
fully its obligations hereunder and thereunder. The execution, delivery and
performance by each Seller of this Agreement and of each Related Document to
which such Seller is a party has been duly authorized by all necessary corporate
action on the part of such Seller. This Agreement and each of the Related
Documents to which a Seller is a party has been duly executed and delivered by
such Seller and this Agreement and each of the Related Documents to which such
Seller is a party constitutes valid and legally binding obligations of such
Seller signatory thereto, enforceable against such Seller in accordance with
their terms.
9
Section 3.3 Governmental Authorization. The execution, delivery and
performance by each Seller of this Agreement and the Related Documents to which
it is a party requires no action by, or filing with, any Governmental Body on
the part of such Seller or any Affiliate thereof.
Section 3.4 Conflicts. The execution, delivery and performance by each
Seller of this Agreement and of the Related Documents to which it is a party and
the consummation of the Sale Transaction will not (i) conflict with or violate
any provision of the organizational documents or by-laws of such Seller, (ii)
conflict with, violate, result in the breach or termination of, or (after the
giving of notice or the lapse of time or both) constitute a default or give rise
to any right of termination or acceleration or right to increase the obligations
or otherwise modify the terms under any Reinsured Contract, or Permit to which
such Seller is a party or by which it or any of its properties or assets is
bound or subject, (iii) create or impose any Lien upon any of the Transferred
Assets, or (iv) constitute a violation of any Applicable Law, except in the
cases of (ii), (iii) or (iv) for any conflict, violation, breach, default,
termination, acceleration, right, modification or Lien which would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect and except that certain Reinsured Contracts are, pursuant to
their terms, terminable at the election of the Reinsureds as a result of (x) the
transactions contemplated by this Agreement and the Related Documents or (y) the
Sellers ceasing to underwrite reinsurance.
Section 3.5 Absence of Certain Changes. (a) Except as disclosed in
Schedule 3.5, the Business has been conducted since December 31, 2002 in the
ordinary course of business consistent in all material respects with past
practices (including with regard to underwriting, pricing, actuarial and claims
policies, practices and standards generally) and (b) to the extent relating to
the Business, except as disclosed in Schedule 3.5, since December 31, 2002 there
has not been:
(i) any event, claim, occurrence, development or state of
circumstances or facts which has had or would reasonably be expected to
have a Material Adverse Effect; provided, however, that the foregoing
shall not include any representation regarding losses incurred but not
reported to the Sellers;
(ii) any transaction or commitment made, or any contract or
agreement entered into, by the Sellers (including the acquisition or
disposition of any assets) or any relinquishment by the Sellers of any
contract or other right, other than transactions, commitments, contracts,
agreements or relinquishments in the ordinary course of business
consistent with past practices;
(iii) any transaction by the Sellers involving the Transferred
Assets other than in the ordinary course of business consistent with past
practice;
(iv) any material change in any method of accounting or accounting
practice or policy (including any reserving method, practice or policy) by
the Sellers, except for any such change as a result of a concurrent change
in accounting practices or as required by Applicable Law;
10
(v) any material change in the Sellers' underwriting practices or
standards relating to the Business;
(vi) any significant change by the Sellers in the compensation
structure of, or benefits available to, any Producer under any material
contract or with respect to Producers generally;
(vii) any material investment made in any Transferred Assets other
than in the ordinary course of the Business consistent in all material
respects with past practice; and
(viii) any agreement or commitment (contingent or otherwise) entered
into by the Sellers to do any of the foregoing.
Section 3.6 Litigation. There are no legal proceedings (including
arbitration) to which a Seller is a party related to the Business (including the
Reinsured Contracts), the Transferred Assets or the Specified Third Party
Reinsurance Contract pending before any arbitrator or any Governmental Body, or,
to the Knowledge of the Sellers, threatened against a Seller by any Person.
There are no actions, suits, arbitrations, investigations, judgments or
proceedings pending before any arbitrator or any Governmental Body pending or,
to the Knowledge of the Sellers, threatened which seek to enjoin or obtain
monetary damages in respect of the Sale Transaction, or which would reasonably
be expected to materially impair the Sellers' ability to effect the Closing.
Section 3.7 Compliance with Laws. The Sellers have not received any
written notice since December 31, 2001 from any Governmental Body alleging any
material violation of any Applicable Law in the conduct of the Business or
directing the Sellers to take any remedial action with respect to Applicable
Law. There are not presently existing circumstances that could reasonably be
expected to result in any material violation of any Applicable Law as regards
the Business.
Section 3.8 Properties and Assets. The Sellers have good title to all of
the Transferred Assets and none of such Transferred Assets are subject to any
Liens. Upon Closing, the Purchaser will acquire good title to the Transferred
Assets, free and clear of all Liens other than those created by the Purchaser.
Section 3.9 Regulatory Filings.
(a) The Business is being conducted in compliance in all material respects
with all Applicable Law, including all insurance laws, ordinances, rules,
regulations, decrees and orders of any Government Body.
(b) The Sellers have all Permits necessary to the conduct of the Business
as it is currently conducted in each jurisdiction (as listed in Schedule 3.9(b))
in which the Sellers require such Permits. The Business has been and is being
conducted in compliance, in all material respects, with all such Permits. All
such Permits are in full force and effect, and there is no proceeding or
investigation pending or threatened which would reasonably be expected to lead
to the revocation, amendment, failure to renew, limitation, modification,
suspension or restriction of any such Permit. The Sellers are not operating
under any agreement or understanding with the
11
regulatory authority of any state or jurisdiction which requires the Sellers to
take, or refrain from taking, any action relating to the conduct of the Business
otherwise permitted by Applicable Law.
Section 3.10 Employee and Benefit Plan Matters.
(a) The Sellers are in compliance in all material respects with all
Applicable Laws respecting employment and employment practices with respect to
each of the employees listed in Schedule 7.1, and the terms and conditions of
such employees' employment and wages and hours. The Sellers are not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes within the past year, in each case, with respect to
employees listed in Schedule 7.1. There is no labor strike, dispute,
arbitration, grievance, slowdown, stoppage, organizational effort, dispute or
proceeding by or with any employee listed in Schedule 7.1 or any labor union
pending or to the Knowledge of Sellers threatened against the Sellers relating
to any employee listed in Schedule 7.1.
(b) Except as set forth in Schedule 3.10, no employee listed in Schedule
7.1 has any employment contract or other agreement, practice or arrangement by
which such employee is employed on any basis other than as an "at will" employee
or by which the Sellers are restricted in any manner from terminating the
services of such employee at any time without payment (other than wages,
severance and other benefits accrued through the date of termination or other
payments as required by Applicable Law or Canadian employment practice).
Section 3.11 Reinsured Contracts.
(a) All Reinsured Contracts are valid, binding, enforceable and in full
force and effect and the Seller Insurer Party is not in material breach of any
provision thereof and, to the Knowledge of the Sellers, no other party to such
Reinsured Contract is in breach or has threatened breach of any provision
thereof. To the Sellers' Knowledge, there is no event that has occurred which,
with the passage of time or the giving of notice, or both, would create a
default or breach by the Seller Insurer Party under any of the Reinsured
Contracts.
(b) Except as set forth in Schedule 3.11(b), none of the Reinsured
Contracts has previously been voided or commuted prior to the date hereof and
none of the Sellers or any Reinsured under any Reinsured Contract prior to the
date hereof has given any written notice of termination, commutation, voidance
or cancellation (other than cancellation notices in the ordinary course of
business consistent with past practice) or, to the Knowledge of the Sellers, has
threatened termination, commutation, voidance or cancellation (other than
cancellation notices issued in the ordinary course of business consistent with
past practice and other than as a result of the matters referred to in Section
3.11(c) or the announcement thereof) with respect to any such Reinsured
Contract, and there is no dispute under any Reinsured Contract between the
parties thereto regarding the liability for any claim against the Sellers by the
Reinsureds other than in the ordinary course of business.
(c) The representations and warranties made under Section 3.11(a) and (b)
are qualified by the fact that certain Reinsured Contracts are, pursuant to
their terms, terminable at
12
the election of the Reinsureds as a result of (x) the transactions contemplated
by this Agreement and the Related Documents or (y) the Sellers ceasing to
underwrite reinsurance.
Section 3.12 Books and Records. The Books and Records in the Sellers' and
their Affiliates' possession have been maintained in accordance with Applicable
Law and the Sellers' customary business practices with respect to the Business
and are used by the Sellers in the operation of the Business. The Sellers do not
have Knowledge that any Producer is not maintaining Books and Records in such
Producer's possession in accordance with Applicable Law. The Sellers have
heretofore provided to the Purchaser copies of all of the material written
underwriting and claim service policies, procedures and guidelines of the
Sellers with respect to the Business.
Section 3.13 Certain Fees. No Person other than ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. has
acted on behalf of the Sellers as a broker or a financial advisor in connection
with the Sale Transaction and no other Person is entitled to any broker or
financial advisory fee from the Sellers in connection herewith.
Section 3.14 Solvency; Adequate Capitalization; Ability to Pay Debts. Each
Seller is, and prior to and after giving effect to the consummation of this
Agreement and the Related Documents to be executed by such Seller will be,
solvent. The Sellers are not subject to any supervision, conservation,
liquidation, rehabilitation, delinquency or similar proceeding, or investigation
or inquiry which is reasonably likely to result in any such proceeding.
Section 3.15 Financial Information. The financial information in Part 1 of
Schedule 3.15 relating to the Business (i) was prepared in conformity with
statutory accounting practices promulgated by the National Association of
Insurance Commissioners and prescribed or permitted by the Insurance Department
of the State of Connecticut applied by the Sellers on a basis consistent with
prior periods, as applicable, except for normal reclassifications and (ii) is
correct in all material respects. The treaty information and reported losses
information in the Sellers' "SHARP" system is a true and correct record in all
material respects (considered in the aggregate and not individually) of the
information received by the Sellers from brokers or prepared by the Sellers,
except that no representation is hereby made as to the estimates of ultimate
premium contained therein. The financial information in Part 2 of Schedule 3.15
that relates to U.S. generally accepted accounting principles ("GAAP")
historical results of operations of the Business was prepared in conformity with
GAAP, applied by the Sellers on a basis consistent with prior periods, with the
exceptions that (i) certain income and expense amounts have been allocated based
on the Seller Insurer Party's internal allocation methodologies and (ii) levels
of materiality for the Seller Insurer Party as a whole are a consideration in
materiality determinations with respect to the financial information for the
overall reinsurance operations shown in that Schedule. Notwithstanding the
foregoing, Sellers make no representation as to any estimated financial amounts
included in the information in referred to in this Section 3.15, such as
estimates of losses and loss adjustment expenses, including the adequacy or
ultimate accuracy thereof.
Section 3.16 Disclosure. The Sellers have made available to the Purchaser
the true and correct copies of the Reinsured Contracts and the underwriting
files (including any actuarial analysis) and the claims files relating to the
Reinsured Contracts and will provide all of the
13
foregoing pursuant to Section 5.9. The Sellers have provided the Purchaser with
access to all print-outs of all electronic mail included in the underwriting
files and the claims files relating to the Business.
Section 3.17 Third Party Reinsurance Contract. The Specified Third Party
Reinsurance Contract is in full force and effect and the Seller Insurer Party is
not in material breach of any provision thereof and no other party to such
Specified Third Party Reinsurance Contract is in material breach or, to the
Knowledge of Sellers, has threatened any such breach of any provision thereof.
Section 3.18 No Other Representations or Warranties. The Sellers
acknowledge and agree that except for the express representations and warranties
of the Purchaser contained in this Agreement and the Related Documents, neither
the Purchaser, nor any other Person acting for the Purchaser, is making or has
made any other representation or warranty, express or implied, in connection
with this Agreement, any Related Document or any aspect of the Sale Transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as of the time
of Closing as follows:
Section 4.1 Organization and Good Standing. The Purchaser (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, (ii) has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, and (iii) has all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except in the case of each of clauses (ii) and
(iii), as would not, individually or in the aggregate, have a Material Adverse
Effect.
Section 4.2 Authorization of Agreement. The Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and each
Related Document to be executed by the Purchaser and to perform fully its
obligations hereunder and thereunder. The execution, delivery and performance by
the Purchaser of this Agreement and each Related Document to be executed by the
Purchaser has been duly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement and each of the Related Documents to be
executed by the Purchaser has been duly executed and delivered by the Purchaser
and this Agreement and each of the Related Documents to be executed by the
Purchaser constitutes valid and legally binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their terms.
Section 4.3 Governmental Authorization. The execution, delivery and
performance by the Purchaser of this Agreement and the Related Documents
requires no action by, or filing with, any Governmental Body on the part of the
Purchaser or any Affiliate thereof.
Section 4.4 Conflicts. The execution, delivery and performance by the
Purchaser of this Agreement and the Related Documents and the consummation of
the Sale Transaction will
14
not (i) conflict with or violate any provision of the certificate of
incorporation or by-laws (or equivalent organizational documents) of the
Purchaser; (ii) conflict with, violate, result in the breach or termination of,
or (after the giving of notice or the lapse of time or both) constitute a
default, give rise to any right of termination or acceleration or right to
increase the obligations or otherwise modify the terms under, any contract or
any Permit to which the Purchaser is a party or by which its properties or
assets is bound or subject; or (iii) constitute a violation of any Applicable
Law, except in the cases of (ii) and (iii) for any conflict, violation, breach,
default, termination, acceleration, right or modification which would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
Section 4.5 Litigation. There are no actions, suits, arbitrations,
investigations, judgments or proceedings pending before any arbitrator or
Governmental Body or, to the Knowledge of the Purchaser, threatened which seek
to enjoin or obtain monetary damages in respect of, the Sale Transaction, or
which would reasonably be expected to materially impair the Purchaser's ability
to effect the Closing.
Section 4.6 Certain Fees. No person other than Deutsche Bank Securities,
Inc. has acted on behalf of the Purchaser as a broker or a financial advisor in
connection with the Sale Transaction and no Person is entitled to any broker or
financial advisory fee payment from the Purchaser in connection herewith.
Section 4.7 Solvency; Adequate Capitalization; Ability to Pay Debts. The
Purchaser is, and prior to and after giving effect to the consummation of this
Agreement and the Related Documents will be, solvent. The Purchaser is not
subject to any supervision, conservation, liquidation, rehabilitation,
delinquency or similar proceeding, or investigation or inquiry which is
reasonably likely to result in any such proceeding.
Section 4.8 Financial Ability. The Purchaser has available to it
sufficient funds to consummate the Sale Transaction.
Section 4.9 Data Room. The Purchaser has been allowed the opportunity to
(i) visit the Sellers' offices and inspect and review the documents and
information contained therein relating to the Business, and (ii) interview the
Sellers' management and discuss the Business with the Sellers' management.
Section 4.10 No Other Representations or Warranties. The Purchaser
acknowledges and agrees that except for the express representations and
warranties of the Sellers contained in this Agreement and the Related Documents,
neither the Sellers, nor any other Person acting for the Sellers, is making or
has made any other representation or warranty, express or implied, in connection
with this Agreement, any Related Document or any aspect of the Sale Transaction.
Section 4.11 No Guaranteed Renewals. The Purchaser acknowledges and agrees
that (i) none of the Sellers or their Affiliates has the power or ability to
require any Reinsured or any broker or agent to renew any Reinsured Contract or
any insurance coverage provided thereunder, upon expiration or otherwise and
(ii) none of the Sellers or any other Person has made any representation or
warranty or any other promise about the amount, if any, of the Reinsured
Contracts that the Purchaser will be able to renew.
15
Section 4.12 Special Termination Acknowledgement. The Purchaser
acknowledges that certain Reinsured Contracts may be, pursuant to their terms,
terminable at the election of the Reinsureds as a result of (x) the transactions
contemplated by this Agreement and the Related Documents or (y) the Sellers
ceasing to underwrite reinsurance, and the Purchaser agrees that it will not
seek indemnification from the Sellers for any misrepresentation or breach of any
warranty under this Agreement arising from any such terms or any such
terminations.
ARTICLE V
COVENANTS OF THE SELLERS
Section 5.1 Noncompetition; Nonsolicitation.
(a) Subject to Sections 5.1(b) and 5.1(c), the Sellers and The Hartford
Financial Services Group, Inc. ("HIG") agree that prior to the third anniversary
of the Closing (the "Restricted Period"), no Restricted Person shall engage in
Restricted Business. As used herein, "Restricted Person" as of any time shall
mean HIG, either Seller and any Person who is then a Controlled Affiliate of
HIG. "Controlled Affiliate" means any Affiliate of HIG which HIG directly or
indirectly controls, as control is defined in the definition of "Affiliate."
"Restricted Business" means the business of (a) assuming property or casualty
reinsurance through reinsurance brokers from any ceding insurer, (b) assuming
property or casualty reinsurance from any Reinsured (other than any Affiliate of
HIG), (c) acting as a managing general agent or managing general underwriter
engaged in the broker market property or casualty reinsurance business or (d)
facilitating the solicitation of Reinsureds by any Person other than the
Purchasers; provided, however, that "Restricted Business" shall not include (x)
any activities that are ancillary or incidental to a primary insurance business
of a Restricted Person or that result directly from the change of an existing
primary insurance program with an insured into a reinsurance program (such as
the situation where an existing insured, affinity group or producer of insurance
business forms an insurance company and thereafter transfer risks to a
Restricted Person on a reinsurance basis) or (y) any reinsurance assumed
incidental to or as part of an acquisition of renewal rights with respect to
primary insurance.
(b) Section 5.1(a) shall not prohibit:
(i) any Person that is a Restricted Person as of the Closing from
engaging in any of its existing business activities being conducted as of
the Closing (other than, in the case of the Sellers, Restricted Business
conducted through the ▇▇▇▇ Re division of the Sellers);
(ii) any acquisition or ownership by a Restricted Person of up to
25% of the aggregate voting power of all classes of voting securities of
any Person directly or indirectly engaged in Restricted Business, or such
Person from continuing to engage directly or indirectly in Restricted
Business;
(iii) Restricted Persons having the power to designate, appoint,
elect or nominate up to 25% of the members of the board of directors or
other governing body of
16
any Person directly or indirectly engaged in Restricted Business, or such
Person from continuing to engage directly or indirectly in Restricted
Business;
(iv) any acquisition or ownership by a Restricted Person of more
than 25% of the aggregate voting power of all classes of voting securities
of any Person directly or indirectly engaged in Restricted Business, or
such Person from continuing to engage directly or indirectly in Restricted
Business following such acquisition (A) if in the most recently completed
calendar year and during the Restricted Period, Restricted Business
contributed less than 25% of the consolidated revenues of the Person being
acquired and its consolidated subsidiaries as of the time of such
acquisition or (B) if such acquisition occurs as a result of a Strategic
Transaction involving HIG;
(v) Restricted Persons from obtaining or having the power (other
than solely pursuant to the ownership of voting securities) to designate,
appoint, elect or nominate more than 25% of the members of the board of
directors or other governing body of any Person or acting as a general
partner or managing member of any Person engaged directly or indirectly in
Restricted Business, or such Person from continuing to engage directly or
indirectly in Restricted Business, if in the most recently completed
calendar year prior to such designation, appointment, election or
nomination or prior to becoming a general partner or managing member and
in either case during the Restricted Period, Restricted Business
contributed less than 25% of the consolidated revenues of such Person and
its consolidated subsidiaries and Affiliates;
(vi) any activities connected to the run-off of the obligations of
any Restricted Person under the Reinsured Contracts or any other expired
contracts of reinsurance;
(vii) the renewal of any Reinsured Contract or other reinsurance
contract as to which a Seller or any other Restricted Person was unable to
give, or inadvertently failed to give, timely notice of cancellation or
nonrenewal after the Closing and before the deadline for such notice to be
effective, or pursuant to any right of a ceding insurer to require a
renewal which such Seller or such Restricted Person has no contractual
right to deny;
(viii) any catastrophe swaps, pooling mechanisms whose primary
purpose is not the generation of underwriting revenue or other risk
management transactions directly relating to the underlying insurance
obligations of any Restricted Person; or
(ix) any Restricted Person from participating in any industry pool
(other than USAIG) specifically related to a single line or type of
business.
Any voting securities of any Person held (A) by a life insurance company
separate account, (B) by any bona fide investment fund or investment partnership
sponsored by an independent third party in which a Restricted Person is not a
general partner, managing member or investment advisor, (C) solely as nominee
for any Person who is not a Restricted Person, (D) by any investment advisor,
broker dealer or other Person engaged in financial services business (other than
insurance), in the ordinary course of business or (E) by any employee benefit
fund advised exclusively by independent advisers shall in all events be
permitted and shall not be
17
aggregated with any other voting securities of such Person held by any
Restricted Person for purposes of determining (x) whether such Person is a
Restricted Person or (y) the availability of the exception set forth in Section
5.1(b)(ii).
As used above, a transaction shall constitute a "Strategic Transaction"
with respect to HIG if following such transaction, (i) the individuals who were
members of the Board of Directors of HIG prior to such transaction constitute
55% or less of the members of the Board of Directors of HIG (or any Person into
which HIG is merged) following the transaction or (ii) the shares of common
stock of HIG outstanding prior to the transaction (or any securities into which
such shares are converted in the transaction) constitute less than 55% of the
outstanding voting securities of HIG (or any Person into which HIG is merged)
following the transaction.
(c) Notwithstanding Section 5.1(a), all Restricted Persons may be released
from the provisions of Section 5.1 from and after any date (the "Release Date")
specified in a written notice from any Restricted Person to the Purchasers, upon
receipt by Endurance US of $30 million in cash from a Restricted Person, and
following such payment the Purchasers shall have no further claim for Damages
arising as a result of any breach of Section 5.1(a) prior to the Release Date.
The parties expressly agree that the Release Amount is not an estimate of the
damages the Purchasers would suffer upon a breach of Section 5.1 by a Restricted
Person and shall not be considered as probative in any action for Damages for
such a breach.
(d) Each of the Sellers agrees that for the period of eighteen months
after the date of the Closing, neither it nor any of its Affiliates shall,
directly or indirectly, solicit for employment, attempt to employ or employ any
employee of the Sellers listed on Schedule 7.1 who accepts employment with
Endurance US or its Affiliates (each, a "Transferred Employee"). Notwithstanding
the foregoing, the restriction on solicitation of employment set forth in the
immediately preceding sentence shall not prohibit Sellers or any of their
Affiliates from recruiting through general advertisements, searches or other
broad-based hiring methods.
(e) The parties to this Agreement acknowledge that the covenants set forth
in this Section 5.1 are an essential element of this Agreement and that, but for
these covenants, the parties would not have entered into this Agreement. The
parties to this Agreement acknowledge that this Section 5.1 constitutes an
independent covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement or any Related Documents by the
parties.
(f) The parties to this Agreement acknowledge that the type and periods of
restriction imposed in the provisions of this Section 5.1 are fair and
reasonable and are reasonably required for the protection of the parties. If any
provision contained in this Section 5.1 shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section 5.1, but
this Section 5.1 shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. It is the intention of the parties
that if any of the restrictions or covenants contained herein is held to cover a
geographic area or to be for a length of time which is not permitted by
Applicable Law, or in any way construed to be too broad or to any extent
invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
Applicable Law, a court of competent jurisdiction shall construe and
18
interpret or reform this Section 5.1 to provide for a covenant having the
maximum enforceable geographic area, time period and other provisions (not
greater than those contained herein) as shall be valid and enforceable under
such Applicable Law. The sole remedies for breach by HIG of this Section 5.1
shall be (i) as set forth in Section 10.3 or (ii) indemnification of the
Purchaser by the Sellers (but not HIG) pursuant to Article IX.
Section 5.2 Employee Confidentiality. For a period of three (3) years
after the date hereof, neither the Sellers nor any of their Affiliates shall,
and they shall use commercially reasonable efforts to cause their employees and
agents not to, use any confidential or proprietary information of the Business
(including rating methodology, customer identities and customer performance) in
any manner in connection with any sale, or solicitation with respect to the
sale, of Reinsured Contracts. At the Purchaser's expense, the Sellers shall use
reasonable best efforts to enforce any provisions relating to confidentiality,
non-solicitation and non-competition with respect to the Business found in any
employment contracts with their current and former employees who are not
Transferred Employees.
Section 5.3 Public Announcements. Except as may be required by Applicable
Law or the rules of any stock exchange, the Sellers shall not issue any press
release or, except as otherwise provided herein, make any public statement with
respect to this Agreement or the Related Documents or the transactions
contemplated hereby or thereby without the Purchaser's prior written consent to
the text thereof (which shall not be unreasonably withheld, conditioned or
delayed).
Section 5.4 Renewal Rights. The Sellers shall use reasonable best efforts
(which expression the parties agree, for purposes of the Agreement, excludes,
for example, any obligation of the Sellers to (i) vouch for the creditworthiness
of the Purchaser, (ii) settle any outstanding or potential claim or dispute with
any Reinsured or (iii) maintain or hire any employee for the purpose of
discharging the Sellers' obligations under this Section 5.4) after the Closing
to assist the Purchaser in entering into new reinsurance contracts with each of
the Reinsureds upon cancellation or expiration of the Reinsured Contracts and in
the exercise of the Purchaser's Renewal Rights. The Sellers shall furnish any
additional information as may be reasonably requested by the Purchaser to
exercise the Renewal Rights. Without limiting the foregoing, the Sellers and the
Purchaser shall send to each Reinsured and each Producer a written notice under
"HartRe" letterhead and signature in a form to be mutually agreed upon by the
Purchaser and the Sellers informing such policyholder and Producer of this
Agreement and the transactions hereunder. Such notices shall be sent at such
time after the date hereof as shall be mutually agreed upon by the Purchaser and
the Sellers, and shall be sent by such means as is required by applicable
contract obligations or as otherwise mutually agreed upon by the Purchaser and
the Sellers. The parties further agree that the decision to write any Renewed
Contracts is at the sole discretion of the Purchaser, and that nothing in this
Agreement creates an obligation in any way on the part of the Purchaser to renew
any Reinsured Contract. In cooperation with the Purchaser, the Seller shall use
reasonable best efforts to ensure that Reinsureds, suppliers, reinsurers,
regulatory bodies, Producers, distributors, lessors, employees, business
associates and other Persons relating to the Business are notified concerning
the transactions contemplated hereby to the extent necessary to facilitate the
Purchaser's exercise of the Renewal Rights; provided, however, that the
foregoing is subject to the Purchaser's acknowledgment in Section 4.11.
19
Section 5.5 Exclusivity. (a) Each Seller acknowledges that the intent of
this Agreement and the Related Documents is to convey to the Purchaser on an
exclusive basis all of such Seller's right, title and interest in the Renewal
Rights and the information relating exclusively thereto. The Sellers will not
retain any Renewal Rights and will not assign, transfer or facilitate the
transfer of the Reinsured Contracts to any Person other than the Purchaser,
regardless of whether the Purchaser chooses to insure any Reinsured upon
expiration or cancellation of its Reinsured Contract.
(a) Except as set forth in Section 6.3, each Seller acknowledges that the
intent of this Agreement and the Related Documents is to convey to the Purchaser
all right, title and interest in the Books and Records, including the
information contained therein with respect to the Renewal Rights.
Section 5.6 Notices of Certain Events. The Sellers shall promptly notify
the Purchaser and obtain copies for the Purchaser of:
(a) any notice or other communication received from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement or a Related Document;
(b) any notice or other communication received relating to the
transactions contemplated by this Agreement or a Related Document and any other
significant notices or other communications from any Governmental Body that
would adversely affect the Purchaser or its interests with respect to the
Reinsured Contracts; and
(c) any actions, suits, claims, investigations or proceedings commenced
(or any notices thereof) or, to the Sellers' Knowledge, threatened against the
Sellers that relates to the Business (other than claims by Reinsureds under the
Reinsured Contracts when and if the Purchaser is not required to be notified
pursuant to the Claims Handling Agreement), or that relates to the consummation
of a transaction contemplated by this Agreement or a Related Document.
Section 5.7 Execution of Documents. The Sellers will use its reasonable
best efforts to obtain execution of all unsigned contracts, cover slips and
other instruments relating to the Business and deliver the executed copies to
the Purchaser as soon as practicable following the date hereof.
Section 5.8 USAIG Aviation Pool. The Sellers shall use its reasonable best
efforts to assist the Purchaser in obtaining membership in the United States
Aircraft Insurance Group aviation insurance pool ("USAIG") to the same extent
and level of participation as the Seller Insurer Party's membership in USAIG
immediately prior to the Closing as soon as reasonably practicable following the
date hereof. The Seller Insurer Party and the Purchaser have entered into
fronting arrangements pursuant to the Retrocession Agreement, which shall
continue until December 31, 2005 or such earlier date as the Purchaser becomes a
member of such USAIG pool, whereby the Purchaser will pay to the Seller Insurer
Party a fronting fee of two percent (2%) of the members net premiums reported to
the Purchaser as a result of the fronting arrangements and reimburse the Seller
Insurer Party for any taxes, board, bureaus and other fees
20
for which the Seller Insurer Party is not otherwise entitled to reimbursement
from USAIG or any other third party.
Section 5.9 Books and Records. The Sellers shall deliver the Books and
Records in the Sellers' and their Affiliates' possession to the Purchaser as
soon as reasonably practicable but in any event within ninety days after the
Closing; provided, however, that the Sellers shall provide the Purchaser with
full access, at the Sellers' facilities, to the Books and Records in the
Sellers' and their Affiliates' possession, including any materials that
constitute Books and Records that are created or otherwise come into the
Sellers' possession after the Closing. The Purchaser agrees to assume all of the
reasonable out-of-pocket costs and expenses incurred in connection with the
reproduction and delivery of the Books and Records to the Purchaser as
contemplated by this Agreement and the Purchaser shall promptly reimburse the
Sellers for any such out-of-pocket costs and expenses incurred by the Sellers in
connection therewith.
Section 5.10 Cooperation. Following the Closing, the Sellers shall
cooperate, to the fullest extent practicable, with the Purchaser (i) in the
defense of any litigation or arbitration arising out of the Business, (ii) in
connection with any Tax matter relating to the Business and (iii) in fulfilling
such other reasonable requests as may be made by the Purchaser in connection
with the Business. The Purchaser shall promptly pay to the Sellers all
reasonable out-of-pocket expenses of the Sellers incurred as a result of the
Sellers' obligations under this Section 5.10, provided that the Purchaser has
approved of such expenses prior to the time that they are incurred and provided,
further, that such payment obligation shall not apply to any out-of-pocket
expenses incurred by the Sellers as a result of the Sellers' fulfillment of
their obligations under Section 5.4. This Section 5.10 shall have no
applicability to any claim arising out of any Reinsured Contract that is subject
to a Claims Handling Agreement.
ARTICLE VI
COVENANTS OF THE PURCHASER
Section 6.1 Public Announcements. Except as may be required by Applicable
Law or the rules of any stock exchange, the Purchaser shall not issue any press
release or, except as otherwise provided herein, make any public statement with
respect to this Agreement or the Related Documents or the transactions
contemplated hereby or thereby without a Seller's prior written consent to the
text thereof (which shall not be unreasonably withheld conditioned or delayed).
Section 6.2 Cooperation. Following the Closing, the Purchaser and its
Affiliates shall, and shall cause each Transferred Employee to, cooperate, to
the fullest extent practicable, with the Sellers (i) in the defense of any
litigation or arbitration arising out of any event that occurred on or prior to
the Closing involving the Business, (ii) in connection with any Tax matter
relating to the Business and (iii) in fulfilling such other reasonable requests
as may be made by the Sellers in connection with the Business. The Sellers shall
promptly pay to the Purchaser or its Affiliates, as the case may be, all
reasonable out-of-pocket expenses of the Purchaser or its Affiliates incurred as
a result of the Purchaser's or its Affiliates' obligations under this Section
6.2 provided that the Sellers have approved of such expenses prior to the time
that they
21
are incurred. This Section 6.2 shall have no applicability to any claim arising
out of any Reinsured Contract that is subject to a Claims Handling Agreement.
Section 6.3 Access to Books and Records. Notwithstanding any other
provision set forth in this Agreement (including Section 7.2) or the Related
Documents to the contrary, the Purchaser hereby grants to the Sellers and their
Affiliates an irrevocable, perpetual, nonexclusive, royalty-free right to
access, review, use and disclose to Governmental Bodies and other third parties
the Books and Records, including any materials that constitute Books and Records
that are created or otherwise came into the Sellers' or the Purchaser's
possession after the Closing for any purpose other than in violation of Section
5.1 or Section 5.5(a).
ARTICLE VII
MUTUAL COVENANTS OF THE PURCHASER AND THE SELLERS
Section 7.1 Employees. At or prior to the Closing, the Purchaser or one of
its Affiliates shall extend, or shall have extended, a written offer of
employment to each of the employees of the Sellers listed on Schedule 7.1 at a
salary that is at least equal to such employee's current salary as indicated on
Schedule 7.1 and subject to such other terms and conditions which the Purchaser
deems appropriate. Each Transferred Employee shall become eligible to
participate in the employee benefit plans of the Purchaser or its Affiliates,
subject to the terms of such plans.
Section 7.2 Confidentiality. (a) The Sellers, the Purchaser and Endurance
Specialty Holdings Ltd. ("Endurance Holdings") acknowledge that they have had,
and may continue to have, access to confidential and proprietary information
concerning the other parties and the other parties' business. Each of the
Sellers, the Purchaser and Endurance Holdings agrees that, except as set forth
below, it will not at any time (during the term hereof or thereafter) disclose
to any Person, directly or indirectly, or make any use of, for any purpose other
than those contemplated by this Agreement or any Related Document, any
information or trade secrets relating to the Business, the Reinsured Contracts,
the Reinsured Liabilities, the Excluded Liabilities or the business affairs of
the Sellers or the Purchaser (including, without limitation, all records, files,
documents, data, including financial, claims or loss data, or other information
regarding customers, vendors or suppliers, training programs, manuals or
materials, technical information, contracts, systems, procedures, mailing lists,
know-how, pricing, revenues, costs or profits associated with the Business,
business and marketing plans, code books, invoices and other financial
statements, computer programs, software systems, databases, plans (business,
technical or otherwise), customer and industry lists, correspondence, internal
reports, personnel files or sales and advertising material relating to the
foregoing) (collectively, the "Confidential Information").
(a) The Sellers, the Purchaser and Endurance Holdings may disclose
Confidential Information in the following circumstances: (i) disclosure is
compelled by a Governmental Body after notice to the other parties; provided,
however, that such disclosure shall be limited only to the extent compelled to
be disclosed by such Governmental Body; (ii) disclosure is to officers,
directors, employees, agents or representatives of the Sellers or the Purchaser
with a need to access such Confidential Information in order to perform their
obligations under this Agreement
22
and the Related Documents; (iii) disclosure of Confidential Information that is
generally available to the public (and such public availability can be
demonstrated) other than as a result of a breach of the terms of this Agreement
or any Related Document; (iv) disclosure is required to enforce the Sellers' or
the Purchaser's respective rights under this Agreement or any Related Document
or (v) disclosure is required by Applicable Law.
(b) Notwithstanding any other provision of this Agreement to the contrary,
the Sellers, the Purchaser and Endurance Holdings (and each of their employees,
representatives or other agents) may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the Sale
Transaction and all materials of any kind (including opinions or other tax
analyses) that are provided relating to such tax treatment and tax structure.
Section 7.3 Occupancy Arrangements. The Seller Insurer Party and the
Purchaser agree to negotiate in good faith one or more agreements for the Seller
Insurer Party's provision to the Purchaser of the use of a portion of certain
real property (either owned or leased by the Seller Insurer Party) located in
Hartford, Connecticut and San Francisco, California. Such agreements shall have
the principal terms set forth on Schedule 7.3 and will be based to the extent
appropriate on the draft occupancy agreement which has been discussed by the
parties prior to the date hereof. Such agreements shall be entered into on or
before the thirtieth day after the Closing. Prior to such thirtieth day, the
Sellers agree that the Transferred Employees may continue to work at the
Sellers' properties consistent, in all material respects, with their past
practices and the Purchaser shall reimburse the Sellers for the aggregate
imputed or actual cost and expense incurred by the Seller Insurer Party to own
or lease such properties at a rate not to exceed $33 per square foot, and for
the agreed upon utilities and services utilized by the Transferred Employees in
connection therewith.
ARTICLE VIII
CLOSING DELIVERIES
Section 8.1 Deliveries by the Sellers to the Purchaser.
The Sellers have delivered to the Purchaser the following:
(a) a copy of the executed ▇▇▇▇ of Sale and Assignment Agreement;
(b) a copy of the executed Retrocession Agreement;
(c) a copy of the executed Claims Handling Agreement;
(d) a certificate of a duly authorized officer of each Seller, dated the
date hereof, setting forth the resolutions of the board of directors of such
Seller authorizing the execution and delivery of this Agreement and the Related
Documents to which it is a party and the consummation of the Sale Transaction,
and certifying that such resolutions were duly adopted and have not been
rescinded or amended as of the date hereof; and
23
(e) a certificate of the Secretary or an Assistant Secretary of each
Seller attesting to the incumbency and signature of each officer of the Seller
who shall execute this Agreement or any other Related Document to which it is a
party.
Section 8.2 Deliveries by the Purchaser to the Sellers.
The Purchaser has delivered to the Sellers the following:
(a) a copy of the executed ▇▇▇▇ of Sale and Assignment Agreement;
(b) a copy of the executed Retrocession Agreement;
(c) a copy of the executed Claims Handling Agreement;
(d) a certificate of a duly authorized officer of the Purchaser, dated the
date hereof, setting forth the resolutions of the board of directors of the
Purchaser authorizing the execution and delivery of this Agreement and each
Related Document to which it is a party and the consummation of the Sale
Transaction, and certifying that such resolutions were duly adopted and have not
been rescinded or amended as of the date hereof; and
(e) a certificate of the Secretary or an Assistant Secretary of the
Purchaser attesting to the incumbency and signature of each officer of the
Purchaser who shall execute this Agreement or any other Related Document to
which it is a party.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
Section 9.1 Survival. The representations and warranties of the parties
hereto contained in this Agreement (and any indemnification claims in respect
thereof) shall survive the Closing until March 31, 2005. Notwithstanding the
preceding sentence, any indemnification claim under Section 9.2(a)(i) or Section
9.2(b)(i) shall survive beyond the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the misrepresentation or breach
of warranty giving rise to such indemnification claim shall have been given to
the party against whom such indemnity may be sought prior to the scheduled
termination of such representation or warranty, as applicable. The covenants and
agreements of the parties (including the covenants and agreements of the parties
set forth in this Article IX, including Sections 9.2(a)(iii), (a)(iv) and
(a)(v)) contained in this Agreement shall survive indefinitely, except to the
extent expressly provided otherwise herein or therein.
Section 9.2 Indemnification. (a) The Sellers hereby indemnify the
Purchaser and its Affiliates against and agree to hold each of them harmless
from any and all damage, loss, liability and expense (including reasonable
attorneys' fees and other expenses of investigation and reasonable attorneys'
fees and other expenses in connection with any action, suit or proceeding)
("Damages"), incurred or suffered by the Purchaser arising out of (i) any
misrepresentation or breach of any warranty made by the Sellers under this
Agreement, (ii) any breach of any covenant or agreement to be performed by the
Sellers or HIG pursuant to this Agreement, (iii) the Seller Retained
Liabilities, (iv) any claim by any present or former employee
24
of the Sellers or any Affiliate thereof, including the Transferred Employees,
which arises under federal, state or local statute (including Title VII of the
Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination
in Employment Act of 1990, the Equal Pay Act, the Americans with Disabilities
Act of 1990, ERISA and all other statutes regulating the terms and conditions of
employment), regulation or ordinance, under the common law or in equity
(including any claims for wrongful discharge or otherwise), or under any policy,
agreement, understanding or promise, written or oral, formal or informal,
between a Seller or Affiliate thereof and such present or former employee which
arose out of any action or omission of a Seller or any of its Affiliates or (v)
the enforcement of their rights under this Section 9.2; provided, however, that
notwithstanding any other provision of this Agreement to the contrary, the
Sellers shall not be obligated to indemnify the Purchaser and its Affiliates (x)
unless the aggregate amount of Damages with respect to all indemnification
claims referred to in this Section 9.2(a) exceeds $600,000 in the aggregate (in
which event the entire amount of such Damages may be recovered) or (y) in an
aggregate amount exceeding $30,000,000 (it being agreed that the limitations set
forth in this proviso shall not apply to the indemnity provided under clauses
(iii) or (iv) of this sentence or, in respect of any item referred to in this
parenthetical, the indemnity provided under clause (v) of this sentence). The
fact that the survival period with respect to any representation or warranty has
terminated or that indemnification for breaches of representations and
warranties is subject to the limitation set forth in the proviso to the
immediately preceding sentence shall not limit or affect in any respect the
Sellers' indemnification obligations with respect to any Seller Retained
Liabilities.
(a) The Purchaser hereby indemnifies the Sellers and their Affiliates
against and agrees to hold each of them harmless from any and all Damages
incurred or suffered by the Sellers or any of their Affiliates arising out of
(i) any misrepresentation or breach of any warranty made under by the Purchaser
under this Agreement, (ii) any breach of any covenant or agreement made or to be
performed by the Purchaser or Endurance Holdings pursuant to this Agreement,
(iii) the enforcement of their rights under this Section 9.2, (iv) except as
otherwise agreed to in writing by the parties hereto, any action (or failure to
act) by the Purchaser, in violation of Applicable Law, with respect to the
hiring or terms of employment of any person who is or was an employee of the
Sellers prior to the Closing, (v) except as otherwise agreed to by the parties
hereto, any claim by any current or former employee of the Sellers or any
Affiliate thereof, including any Transferred Employee, which arises under
federal, state or local statute (including Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of
1990, the Equal Pay Act, the Americans with Disabilities Act of 1990, ERISA and
all other statutes regulating the terms and conditions of employment),
regulation or ordinance, under the common law or in equity (including any claims
for wrongful discharge or otherwise), or under any employee benefit plan or
program of the Purchaser or any Affiliate of the Purchaser, or under any policy,
agreement, understanding or promise, written or oral, formal or informal,
between the Purchaser or an Affiliate thereof and such present or former
employee which arose out of any action or omission of the Purchaser or any of
its Affiliates or (vi) the Purchaser's occupancy or use of a Seller's or a
Seller's Affiliate's property (real or personal); provided, however, that
notwithstanding any other provision of this Agreement to the contrary, the
Purchaser shall not be obligated to indemnify the Sellers and their respective
Affiliates (x) unless the aggregate amount of Damages with respect to all
indemnification claims referred to in this Section 9.2(b) exceeds $600,000 in
the aggregate (in which event the entire amount of such Damages may be
recovered) or (y) in an amount exceeding $30,000,000 (it being
25
agreed that the limitations set forth in this proviso shall not apply to the
indemnity provided under clauses (iv), (v) or (vi) of this sentence or, in
respect of any item referred to in this parenthetical, the indemnity provided
under clause (iii) of this sentence).
(b) Required payments by any Indemnifying Party (as hereinafter defined)
pursuant to this Article IX shall be limited to the amount of any Damages that
remains after deducting therefrom (i) any insurance proceeds recovered by any
Indemnified Party (less any increase in premium reasonably related to the
incurrence of such Damages) and (ii) any indemnity, contribution or other
similar payment recovered by any Indemnified Party from any third party, in each
case with respect to such Damages. The Indemnified Party shall use commercially
reasonable efforts to collect all such insurance proceeds and indemnity,
contribution and other similar payments, but the Indemnified Party shall not be
required to receive such insurance proceeds prior to obtaining indemnification
against the Indemnifying Party under this Article IX. In the event of a recovery
referred to above after the Indemnifying Party shall have paid any Damages, the
Indemnified Party shall pay the amount of such recovery to the Indemnified
Party.
(c) Required payments by the Indemnifying Party pursuant to this Article
IX shall be (i) increased to take account of any Tax cost incurred (grossed up
for such increase) by the Indemnified Party arising from the receipt of
indemnity payments hereunder and (ii) reduced to take account of any Tax benefit
realized by the Indemnified Party arising from the incurrence or payment of any
such Damages. Such Tax cost or Tax benefit, as the case may be, shall be
computed for any year using the Indemnified Party's actual Tax liability with
and without (A) the receipt of any indemnification payments made pursuant to
this Agreement and (B) the incurrence or payment of any Damages for which
indemnification is provided under this Agreement in such year. In the event that
the Indemnified Party actually realizes a Tax cost or Tax benefit for a year(s)
subsequent to the year in which the indemnity payment is made, the Indemnifying
Party shall pay the amount of such Tax cost or the Indemnified Party shall pay
the amount of such Tax benefit, as the case may be, in such subsequent year(s).
Section 9.3 Procedures for Third Party Claims. (a) The party seeking
indemnification under Section 9.2 (the "Indemnified Party") agrees to deliver
prompt notice (in accordance with Section 10.7) to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought under Section 9.2 (the "Third Party Claims"). Such notice referred
to in the preceding sentence shall state the relevant facts and include
therewith relevant documents and a statement in reasonable detail as to the
basis for the indemnification sought. The failure by any Indemnified Party so to
notify the Indemnifying Party shall not relieve any Indemnifying Party from any
liability which it may have to such Indemnified Party with respect to any claim
made pursuant to this Section 9.3, except to the extent such failure shall
actually and materially prejudice an Indemnifying Party.
(a) Upon receipt of notice from the Indemnified Party pursuant to Section
9.3(a), the Indemnifying Party will have the right to (and will, if requested by
the Indemnified Party), subject to the provisions of Section 9.3(c), assume the
defense and control of such Third Party Claims. In the event the Indemnifying
Party assumes the defense of a Third Party Claim, (i) the Indemnifying Party
shall not be liable for any legal expenses subsequently incurred by the
Indemnified Party and (ii) the Indemnified Party shall have the right but not
the obligation to
26
participate in the defense of such Third Party Claims with their own counsel and
at their own expense and the Indemnifying Party will cooperate with the
Indemnified Party. Any election by an Indemnifying Party not to assume the
defense of a Third Party Claim must be received by the Indemnified Party not
more than 10 Business Days after receipt of the Indemnified Party's notice
delivered pursuant to Section 9.3(a). If the Indemnifying Party elects to assume
the defense of a Third Party Claim, the Indemnifying Party shall select counsel,
and consultants of recognized standing and competence after consultation with
the Indemnified Party; shall take all steps necessary in the defense or
settlement of such Third Party Claims; and shall at all times diligently and
promptly pursue the resolution of such Third Party Claims. The Indemnified Party
shall, and shall cause each of their Affiliates and representatives to,
cooperate fully with the Indemnifying Party in the defense of any Third Party
Claim defended by the Indemnifying Party.
(b) The Indemnifying Party shall be authorized to consent to a settlement
of, or the entry of any judgment arising from, any Third Party Claim as to which
the Indemnifying Party shall have assumed the defense in accordance with the
terms of Section 9.3(b), without the consent of any Indemnified Party, but only
to the extent that such settlement or entry of judgment (i) provides solely for
the payment of money by the Indemnifying Party and (ii) provides a complete
release of any Indemnified Party potentially affected by such Third Party Claim
from all matters that were or could have been asserted in connection with such
claims. Except as provided in the foregoing sentence, settlement or consent to
entry of judgment shall require the prior approval of the Indemnified Party,
such approval not to be unreasonably withheld, conditioned or delayed. If the
Indemnifying Party shall not have assumed the defense of a Third Party Claim,
the Indemnified Party shall not consent to any settlement of, or the entry of
any judgment arising from, such Third Party Claim without the consent of the
Indemnifying Party, which shall not be unreasonably withheld, conditioned or
delayed. For purposes of this subparagraph, "consent to entry of judgment" shall
be read to encompass failure by the Indemnifying Party to finally pursue and
perfect any rights of appeal, including discretionary appellate review in the
nature of certiorari petition or otherwise.
Section 9.4 Procedures for Direct Claims. In the event any Indemnified
Party shall have a claim for indemnity against any Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall deliver prompt
notice of such claim to the Indemnifying Party. Such notice referred to in the
preceding sentence shall state the relevant facts and include therewith relevant
documents and a statement in reasonable detail as to the basis for the
indemnification sought. The failure by any Indemnified Party so to notify the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
that it may have to such Indemnified Party with respect to any claim made
pursuant to this Section 9.4, it being understood that notices for claims in
respect of a breach of a representation or warranty must be delivered prior to
the expiration of the survival period for such representation or warranty.
Section 9.5 Exclusive Remedy. Subject to the rights of the parties under
Section 10.3, the parties hereto expressly acknowledge that (i) the provisions
of this Article IX shall be the sole and exclusive remedy at law or in equity
for Damages arising out of this Agreement and (ii) no Indemnifying Party shall
be liable for consequential, punitive or treble Damages except to the extent
actually paid to a third party by an Indemnified Party.
27
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Entire Agreement. This Agreement and the Related Documents
including all Schedules and Exhibits attached hereto and thereto, constitute the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein and supercede all prior agreements
and understandings between the parties with respect to such subject matters,
including the Confidentiality Agreement, dated as of March 12, 2003, by and
between the Seller Insurer Party and Endurance Holdings.
Section 10.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of laws principles thereof.
Section 10.3 Specific Performance. The parties recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to any
other available remedies, each other party shall be entitled to seek an
injunction restraining any violation or threatened violation of any of the
provisions of this Agreement without the necessity of posting a bond or other
form of security. In the event that any action should be brought in equity to
enforce any of the provisions of this Agreement, no party will allege, and each
party hereby waives the defense, that there is an adequate remedy at law.
Section 10.4 Expenses. Except as otherwise specifically provided herein,
each of the parties hereto shall bear its own expenses (including, without
limitation, fees and disbursements of its counsel, accountants and other experts
and those acting on its behalf pursuant to Sections 3.13 and 4.6) incurred by it
in connection with the preparation, negotiation, execution, delivery and
performance of this Agreement, the Related Documents and the consummation of the
Sale Transaction.
Section 10.5 Offset. Any debts or credits incurred on and after the date
hereof in favor of or against a Seller or its Affiliates, on the one hand, or
the Purchaser or its Affiliates, on the other hand, with respect to this
Agreement or any Related Document are deemed mutual debts or credits, as the
case may be, and shall be set off, and only the balance shall be allowed or
paid.
Section 10.6 Jurisdiction. Each of the parties hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of any court of the United
States or any state court, which in either case is located in the City of New
York (each, a "New York Court") for purposes of enforcing this Agreement. In any
such 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 any
such New York Court, that such action, suit or other proceeding is not subject
to the jurisdiction of any such New York Court, that such action, suit or other
proceeding is brought in an inconvenient forum or that the venue of such action,
suit or other proceeding is improper; provided that nothing set forth in this
28
sentence shall prohibit any party from removing any matter from one New York
Court to another New York Court. Each of the parties hereto also agrees that any
final and unappealable judgment against a party hereto in connection with any
action, suit or other proceeding shall be conclusive and binding on such party
and that such award or judgment may be enforced in any court of competent
jurisdiction, either within or outside of the United States. A certified or
exemplified copy of such award or judgment shall be conclusive evidence of the
fact and amount of such award or judgment. The parties agree that any process or
other paper to be served in connection with any action or proceeding under this
Agreement shall, if delivered, sent or mailed in accordance with Section 10.7 of
this Agreement, constitute good, proper and sufficient service thereof. The
parties recognize that they have entered into the Claims Handling Agreement
which contains an arbitration clause. The parties hereby agree that any issue
that could be subject to legal proceedings under this Agreement (including but
not limited to proceedings for relief under Section 10.3), but which also falls
within the scope of the arbitration clause of the Claims Handling Agreement,
shall be resolved in arbitration under the Claims Handling Agreement. Until such
issue has been finally resolved pursuant to the arbitration clause of the Claims
Handling Agreement, no legal proceedings or court action involving such issue
may be brought by any party under this Agreement (including but not limited to
proceedings for relief under Section 10.3) and any court action that may have
been brought shall be immediately stayed pending such resolution.
Section 10.7 Notices. All notices, requests, claims, demands and other
communications to be given under this Agreement shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by facsimile transmission (which is confirmed) or sent by overnight
courier (providing proof of delivery) or by registered or certified mail
(postage prepaid, return receipt requested), to the other parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to the Sellers, to:
Hartford Fire Insurance Company
Hartford Plaza
Hartford, Connecticut 06115-1900
Attention: General Counsel
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
The Hartford Financial Services Group, Inc.
Hartford Plaza
Hartford, Connecticut 06115-1900
Attention: General Counsel
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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With a concurrent copy, which shall not constitute notice, to:
LeBoeuf, Lamb, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Purchaser, to:
Endurance Reinsurance Corporation of America
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a concurrent copy, which shall not constitute notice, to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 10.8 Severability and Validity. The provisions set forth in this
Agreement are severable. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any jurisdiction or against its regulatory or
public policy, the remainder of this Agreement, and the application of such
provision to other Persons or circumstances, shall not be affected thereby and
shall remain valid and enforceable in such jurisdiction, and any such invalidity
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Upon a determination
that any term, provision, covenant or restriction is invalid, void or
unenforceable or against the regulatory or public policy of the governing
jurisdiction, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by Applicable Law in an acceptable
manner to the end that the transactions contemplated by this Agreement are
fulfilled to the extent possible.
Section 10.9 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement shall create or be deemed to create any third
party beneficiary rights in any
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Person not a party to this Agreement. No assignment of this Agreement or of any
rights or obligations hereunder may be made by any party to this Agreement (in
whole or in part, voluntary or involuntary, by operation of law or otherwise,
other than by operation of law in a merger, consolidation, amalgamation or
scheme of arrangement) without the prior written consent of the other parties
hereto.
Section 10.10 Amendments. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto. No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
Section 10.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and shall become effective
when one or more counterparts have been signed by each of the parties to this
Agreement and delivered to the other party hereto.
Section 10.12 Tax Treatment. The Sellers and the Purchaser agree that for
all purposes the transactions contemplated by this Agreement are a sale by the
Seller Insurer Party of all of its interest in the Transferred Assets to the
Purchaser for the Purchase Price. The Sellers and the Purchaser agree not to
take any position inconsistent with these positions for United States federal
income tax purposes. The Sellers and the Purchaser agree that the Purchase Price
payable by the Purchaser to the Seller Insurer Party pursuant to this Agreement
shall be allocated in accordance with Section 1060 of the Code and the Treasury
Regulations related thereto. Within 90 days of the date hereof, the Sellers and
the Purchaser shall mutually agree as to the allocation of the Purchase Price
among the Transferred Assets in accordance with Section 1060 of the Code and the
Treasury Regulations related thereto. The Sellers and the Purchaser further
agree that the Purchaser shall be solely responsible for the United States
foreign insurers excise tax pursuant to Section 4371 of the Code relating to the
transactions contemplated by the Retrocession Agreement.
Section 10.13 Further Assurances.
(a) On and after the date hereof, the Sellers (as reasonably requested
from time to time by the Purchaser) shall take all reasonably appropriate action
and execute any additional documents, instruments or conveyances of any kind
(not containing additional representations and warranties) which may be
reasonably necessary to carry out any of the provisions of this Agreement or of
the Related Documents.
(b) On and after the date hereof, the Purchaser (as reasonably requested
from time to time by the Sellers) shall take all reasonably appropriate action
and execute any additional documents, instruments or conveyances of any kind
(not containing additional representations and warranties) which may be
reasonably necessary to carry out any of the provisions of this Agreement or of
the Related Documents.
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IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date and year first above written.
HARTFORD FIRE INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
HARTRE COMPANY, L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
HARTFORD FINANCIAL SERVICES GROUP INC.
(with regards to the obligations in
Section 5.1 and the provisions of
Article X only)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Senior Vice President
ENDURANCE REINSURANCE CORPORATION OF
AMERICA
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
ENDURANCE SPECIALTY HOLDINGS LTD.
(with regards to the obligations in
Section 7.2 and the provisions of
Article X only)
By: /s/ ▇▇▇▇ ▇. Del Col
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Name: ▇▇▇▇ ▇. Del Col
Title: General Counsel & Secretary
