EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
dated as of
May 8, 2001
among
MUTUAL RISK MANAGEMENT LTD.
and
THE INVESTORS NAMED HEREIN
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions......................................................................... 2
SECTION 1.2. Accounting Terms and Determinations................................................. 12
SECTION 1.3. Rules of Construction............................................................... 13
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Closing............................................................................. 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS
SECTION 3.1. Corporate Existence and Power....................................................... 15
SECTION 3.2. Authorization, Execution, Enforceability............................................ 15
SECTION 3.3. Capitalization of the Company....................................................... 16
SECTION 3.4. Subsidiaries; Other Interests....................................................... 16
SECTION 3.5. No Contravention, Conflict, Breach, Etc............................................. 17
SECTION 3.6. Consents............................................................................ 17
SECTION 3.7. No Existing Violation, Default, Etc................................................. 18
SECTION 3.8. Licenses and Permits................................................................ 18
SECTION 3.9. Title to Properties................................................................. 18
SECTION 3.10. Taxes............................................................................... 18
SECTION 3.11. Litigation.......................................................................... 19
SECTION 3.12. Labor Matters....................................................................... 19
SECTION 3.13. Contracts........................................................................... 19
SECTION 3.14. Finder's Fees....................................................................... 20
SECTION 3.15. Financial Statements................................................................ 20
SECTION 3.16. Compliance with ERISA............................................................... 21
SECTION 3.17. Contingent Liabilities.............................................................. 21
SECTION 3.18. No Material Change.................................................................. 21
SECTION 3.19. Insurance Matters................................................................... 22
SECTION 3.20. Full Disclosure..................................................................... 24
SECTION 3.21. Solicitation........................................................................ 24
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SECTION 3.22. Governmental Regulation............................................................. 25
SECTION 3.23. Reservation of Shares............................................................... 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 4.1. Organization, Good Standing, Power, Authority, Etc.................................. 25
SECTION 4.2. Investment Intent, Etc.............................................................. 26
SECTION 4.3. Accredited Investor................................................................. 26
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions to the Purchasers' Obligations........................................... 26
SECTION 5.2. Conditions to the Company's Obligations............................................. 30
ARTICLE VI
COVENANTS
SECTION 6.1. Restructuring....................................................................... 30
SECTION 6.2. Preemptive Rights................................................................... 31
SECTION 6.3. Board Representation................................................................ 31
SECTION 6.4. Information......................................................................... 33
SECTION 6.5. Use of Proceeds..................................................................... 35
SECTION 6.6. Non-Competition..................................................................... 36
SECTION 6.7. Certain Transactions................................................................ 36
SECTION 6.8. Insurance Professional.............................................................. 36
SECTION 6.9. Purchase Option..................................................................... 36
SECTION 6.10. Employment Agreements............................................................... 37
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Notices............................................................................. 37
SECTION 7.2. No Waivers; Powers and Remedies Cumulative; Amendments.............................. 40
SECTION 7.3. Indemnification..................................................................... 41
SECTION 7.4. Expenses; Documentary Taxes......................................................... 43
SECTION 7.5. Register............................................................................ 43
SECTION 7.6. Termination......................................................................... 43
SECTION 7.7. Successors and Assigns.............................................................. 43
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Page
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SECTION 7.8. Governing Law; Waiver of Jury Trial; Submission to Jurisdiction; Net
Payments........................................................................ 44
SECTION 7.9. Survival............................................................................ 45
SECTION 7.10. Independence of Representations, Warranties and Covenants........................... 45
SECTION 7.11. Severability........................................................................ 45
SECTION 7.12. Counterparts........................................................................ 46
SECTION 7.13. Entire Agreement; Benefit........................................................... 46
SECTION 7.14. Headings............................................................................ 46
SECTION 7.15. Execution by Newco.................................................................. 46
Schedule 3.3(c) Outstanding Debt
Schedule 3.4 Subsidiaries
Schedule 3.10 Taxes
Schedule 3.11 Litigation Matters
Schedule 3.13 Contracts
Schedule 3.18 Certain Material Changes
Schedule 3.19(d) Loss Experience
Schedule 3.19(e) Certain Reinsurance Collectibles
Schedule 3.19(f) Governmental Consents and Approvals
Annex I - Projected and Pro Forma Financial Statements
Exhibit A-1 - Form of Convertible Exchangeable Debenture
Exhibit A-2 - Form of Newco Debenture
Exhibit B - Form of Collateral Agreement
Exhibit C - Form of Debenture Registration Rights Agreement
Exhibit D - Form of Warrant Registration Rights Agreement
Exhibit E - Form of Subordination Agreement
Exhibit F - Form of Lock-Up Agreement
Exhibit G - Form of Voting Preferred Stock
Exhibit H - Form of Warrant
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of May 8,
2001 among MUTUAL RISK MANAGEMENT LTD., MUTUAL GROUP LTD., the ADDITIONAL
GUARANTORS NAMED HEREIN, XL INSURANCE LTD, FIRST UNION MERCHANT BANKING 2001,
LLC, HIGH RIDGE CAPITAL PARTNERS II, L.P., CENTURY CAPITAL PARTNERS II, L.P.,
XXXXXX X. XXXXXXXX, TARACAY INVESTORS COMPANY AND INTREPID FUNDING MASTER TRUST.
R E C I T A L S :
WHEREAS, the parties hereto desire to enter into certain financing
arrangements pursuant to the terms and subject to the conditions hereinafter set
forth;
WHEREAS, the Purchasers (other than Intrepid), pursuant to the terms
and subject to the conditions herein, severally desire to purchase convertible
exchangeable debentures of the Company (the "Convertible Exchangeable
Debentures") in an aggregate principal amount of $112,500,000 and the Company
desires to contribute, after completion of the Restructuring, approximately
$80,000,000 of such proceeds to the statutory capital and surplus of its U.S.
Insurance Subsidiaries;
WHEREAS, the parties hereto have agreed that the remaining amount of
the net proceeds from the issuance and sale of the Convertible Exchangeable
Debentures hereunder will be held in the Collateral Account until such time as
they are released, in accordance with the terms of this Agreement and the
Collateral Agreement;
WHEREAS, Intrepid, pursuant to the terms and subject to the conditions
herein, desires to exchange $30,000,000 liquidation preference of RHINOS for
Convertible Exchangeable Debentures in an aggregate principal amount of
$30,000,000;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
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the following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
which is Controlled by or is under common Control with a Controlling Person;
provided, however, that the Purchasers and their respective Affiliates (other
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than any officers or directors (other than any XL Designees) of the Company and
their respective Affiliates) shall not be deemed Affiliates of the Company or
any of its Subsidiaries.
"Audited Statutory Financial Statements" has the meaning set forth in
Section 3.15(a).
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Business Day" means any day except a Saturday, Sunday or other day on
which (i) commercial banks in The City of New York are authorized or required by
law to close or (ii) the New York Stock Exchange is not open for trading.
"Capital Stock" means, with respect to any Person, any and all shares,
partnership interests or equivalents (however designated and whether voting or
non-voting) of such Person's capital stock, whether outstanding on the date
hereof or hereafter issued.
"Century" means Century Capital Partners II, L.P.
"Century Warrants" means warrants to purchase initially an aggregate
of 103,112 shares of Common Stock of the Company. The Century Warrants shall (i)
be immediately exercisable, initially at an exercise price of $7.00 per share of
Common Stock of the Company, (ii) be exercisable for five years from the date of
issuance, (iii) contain provisions for adjustment of the exercise price and the
number of shares of Common Stock of the Company issuable upon exercise of the
Century Warrants comparable to the antidilution provisions applicable to the
Debentures and (iv) have the benefit of registration rights comparable to the
registration rights applicable to the Debentures, including one demand
registration right and
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unlimited piggyback registration rights. The Century Warrants shall be in the
form of Exhibit H hereto.
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"Closing Date" has the meaning set forth in Section 2.1.
"Collateral Account" means the Collateral Account established and
maintained pursuant to the Collateral Agreement between the Company and the
Collateral Agent named therein.
"Collateral Agreement" means a Collateral Agreement in the form of
Exhibit B hereto between the Company and the Collateral Agent named therein.
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"Common Stock" means the common stock or common shares of the
referenced Person.
"Company" means Mutual Risk Management Ltd., a company organized under
the laws of Bermuda.
"Contributed Amounts" has the meaning set forth in Section 6.5.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and "under common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or interests, by
contract or otherwise.
"Convertible Exchangeable Debentures" means the 9-3/8% Convertible
Exchangeable Debentures Due 2006 of the Company in the form of Exhibit A-1
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hereto.
"CRM" has the meaning set forth in the definition of "Restructuring."
"D&O Proxies" has the meaning set forth in Section 5.1(r).
"Debentures" means, collectively, the Convertible Exchangeable
Debentures and the Newco Debentures. All references to Debentures in this
Agreement shall be deemed to include the shares of Voting Preferred Stock issued
in connection therewith.
"Debenture Registration Rights Agreement" means a registration rights
agreement in the form of Exhibit C hereto.
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"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, Debentures or other similar instruments
issued by such Person, (iii) all obligations
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of such Person to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of business, (iv)
all obligations of such Person under any Financing Lease, (v) all reimbursement
obligations of such Person in respect of letters of credit or other similar
instruments, (vi) Disqualified Capital Stock of such Person, (vii) Preferred
Stock of any Subsidiary of such Person (other than preferred shares of the IPC
(i.e., rent-a-captive) subsidiaries of the Company or Newco issued to
policyholders in connection with the CRM business), (viii) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (ix) all Debt of others Guaranteed
by such Person.
"Designees" means, collectively, the First Union and High Ridge
Designee and the XL Designees and "Designee" means any one of them.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, or requires the payment of any
dividends, in each case, at any time that any obligation under the Transaction
Documents is outstanding.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Group" means the Company and its Subsidiaries and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Company or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Internal Revenue Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Bank Agreement" means the Credit Agreement dated as of
September 21, 2000 among the Company, Mutual Group Ltd., Bank of America, N.A.,
as Administrative Agent and a lender and the Lenders party thereto from time to
time, as in effect on the date hereof or as amended or amended and restated.
"Existing Bank Lenders" means the Lenders under the Existing Bank
Agreement.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
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"First Union" means First Union Merchant Banking 2001, LLC.
"First Union Warrants" means warrants to purchase initially an
aggregate of 263,965 shares of Common Stock of the Company. The First Union
Warrants shall (i) be immediately exercisable, initially at an exercise price of
$7.00 per share of Common Stock of the Company, (ii) be exercisable for five
years from the date of issuance, (iii) contain provisions for adjustment of the
exercise price and the number of shares of Common Stock of the Company issuable
upon exercise of the First Union Warrants comparable to the antidilution
provisions applicable to the Debentures and (iv) have the benefit of
registration rights comparable to the registration rights applicable to the
Debentures, including one demand registration right and unlimited piggyback
registration rights. The First Union Warrants shall be in the form of Exhibit H
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hereto.
"First Union and High Ridge Designee" has the meaning set forth in
Section 6.3(b).
"Fully Diluted Basis" means after giving effect to the exercise of all
outstanding options, warrants and other rights to purchase Capital Stock of the
relevant Person and the conversion or exchange of all securities convertible or
exchangeable into Capital Stock of the relevant Person (whether or not then
exercisable, exchangeable or convertible and whether or not "in the money").
"GAAP" has the meaning set forth in Section 1.2.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, including any insurance regulatory authority or agency or
Insurance Department.
"Guarantee" by any Person means (a) any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part). The term "Guarantee" used as a
verb has a corresponding meaning.
"Guarantors" means each of the Subsidiaries of the Company listed on
Schedule 3.4 (other than the Insurance Subsidiaries) and each other Subsidiary
guaranteeing the obligations hereunder and the Debentures pursuant to the terms
of the Debentures.
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"High Ridge" means High Ridge Capital Partners II, L.P.
"High Ridge Warrants" means warrants to purchase initially an
aggregate of 148,481 shares of Common Stock of the Company. The High Ridge
Warrants shall (i) be immediately exercisable, initially at an exercise price of
$7.00 per share of Common Stock of the Company, (ii) be exercisable for five
years from the date of issuance, (iii) contain provisions for adjustment of the
exercise price and the number of shares of Common Stock of the Company issuable
upon exercise of the High Ridge Warrants comparable to the antidilution
provisions applicable to the Debentures and (iv) have the benefit of
registration rights comparable to the registration rights applicable to the
Debentures, including one demand registration right and unlimited piggyback
registration rights. The High Ridge Warrants shall be in the form of Exhibit H
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hereto.
"Holders" has the meaning set forth in Section 7.5.
"Indemnified Parties" and "Indemnified Party" have the meanings set
forth in Section 7.3.
"Insurance Acts" means all applicable insurance laws and the
applicable rules and regulations thereunder.
"Insurance Departments" means the Bermuda Registrar of Companies and
the Departments of Insurance of the States of Illinois and Pennsylvania.
"Insurance License" means a license or permit from an Insurance
Department or any other department of insurance of any other jurisdiction.
"Insurance Subsidiaries" means (i) Legion Insurance Company, Legion
Indemnity Ltd. and Villanova Insurance Company and (ii) each other Subsidiary of
the Company that is a licensed insurance company.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, advance, time deposit or otherwise.
"Intrepid" means Intrepid Funding Master Trust.
"IPC" means Insurance Profit Center.
"Judgment Currency" has the meaning set forth in Section 7.8(c).
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"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, voting trust agreement, assignment by way of security,
restriction on voting or transfer, agreement to sell or convey, option, claim,
title imperfection, encroachment or other survey defect, pledge, restriction,
security interest or adverse claim of any kind, whether arising by contract or
under law or otherwise (including any Financing Lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Lock-Up Agreements" means the lock-up agreements of the inside
directors and executive officers of the Company in the form of Exhibit F hereto.
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"Material Adverse Effect" has the meaning set forth in Section 3.1(b).
"Multiemployer Plan" means at any time a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five-year
period.
"NAIC" means the National Association of Insurance Commissioners.
"Newco" has the meaning set forth in the definition of
"Restructuring."
"Newco Debenture" means a 9 3/8% Convertible Debenture due
2006 of Newco substantially in the form of Exhibit A-2 hereto; provided,
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however, that the final terms of the covenants and events of default to be
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included in the Newco Debenture shall be determined by XL and Newco prior to the
issuance thereof.
"Newco Voting Preferred Stock" means shares of preferred stock of
Newco having a nominal liquidation preference and par value, no dividend rights
and aggregate voting rights equal to the aggregate voting rights of the Common
Stock issuable upon conversion of all Newco Debentures and otherwise
substantially the same as the Voting Preferred Stock.
"Non-Competition Period" has the meaning set forth in Section 6.6.
"Obligors" means, collectively, the Company, Newco, the Guarantors and
any additional Person that is required to become a party to this Agreement; and
"Obligor" means any of them.
"Observer" has the meaning set forth in Section 6.3(b).
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"Officers' Certificate" means a certificate executed on behalf of the
Company by the Chief Executive Officer or President and by its Chief Financial
Officer, its Treasurer or any other officer acceptable to the Purchasers;
provided, however, that the Officers' Certificate with respect to the compliance
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with a condition precedent to the Closing Date shall include (i) a statement
that the signers have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement that
in the opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means all domestic and foreign licenses, permits, consents,
franchises, orders, authorizations, clearances, certificates, Insurance Licenses
and approvals from Governmental Entities.
"Person" means an individual or a corporation, company, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, government (or any agency or political
subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at the time a member of such ERISA Group for employees of any Person which
was at the time a member of the ERISA Group.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of such Person that has preferential rights over any other Capital Stock of such
Person with respect to dividends, distributions or redemptions or upon
liquidation.
"Program Business" means the business of MRM in which it acts as a
conduit between producers of specialty books of business and reinsurers of such
business.
"Purchase Price" means the aggregate amount paid to the Company by the
Purchasers (other than Intrepid) hereunder in respect of the Convertible
Exchangeable Debentures and the Voting Preferred Stock pursuant to Section
2.1(a) of this Agreement.
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"Purchasers" means XL Insurance Ltd, First Union, High Ridge, Century,
Xxxxxx X. Xxxxxxxx, Taracay, Intrepid and any other purchasers of Convertible
Exchangeable Debentures for cash approved by XL, such approval not to be
unreasonably withheld (it being understood that it is reasonable for XL to
withhold its approval of any proposed Purchaser that is a competitor of the
Company, XL or any of their respective Subsidiaries or of any proposed Purchaser
whose purchase might, in the judgment of XL, adversely affect the tax status of
MRM, Newco, XL or any of their respective Subsidiaries or shareholders);
provided, however, that XL's consent shall not be required for the issuance of
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RHINOS Debentures to existing holders of RHINOS in exchange for such RHINOS.
"Qualified Offering" means the registration and sale of Common Stock
of Newco with a stated offering price of not less than $20.0 million registered
under the United States securities laws with the intent that a liquid trading
market therein develop.
"Register" has the meaning set forth in Section 7.5.
"Registration Rights Agreements" means, collectively, the Debenture
Registration Rights Agreement and the Warrant Registration Rights Agreement.
"Reinsurance Arrangements" has the meaning set forth in Section
3.19(e).
"Related Person" means any director, officer or employee of the
Company or any of its Subsidiaries who is also an equity or debt holder of the
Company or any of its Subsidiaries.
"Required Approvals" means all federal, state and local government
regulatory (including any Form A approvals and all other approvals relating to
insurance) and shareholder approvals necessary for consummation of the
Transactions, including all approvals necessary in order to remove any
restrictions or limitations on voting rights or conversion contained in any of
the Transaction Documents.
"Requisite Holders" means the Holders of a majority of the principal
amount of outstanding Debentures; provided, however, that (i) the principal
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amount of Debentures that have been converted into or exchanged for Common Stock
of the Company and/or Newco shall, solely for purposes of this definition, be
deemed to be outstanding and held by the respective holders of such Common
Stock, (ii) at any time when XL holds, or has the right to vote, a majority of
the principal amount of outstanding Debentures (other than RHINOS Debentures),
"Requisite Holders" shall mean a majority of the principal amount of the
outstanding Debentures other than the RHINOS Debentures and (iii) so long as XL
holds or has the right to vote at least $50.0 million of the principal amount of
Debentures, it will be deemed to own a majority of the principal amount of the
outstanding Debentures.
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"Restructuring" means the restructuring of the operating units of the
Company into two separate holding company structures, resulting in (i) one
holding company owning the Company's U.S. insurance operations and managing
general agency entities and operating through subsidiaries as a specialty
insurer writing a selected book of Program Business and (ii) the second holding
company, a newly formed company organized under the laws of Bermuda ("Newco"),
owning (A) all of the Company's fee generating businesses that presently
comprise its Corporate Risk Management ("CRM"), Specialty Brokerage and
Financial Services business segments and all of the Company's non-U.S. insurance
operations and (B) the Company's IPC (i.e., rent-a-captive) companies, other
than Mutual Indemnity (Dublin) Limited (which will be confined solely to its
present business), that are principally dedicated to its CRM business segment.
As part of the Restructuring, (x) Newco will be entitled to receive all of the
fees attributable to the CRM business except that MRM's U.S. Insurance
Subsidiaries that write the related policies (which will only be Villanova
Insurance Company ("Villanova") where Villanova is legally entitled to write
such policies and the prospective holder of the underlying policy does not
object to the use of Villanova or a new company in the case of new or renewal
policies) may retain a portion of the premium equal to its actual costs, but not
more than 1-1/4% and (y) Newco will be given an option to purchase Villanova
and/or such new company for book value. The Restructuring shall be effected in a
manner reasonably acceptable to XL, including with respect to capitalization and
minimum capital and surplus of Newco. In addition to the foregoing, the
Restructuring shall not be deemed to have been completed until the Company has
complied with its obligations set forth in Section 6.1 hereof.
"RHINOS" means the Auction Rate Reset Preferred Securities of the
Trust, known as "RHINOS," including the related documentation.
"RHINOS Debentures" means Debentures issued to any current or former
holders of RHINOS or any of their respective Affiliates in exchange for an equal
principal amount of RHINOS.
"Securities" means the Debentures, the Voting Preferred Stock, the
Newco Voting Preferred Stock, the Common Stock of the Company and Newco issued
or issuable upon exchange or conversion of the Debentures and the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" has the meaning set forth in Section 1-02(w)
of Regulation S-X under the Securities Act.
"Statutory Accounting Principles" means generally accepted statutory
accounting principles for property and casualty insurance companies domiciled in
the States of Illinois and Pennsylvania, as applicable.
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"Statutory Financial Statements" has the meaning set forth in
Section 3.15(b).
"Subordination Agreement" means a subordination agreement in
the form of Exhibit E hereto.
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"Subsidiary" means, with respect to any Person, (i) any
corporation or other entity of which more than 50% of the Capital Stock or other
ownership interests having ordinary voting power to elect more than 50% of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person and (ii) any partnership,
association, joint venture or other entity in which such Person, directly or
indirectly through Subsidiaries, has a greater than 50% equity interest;
provided, however, that for all purposes of this Agreement references to
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Subsidiaries of the Company shall not include such entities designated by the
Company that, in the aggregate, would not constitute a Significant Subsidiary of
the Company.
"Transaction Documents" means (i) the Debentures, (ii) this
Agreement, (iii) the Collateral Agreement, (iv) the Registration Rights
Agreements, (v) the Subordination Agreement, (vi) the Certificate of
Designations relating to the Voting Preferred Stock, (vii) the Voting Preferred
Stock, (viii) the Newco Voting Preferred Stock, (ix) the Warrants, (x) the
Lock-Up Agreements, (xi) the D&O Proxies and (xii) each other document executed
in connection with or pursuant to this Agreement.
"Transactions" means the issuance and sale of the Convertible
Exchangeable Debentures, the Voting Preferred Stock and the Warrants and each of
the other transactions contemplated by the Transaction Documents, both before
and after giving effect to permitted exchanges and/or conversions of the
Debentures, including the Restructuring and the exercise of all of the rights of
the Purchasers under the Transaction Documents and fulfillment of all
obligations of the Obligors under the Transaction Documents.
"Trust" means MRM Trust I, a Delaware statutory business
trust, the issuer of the RHINOS and a Subsidiary of the Company.
"Taracay" means Taracay Investors Company.
"Taracay Warrants" means warrants to purchase initially an
aggregate of 4,342 shares of Common Stock of the Company. The Taracay Warrants
shall (i) be immediately exercisable, initially at an exercise price of $7.00
per share of Common Stock of the Company, (ii) be exercisable for five years
from the date of issuance, (iii) contain provisions for adjustment of the
exercise price and the number of shares of Common Stock of the Company issuable
upon exercise of the Taracay Warrants comparable to the antidilution provisions
applicable to the Debentures and (iv) have the benefit of registration rights
comparable to the registration rights applicable to the Debentures, including
one demand registration right and
-12-
unlimited piggyback registration rights. The Taracay Warrants shall be in the
form of Exhibit H hereto.
---------
"Unaudited Statutory Financial Statements" has the meaning
set forth in Section 3.15(b).
"U.S. Insurance Subsidiaries" means Legion Insurance Company,
Legion Indemnity Ltd. and Villanova Insurance Company.
"Voting Preferred Stock" means shares of preferred stock of
the Company having a liquidation preference and par value of U.S. $.01 per
share, no dividend rights and aggregate voting rights equal to the aggregate
voting rights of the Common Stock issuable upon conversion or exchange of all
Convertible Exchangeable Debentures. The Voting Preferred Stock shall be in the
form of Exhibit G hereto.
---------
"Warrant Registration Rights Agreement" means a registration
rights agreement in the form of Exhibit D hereto.
---------
"Warrants" means, collectively, the XL Warrants, the First
Union Warrants, the High Ridge Warrants, the Century Warrants and the Taracay
Warrants.
"XL" means XL Insurance Ltd.
"XL Designees" has the meaning set forth in Section 6.3(a).
"XL Warrants" means warrants to purchase initially an
aggregate of 1,632,043 shares of Common Stock of the Company. The XL Warrants
shall (i) be immediately exercisable, initially at an exercise price of $7.00
per share of Common Stock of the Company, (ii) be exercisable for five years
from the date of issuance, (iii) contain provisions for adjustment of the
exercise price and the number of shares of Common Stock of the Company issuable
upon exercise of the XL Warrants comparable to the antidilution provisions
applicable to the Debentures and (iv) have the benefit of registration rights
comparable to the registration rights applicable to the Debentures, including
one demand registration right and unlimited piggyback registration rights. The
XL Warrants shall be in the form of Exhibit H hereto.
---------
SECTION 1.2. Accounting Terms and Determinations. Unless
-----------------------------------
otherwise specified herein, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared, in accordance with generally accepted accounting principles as in
effect in the United States on the date hereof applied on a consistent basis
("GAAP").
-13-
SECTION 1.3. Rules of Construction. (a) The definitions in
---------------------
Section 1.1 shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation."
(b) Unless the context shall otherwise require, all references
herein to (i) Articles, Sections, Exhibits, Schedules and Annexes shall be
deemed references to Articles and Sections of, and Exhibits, Schedules and
Annexes to, this Agreement, (ii) Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons, (iii) agreements and other
contractual instruments include subsequent amendments, assignments, and other
modifications thereto to the date hereof and thereafter, but in the case of any
amendment, assignment or modification after the date hereof, only to the extent
such amendments, assignments or other modifications thereto are not prohibited
by their terms or the terms of any Transaction Document, (iv) statutes and
related regulations include any amendments of same and any successor statutes
and regulations, (v) time shall be deemed to be to New York City time and (vi)
"ordinary course of business" (and similar phrases) shall mean the ordinary
course of business of the Company and its Subsidiaries consistent with past
practice.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Closing. (a) Subject to the prior satisfaction of
-------
all the terms and conditions set forth herein and unless this Agreement shall
have been earlier terminated in accordance with its terms, each Purchaser (other
than Intrepid) severally agrees to purchase from the Company and the Company
agrees to issue and sell to each Purchaser (other than Intrepid), on a date to
be mutually agreed upon by the Company and XL, which date shall be no later than
five Business Days after the date hereof (the "Closing Date"), the aggregate
principal amount of Convertible Exchangeable Debentures (together with the
related Voting Preferred Stock) set forth on the signature page to this
Agreement for such Purchaser, at a purchase price equal to the aggregate
principal amount of Convertible Exchangeable Debentures purchased by such
Purchaser, less the aggregate par value of the related Voting Preferred Stock
issued to such Purchaser in connection with its purchase of Convertible
Exchangeable Debentures. Subject to the prior satisfaction of all the terms and
conditions set forth herein and unless this Agreement shall have been earlier
terminated in accordance with its terms, Intrepid and the Company agree to
exchange, on the Closing Date, $30,000,000 liquidation preference of RHINOS
currently owned beneficially and of record by Intrepid for the aggregate
principal amount of Convertible Exchangeable Debentures (together with the
related Vot-
-14-
ing Preferred Stock) set forth on the signature page to this Agreement for
Intrepid. The Convertible Exchangeable Debentures shall be convertible as
provided therein into Common Stock of the Company and exchangeable as provided
therein for, at the option of the Holder thereof, Newco Debentures or Common
Stock of Newco. In connection with the purchase of the Convertible Exchangeable
Debentures, the Company shall issue to each Purchaser (other than Intrepid), for
additional consideration equal to the par value thereof, a percentage of the
total number of shares of Voting Preferred Stock equal to the percentage of the
principal amount of all Convertible Exchangeable Debentures purchased by such
Purchaser. In connection with the exchange for the Convertible Exchangeable
Debentures, the Company shall issue to Intrepid a percentage of the total number
of shares of Voting Preferred Stock equal to the percentage of the principal
amount of all Convertible Exchangeable Debentures purchased by Intrepid. The
Voting Preferred Stock will provide that it may only be transferred with a
proportional amount of the Convertible Exchangeable Debentures and the
Convertible Exchangeable Debentures will provide that they may only be
transferred with a proportional amount of Voting Preferred Stock.
(b) On the Closing Date, the Purchasers (other than Intrepid)
shall deliver the Purchase Price in immediately available funds by wire transfer
to the account of the Company (which account shall be specified by the Company
in writing no later than 9:00 a.m. on the second Business Day preceding the
Closing Date). On the Closing Date, Intrepid shall deliver to the Company for
cancellation certificates representing $30,000,000 liquidation preference of
RHINOS.
(c) On the Closing Date, against payment and delivery as set
forth in Section 2.1(b), the Company shall deliver to each Purchaser one or more
Convertible Exchangeable Debentures representing an aggregate principal amount
equal to the amount set forth on the signature page to this Agreement opposite
the name of such Purchaser and the related Voting Preferred Stock, each
registered in the name or names, and in such denominations, as shall be
designated by the applicable Purchaser by notice to the Company at least two
Business Days prior to the Closing Date.
(d) On the Closing Date, the Company shall issue the XL
Warrants to XL, the First Union Warrants to First Union, the High Ridge Warrants
to High Ridge, the Century Warrants to Century and the Taracay Warrants to
Taracay, in each case, for no additional consideration.
(e) The Company and the Purchasers, having adverse interests
and as a result of arm's-length bargaining, agree that neither the Purchasers
nor any of their Affiliates has rendered or has agreed to render any services to
the Company in connection with this Agreement or the issuance of the Convertible
Exchangeable Debentures and the related Voting Preferred Stock to be issued on
the Closing Date.
-15-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS
Each of the Obligors represents and warrants, as of the date
hereof and the Closing Date, to the Purchasers and to each Holder, as set forth
below:
SECTION 3.1. Corporate Existence and Power. (a) The Company
-----------------------------
and each of its Subsidiaries is a company, corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all organizational power and authority and
all Permits required to own, lease or operate its respective properties and
carry on its respective business as now conducted and as proposed to be
conducted.
(b) The Company and each of its Subsidiaries is, where
applicable, duly qualified to transact business as a foreign corporation or
partnership and is in good standing in each jurisdiction in which the conduct of
its business or its ownership, leasing or operation of property requires such
qualification, other than any failure to be so qualified or in good standing as
would not, singly or in the aggregate, have a material adverse effect on the
assets, liabilities, business, results of operations, condition (financial or
otherwise), prospects or Permits of the Company and its Subsidiaries, taken as a
whole, or of Newco and its Subsidiaries, taken as a whole, on a pro forma basis
for the Restructuring (each, a "Material Adverse Effect").
SECTION 3.2. Authorization, Execution, Enforceability. Each
----------------------------------------
Obligor has the corporate power and authority to execute and deliver, and to
perform its obligations under, each of the Transaction Documents to which it is
or is to be a party. Subject to receipt of regulatory approval from each
Insurance Department (which approvals the Obligors hereby agree to use their
best efforts to obtain as soon as practicable), each Obligor has taken all
action required by law, organizational documents or otherwise required to be
taken by it to authorize the execution, delivery and performance by it of each
Transaction Document to which it is or is to be a party. Each of the Transaction
Documents is, or upon execution and delivery will be, a valid and binding
obligation of each Obligor (to the extent each is a party thereto), enforceable
against each Obligor in accordance with their respective terms except to the
extent that the enforceability hereof and thereof may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws affecting the enforcement of creditors' rights and remedies
generally and by general equitable principles (regardless of whether the issue
of enforceability is considered in a proceeding in equity or at law). True and
complete copies of the organizational documents of each Obligor have been made
available by the Company to the Purchasers.
-16-
SECTION 3.3. Capitalization of the Company. (a) The authorized
-----------------------------
Capital Stock of the Company (before giving effect to the Securities being
issued and sold hereunder) consists of 180,000,000 shares of Common Stock, of
which 41,618,331 shares are issued and outstanding as of March 31, 2001, and
20,000,000 shares of Preferred Stock, of which none are outstanding as of the
date hereof. All outstanding shares of Common Stock have been duly authorized,
are validly issued, fully paid and nonassessable and have been issued in
compliance with applicable federal and state securities laws.
(b) Except for the RHINOS and the Securities, no more than
$14.0 million aggregate principal amount of Zero Coupon Convertible Exchangeable
Subordinated Debentures due 2015 of the Company and no more than $5.0 million
aggregate principal amount of convertible notes issued in connection with the
Company's acquisition of the Valmet Group Ltd., and except as disclosed in the
periodic reports filed by the Company under the Exchange Act prior to the date
hereof, there are no (i) securities or obligations of the Company convertible
into or exchangeable for any Capital Stock of the Company, (ii) warrants,
options or other rights to purchase or acquire from the Company any such Capital
Stock or any such convertible or exchangeable securities or obligations or (iii)
obligations of the Company to issue such Capital Stock, any such convertible or
exchangeable securities or obligations or any such warrants, rights or options.
No Person has any preemptive or similar rights with respect to any Capital Stock
of the Company or any rights to require registration of any securities of the
Company.
(c) Schedule 3.3(c) sets forth a complete list of all of the
outstanding Debt of the Company or any of its Subsidiaries as of the date
hereof, together with the names of the holders thereof, the principal amount,
interest rate, issue date, stated maturity date and any other material terms.
Schedule 3.3(c) also sets forth an accurate description of all Debt of the
Company or any of its Subsidiaries that was repaid since December 31, 2000.
SECTION 3.4. Subsidiaries; Other Interests. (a) Schedule 3.4
-----------------------------
sets forth a true, complete and correct list of each Significant Subsidiary of
the Company. Except as indicated on Schedule 3.4, each such Significant
Subsidiary is wholly owned by the Company. Schedule 3.4 sets forth the
jurisdictions in which the Company's Significant Subsidiaries are domiciled
(both by incorporation and as a "commercial domiciliary" under applicable law),
which are the only jurisdictions in which the Company's Significant Subsidiaries
are required to be so licensed. All of the outstanding Capital Stock of the
Company's Subsidiaries has been duly authorized and validly issued and is fully
paid and nonassessable and owned by the Company, directly, free and clear of all
Liens (other than (x) such transfer restrictions as may exist under federal and
state securities laws, (y) arising under the RHINOS or the documents executed in
connection therewith and (z) Liens on the shares of the Company's IPC
Subsidiaries and the special purpose mutual company Subsidiaries and the assets
thereof, in each case, arising under letter of credit facilities entered into in
connection with the CRM business); and
-17-
there are no warrants, options or other rights granted to or in favor of any
third party (whether acting in an individual, fiduciary or other capacity),
other than the Company, to acquire any such Capital Stock, any additional
Capital Stock or any other securities of the Company's Subsidiaries except for
such options or rights arising under the RHINOS or the documents executed in
connection therewith and pursuant to the Company's and its Subsidiaries existing
stock option and benefit plans, as described in the Company's filings made
pursuant to the Exchange Act prior to the date hereof.
(b) Except for interests in the Subsidiaries, neither the
Company nor any of its Subsidiaries, directly or indirectly, holds, or has any
contractual or other commitment to make, any Investment in any Person, except
for Investments made by the Insurance Subsidiaries in the ordinary course of
their business and in accordance with the Company's investment policy in effect
on the date hereof.
SECTION 3.5. No Contravention, Conflict, Breach, Etc. The
---------------------------------------
execution, delivery and performance of each of the Transaction Documents and the
consummation of the Transactions will not (i) conflict with, or result in a
breach or violation of, any provision of the memorandum of association, bye-laws
or other organizational documents of the Company or any of its Subsidiaries,
(ii) upon receipt of regulatory approvals from the Insurance Departments, result
in risk of loss of, or limitation on, any Insurance License or other Permit held
by the Company or any of its Subsidiaries, or the right of the Company or of any
of its Subsidiaries to conduct business in any jurisdiction as currently
conducted, or (iii) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, or result in the
creation or imposition of any Lien upon any assets or properties of the Company
or any of its Subsidiaries under, any statute, rule, regulation, order or decree
of any Governmental Entity, or any agreement or instrument evidencing Debt or
any material lease, Permit or other material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound or to which any of their respective properties,
assets or operations are subject.
SECTION 3.6. Consents. Except for consents that have been
--------
obtained and the consents required from the Existing Bank Lenders, the Trust and
the holders of the RHINOS as set forth in Section 5.1(a) and, with respect to
the Restructuring and the issuance of Common Stock of Newco upon exchange of the
Debentures, any Form A approvals and all other regulatory approvals and
necessary shareholder approvals, no consent, approval, authorization, order,
registration, filing or qualification of or with any (i) Governmental Entity or
(ii) other third party (whether acting in an individual, fiduciary or other
capacity) is necessary for the issuance and sale of the Debentures, the Voting
Preferred Stock and the Warrants, the execution, delivery and performance of the
Transaction Documents and the consummation of the Transactions.
-18-
SECTION 3.7. No Existing Violation, Default, Etc. (a) Neither
------------------------------------
the Company nor any of its Subsidiaries is in violation of (i) its memorandum of
association, bye-laws or other organizational documents, (ii) any applicable
law, ordinance, administrative or governmental rule or regulation except to the
extent that any such violations, in the case of this clause (ii), would not,
singly or in the aggregate, have a Material Adverse Effect or (iii) any order,
decree or judgment of any court or governmental agency or body having
jurisdiction over the Company or any of its Subsidiaries.
(b) No event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default exists
under any indenture, mortgage, loan agreement, note or other agreement or
instrument for borrowed money, any guarantee of any agreement or instrument for
borrowed money or any material lease, Permit or other agreement or instrument to
which the Company or any of its Subsidiaries is party or by which the Company or
any of its Subsidiaries is bound or to which any of their respective properties,
assets or operations is subject.
SECTION 3.8. Licenses and Permits. Except as would not have a
--------------------
Material Adverse Effect, the Company and its Subsidiaries have such Permits from
appropriate Governmental Entities (including, Insurance Licenses) as are
necessary to own, lease or operate their properties as currently owned, leased
or operated and to conduct their businesses as currently conducted and all such
Permits are valid and in full force and effect. The Company and its Subsidiaries
are in compliance in all respects with their respective obligations under such
Permits, with such exceptions as would not, singly or in the aggregate, have a
Material Adverse Effect. No event has occurred that allows, or after notice or
lapse of time would allow, revocation or termination of such Permits and no
insurance regulatory agency or body has issued any order or decree impairing,
restricting or prohibiting the payment of dividends by the Company or any of its
Subsidiaries to their respective parent companies or shareholders.
SECTION 3.9. Title to Properties. The Company and its
--------------------
Subsidiaries each have sufficient title or right to all properties (real and
personal) owned or used by the Company and its Subsidiaries or reflected in
their financial statements which are necessary for the conduct of the business
of the Company and its Subsidiaries as currently conducted, free and clear of
any Lien that may interfere with the conduct of the business of the Company and
its Subsidiaries, taken as a whole, except for those Liens created by the
Transaction Documents, and to the best of the Company's knowledge, all
properties held under lease by the Company or any of its Subsidiaries are held
under valid, subsisting and enforceable leases.
SECTION 3.10. Taxes. Except as specifically set forth on
-----
Schedule 3.10, all United States Federal income tax returns and all other tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and its Subsidiaries have been filed and all taxes due
pursuant to such returns or pursuant to any assessment received by
-19-
the Company or any of its Subsidiaries have been paid. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of taxes or
other governmental charges have been established in accordance with GAAP (or, in
the case of the Insurance Subsidiaries, in accordance with Statutory Accounting
Principles).
SECTION 3.11. Litigation. Other than as disclosed in the
----------
reports of the Company filed pursuant to the Exchange Act or on Schedule 3.11,
there are no pending or, to the Company's knowledge, threatened actions, suits,
proceedings, arbitrations or investigations (including any market conduct
investigations) against or affecting the Company or any of its Subsidiaries or
any of their respective properties, assets or operations or with respect to
which the Company or any of its Subsidiaries is responsible by way of indemnity
or otherwise, that question the validity of any of the Transaction Documents, or
that would, singly or in the aggregate, if adversely determined have a Material
Adverse Effect or would have an adverse effect on the ability of the Company or
any of its Subsidiaries to perform its obligations under this Agreement or any
of the other Transaction Documents to which they are party; and the Company is
not aware of any basis for any such action, suit, proceeding or investigation.
SECTION 3.12. Labor Matters. No labor disturbance by the
-------------
employees of the Company or any of its Subsidiaries exists or is threatened.
Neither the Company nor any of its Subsidiaries is party to any collective
bargaining or other union contract. The Company is not aware of the existence of
any effort to unionize employees of either the Company or any of its
Subsidiaries.
SECTION 3.13. Contracts. Except as listed on Schedule 3.13:
---------
(a) neither the Company nor any of its Subsidiaries is party
to any (written or oral) stockholder agreement, employment agreement with
executive officers or material advisors' agreement, consulting agreement or
similar agreement;
(b) neither the Company nor any of its Subsidiaries is a party
to or bound by (i) any agreement containing "change in control" or similar
provisions relating to change in control of the Company or any of its
Subsidiaries; (ii) any powers of attorney or binding authorities other than
those made in the ordinary course of the Insurance Subsidiaries' business; or
(iii) any agreements (other than insurance policies, leases or other similar
agreements issued or made by the Company or any of its Subsidiaries in the
ordinary course of its business) pursuant to which the Company or any of its
Subsidiaries is obligated to indemnify any other Person; and
(c) no agreement, contract or other document of the Company or
any of its Subsidiaries will require increased payments (in either amount or
frequency) or changed terms or permits the termination thereof by any of the
other parties thereto as a result of the transactions contemplated by the
Transaction Documents.
-20-
The Company has heretofore made available to the Purchaser
complete and correct copies of the contracts, agreements and instruments listed
on Schedule 3.13.
Schedule 3.13 further contains a list of all insureds the
gross written premiums of which (together with the gross written premiums
derived from any of its Affiliates) represented more than (or are expected to
represent more than) 2% of the Company's consolidated gross written premiums in
any such fiscal year.
SECTION 3.14. Finder's Fees. Except for fees payable to Banc
-------------
of America Securities LLC and Credit Suisse First Boston Corporation, no broker,
finder or other party is entitled to receive from the Company or any of its
Subsidiaries any brokerage or finder's fee or any other fee, commission or
payment as a result of the Transactions.
SECTION 3.15. Financial Statements. (a) The audited statutory
--------------------
financial statements and related schedules and notes of the U.S. Insurance
Subsidiaries for the years ended December 31, 1999 and 2000 (the "Audited
Statutory Financial Statements") fairly present the financial condition, results
of operations, cash flows and changes in capital and surplus of the U.S.
Insurance Subsidiaries at December 31, 1999 and 2000 and for the years then
ended and were prepared in accordance with Statutory Accounting Principles as
permitted or prescribed by the applicable U.S. Insurance Acts. The Statements of
Actuarial Opinion with respect to the Audited Statutory Financial Statements
were determined in accordance with generally accepted actuarial standards and
met the requirements of the Illinois and Pennsylvania Insurance Acts.
(b) The unaudited statutory financial statements and related
schedules and notes of the U.S. Insurance Subsidiaries for periods commencing
subsequent to December 31, 2000 (the "Unaudited Statutory Financial Statements",
and together with the Audited Statutory Financial Statements, the "Statutory
Financial Statements") fairly present the financial condition, results of the
operations, cash flows and changes in capital and surplus of the U.S. Insurance
Subsidiaries at the dates and for the periods presented and were prepared in
accordance with Statutory Accounting Principles prescribed or permitted by the
applicable U.S. Insurance Acts, subject to year-end audit adjustments
(consisting only of normal recurring accruals) and full footnote disclosures
which have been omitted.
(c) The audited consolidated and consolidating financial
statements and the related notes of the Company and its Subsidiaries for the
years ended December 31, 1999 and 2000 fairly present the financial condition,
results of operations and cash flows of the Company and its Subsidiaries at the
dates and for the periods presented and were prepared in accordance with GAAP
applied on a consistent basis.
(d) The projected and pro forma consolidated financial data
attached hereto as Annex I have been prepared by the Company in good faith and,
among other things, reflect the
-21-
Transactions and the Restructuring and contain all material assumptions relating
to such projections and data. The Company believes such projections and the
assumptions upon which they are based are reasonable.
SECTION 3.16. Compliance with ERISA. Each member of the ERISA
---------------------
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance, in
all material respects, with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 3.17. Contingent Liabilities. Neither the Company nor
----------------------
any of its Subsidiaries have any material liabilities (including tax
liabilities), absolute or contingent, that are required to be reserved against
in a financial statement prepared in accordance with GAAP or Statutory
Accounting Principles that are not so adequately reserved against. Neither the
Company nor any of its Subsidiaries has any material reinsurance receivable that
is required to be reserved against in accordance with GAAP or Statutory
Accounting Principles other than those provided for in the reserve against
reinsurance recoverables reflected in the Financial Statements and the
consolidated financial statements of the Company and its Subsidiaries prepared
in accordance with GAAP. At December 31, 2000, neither the Company nor any of
its Subsidiaries had any material liabilities (absolute or contingent) other
than those reflected in the Financial Statements and the consolidated financial
statements prepared in accordance with GAAP. Since December 31, 2000, the
Company and its Subsidiaries have not incurred any material liabilities
(absolute or contingent) other than with respect to claims under insurance
policies written by the Insurance Subsidiaries and reported in the ordinary
course of business. The frequency and severity of such claims within the
individual lines of business of the Company and its Subsidiaries since December
31, 2000, are consistent with those reported for comparable periods prior to
December 31, 2000.
SECTION 3.18. No Material Change. Since December 31, 2000,
------------------
except as listed on Schedule 3.18, (a) neither the Company nor any of its
Subsidiaries has relinquished or incurred any material liability or obligation
(indirect, direct or contingent), or entered into any oral or written agreement
or other transaction that is not in the ordinary course of business; (b) neither
the Company nor any of its Subsidiaries has sustained any material loss or
interference with its respective businesses or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance); (c)
there has been no material change
-22-
in the Debt of the Company or any of its Subsidiaries, and no material change in
the Capital Stock of the Company (except as contemplated hereby); (d) the
Company has not permitted or allowed any of its or its Subsidiaries' assets to
be subjected to any Liens; (e) the Company has not transferred or otherwise
disposed of any of its or its Subsidiaries' assets, except in the ordinary
course of business; (f) the Company has not made any single capital expenditure
or commitment for a capital expenditure relating to its or its Subsidiaries'
assets in excess of $500,000; (g) there has not been any change in any method of
accounting or accounting practice or policy (including any reserving method,
practice or policy) by the Company or any of its Subsidiaries; (h) there has not
been, to the extent payable directly or indirectly by the Company or any of its
Subsidiaries, any (i) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any director, officer or employee
(or any amendment to any such existing agreement) outside of the ordinary course
of business, (ii) grant of any severance or termination pay to any director,
officer or employee outside of the ordinary course of business, (iii) change in
compensation or other benefits payable to any Related Person or change in
compensation or other benefits payable to any director, officer or employee
outside of the ordinary course of business or (iv) loans or advances to any
directors, officers or employees except for ordinary travel and business
expenses in the ordinary course of business and advances of salary (not
exceeding one month's pay); (i) there has been no material damage, theft or
casualty loss by the Company or any of its Subsidiaries; (j) there has not been
any change by the Company or any of its Subsidiaries in underwriting practices
or standards; (k) there has not been (i) any entering into of any facultative
reinsurance contract outside of the ordinary course of business, or (ii) any
commutation of any facultative reinsurance contract outside of the ordinary
course of business, or (iii) any entering into or any commutation of any
reinsurance treaty by the Company or any of its Subsidiaries outside of the
ordinary course of business; (l) there has not been any insurance transaction by
the Company or any of its Subsidiaries other than in the ordinary course of
business; (m) there has not been any change by the Company or any of its
Subsidiaries in the compensation structure of, or benefits available to, any
agent or with respect to agents generally; and (n) there has been no event or
circumstance causing a Material Adverse Effect, nor any development that would,
singly or in the aggregate, result in a Material Adverse Effect.
SECTION 3.19. Insurance Matters. (a) The Company and its
-----------------
Subsidiaries are each in compliance in all material respects with the
requirements of all Insurance Acts and have filed all material reports,
documents or other information required to be filed thereunder; and neither the
Company nor any of its Subsidiaries has received any notification from any
insurance regulatory authority, commission or other insurance regulatory body in
the United States or elsewhere to the effect that the Company or any of its
Subsidiaries is not in compliance in any material respect with the Insurance
Acts.
(b) Neither the Company nor any of its Subsidiaries has made
any change in its insurance reserving practices, either on a gross or net of
reinsurance basis, since Decem-
-23-
ber 31, 2000, that would, singly or in the aggregate, have (i) a Material
Adverse Effect or (ii) a material adverse effect on the ability of any of the
Insurance Subsidiaries to pay dividends or the amount thereof.
(c) All insurance policies issued by the Company and each
Insurance Subsidiary, as now in force, are, to the extent required under
applicable law, in a form acceptable to applicable regulatory authorities or
have been filed and not objected to by such authorities within the period
provided for objection other than any failure to be in such form or to have been
so filed as would not, singly or in the aggregate, have a Material Adverse
Effect. All premium rates, rating plans and policy forms established or used by
the Company or any Insurance Subsidiary that are required to be filed with or
approved by insurance regulatory authorities have been so filed or approved, the
premiums charged conform in all respects to the premiums so filed or approved
and comply in all respects with the insurance laws applicable thereto and no
such premiums are subject to any review or investigation by any insurance
regulatory authority other than any failure to be so filed or approved or to so
comply or any review or investigation as would not, singly or in the aggregate,
have a Material Adverse Effect.
(d) Except as specifically set forth on Schedule 3.19(d), no
loss experience has developed, within any individual lines of business or on an
aggregate basis for all lines, that would require or make it appropriate for the
Company or any of its Subsidiaries to alter or modify its reserving methodology
or assumptions since December 31, 2000.
(e) All material reinsurance treaties, contracts, agreements
and arrangements ("Reinsurance Arrangements") to which the Company or any of its
Subsidiaries is a party are in full force and effect and are valid and binding
in accordance with their terms on the insurance company party thereto. The
Company believes that, except as disclosed in its periodic reports filed with
the U.S. Securities and Exchange Commission under the Exchange Act prior to the
date hereof or as disclosed on Schedule 3.19(e), all amounts recoverable by the
Company or any of its Subsidiaries pursuant to any Reinsurance Arrangement are
fully collectible in due course. Except as disclosed in its periodic reports
filed with the U.S. Securities and Exchange Commission under the Exchange Act
prior to the date hereof, neither the Company nor any of its Subsidiaries nor
any other party thereto is in default as to any Reinsurance Arrangement and
there is no reason to believe that the financial condition of any such other
party is impaired to the extent that a default thereunder may reasonably be
anticipated. None of the Reinsurance Arrangements contains any provision that
may permit the other party thereto to terminate such Reinsurance Arrangement by
reason of the transactions contemplated by the Transaction Documents.
-24-
(f) The only Permits required under the Insurance Acts for the
consummation of the transactions contemplated by this Agreement or the
Transaction Documents are those listed on Schedule 3.19(f).
(g) All material filings required under any Insurance Act to
have been made with state insurance regulatory authorities by the Company and
its Subsidiaries have been duly and timely made, and when filed were in
compliance in all material respects with the requirements of each such Insurance
Act.
(h) No Insurance Department has taken, or stated (orally or in
writing) that it intends to take or that it may take, any action to seize
control of the Company or any of its Subsidiaries through rehabilitation,
liquidation or otherwise, and has not otherwise precluded, or stated (orally or
in writing) that it intends to preclude or may preclude, the Insurance
Subsidiaries from writing.
SECTION 3.20. Full Disclosure. The information heretofore
---------------
furnished by or on behalf of any Obligor to the Purchasers for purposes of or in
connection with the consummation of the Transactions does not, and all such
information hereafter furnished by or on behalf of any Obligor to the Purchasers
will not (in each case taken together and on the date as of which such
information is furnished), contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading. The Obligors have disclosed to the Purchasers any and all facts
which materially and adversely affect or may affect the business, results of
operations, condition (financial or otherwise), prospects or Permits of the
Company and its Subsidiaries or the ability of the Company and its Subsidiaries
to perform their respective obligations under the Transaction Documents to which
they are party.
SECTION 3.21. Solicitation. No form of general solicitation or
------------
general advertising was used by the Company or any of its Subsidiaries or any
other Person acting on their behalf in respect of the Securities or in
connection with the offer and sale of the Securities. None of the Company or any
of its Subsidiaries and no Person acting on any of their behalf has, either
directly or indirectly, sold or offered for sale to any Person any of the
Securities or, within the six months prior to the date hereof, any other similar
security of the Company or any of its Subsidiaries, and none of the Company or
any of its Subsidiaries and no Person authorized to act on any of their behalf
(except that neither the Company nor any of its Subsidiaries make any
representation as to the Purchasers and their Affiliates) will sell or offer for
sale any such security to, or solicit any offers to buy any such security from,
or otherwise approach or negotiate in respect thereof with, any Person or
Persons so as thereby to cause the issuance or sale of any of the Securities to
be in violation of any of the provisions of Section 5 of the Securities Act.
Assuming the accuracy of the representations and warranties of the Purchasers in
Sections 4.2 and 4.3, it is not necessary in connection with the issuance and
sale of
-25-
the Securities pursuant to this Agreement to register any of the Securities
under the Securities Act.
SECTION 3.22. Governmental Regulation. (a) Neither the Company
-----------------------
nor any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Document.
(b) Neither the Company nor any of its Subsidiaries is, or
will be after giving effect to the transactions contemplated by the Transaction
Documents, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(c) Neither the Company nor any of its Subsidiaries has taken
or will take any action that would cause this Agreement, the issuance and sale
of the Securities or the use of the proceeds therefrom to violate the provisions
of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 3.23. Reservation of Shares. Prior to the Closing
---------------------
Date, the Company shall have duly reserved for issuance a sufficient number of
shares of Common Stock of the Company for conversion of the Convertible
Exchangeable Debentures and exercise of the Warrants.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally represents and warrants (as
to itself only), as of the date hereof and the Closing Date, to the Obligors as
set forth below:
SECTION 4.1. Organization, Good Standing, Power, Authority,
----------------------------------------------
Etc. Such Purchaser is duly formed and registered, validly existing and in good
---
standing under the laws of its jurisdiction of organization and has the power
and authority (corporate or otherwise) to own, lease and operate its properties
and to conduct its business as currently owned, leased and conducted.
Such Purchaser has the power and authority (corporate or
otherwise) to execute and deliver, and to perform its obligations under, this
Agreement and each Transaction Document to which it is (or is to be) a party.
Such Purchaser has taken all action required by law, its organizational
documents or otherwise required to be taken by it to authorize the exe-
-26-
cution, delivery and performance of this Agreement and each Transaction Document
to which it is (or is to be) a party and the consummation of the transactions
contemplated to be performed by it hereunder and thereunder.
This Agreement is, and each Transaction Document to which such
Purchaser is, or is to be, a party will be, a valid and binding agreement of
such Purchaser, enforceable in accordance with its terms except to the extent
that the enforceability hereof and thereof may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws affecting the enforcement of creditors' rights and remedies
generally and by general equitable principals (regardless of whether the issue
of enforceability is considered in a proceeding in equity or at law).
SECTION 4.2. Investment Intent, Etc. Such Purchaser is
----------------------
purchasing or otherwise acquiring the Securities for its own account and not
with a view to, or for a sale in connection with, any distribution in violation
of the Securities Act. Such Purchaser has had the opportunity to ask questions
and receive answers from the Obligors concerning the Securities and the
business, financial condition, operations and prospects of the Obligors and has
been furnished with all other information about the Obligors which it has
requested (it being understood that the foregoing shall not affect the Company's
representations and warranties in this Agreement or any other Transaction
Document or any of the Purchasers' rights and remedies thereunder or available
as a matter of law or otherwise). Such Purchaser will not transfer any of the
Securities except in accordance with applicable federal and state securities
laws.
SECTION 4.3. Accredited Investor. Such Purchaser is an
-------------------
"Accredited Investor" within the meaning of Rule 501(a) under the Securities Act
and has such knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of such Purchaser's investment in
the Securities, and such Purchaser is capable of bearing the economic risks of
such investment and is able to bear a complete loss of such Purchaser's
investment in the Securities.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions to the Purchasers' Obligations. The
-----------------------------------------
Purchasers' respective obligations to purchase or otherwise acquire the
Convertible Exchangeable Debenture to be purchased or acquired by them on the
Closing Date pursuant to Section 2.1 are subject to the prior satisfaction in
full of each of the following conditions:
-27-
(a) (i) The Existing Bank Lenders shall have consented in
writing, in form and substance satisfactory to the Purchasers, to the
Transaction Documents, the Restructuring, the other Transactions and the
exercise by the Purchasers of all of their rights under the Transaction
Documents; (ii) the Trust and the holders of the RHINOS shall have consented, in
form and substance satisfactory to the Purchasers, to the Transaction Documents,
the Restructuring, the other Transactions and the exercise by the Purchasers of
all of their rights under the Transaction Documents; (iii) the Purchasers shall
have received a copy of the Subordination Agreement duly executed by each of the
parties thereto, including each of the Existing Bank Lenders, the holder of the
RHINOS, the holders of the RHINOS Debentures, the Trust, the applicable trustees
and the Obligors; (iv) there shall have been obtained in form and substance
satisfactory to the Purchasers all other consents and waivers that are necessary
in connection with the execution of the Transaction Documents and the execution
and delivery of the Convertible Exchangeable Debentures hereunder; (v) the
Bermuda Monetary Authority and the Bermuda Registrar of Companies shall have
consented in form and substance satisfactory to the Purchasers to the
Transactions, the Restructuring and the other transactions contemplated hereby;
and (vi) the holders of the RHINOS shall have either (x) committed to exchange
RHINOS for RHINOS Debentures or (y) forfeited their rights to exchange RHINOS
for RHINOS Debentures with respect to all RHINOS, in each case on terms and
conditions satisfactory to XL.
(b) The capital and surplus of the U.S. Insurance Subsidiaries
under Statutory Accounting Principles (not including any amounts attributable to
the Purchase Price) shall not be less than $365.0 million (without giving effect
to no more than $15.0 million of adjustments required by FASB 115).
(c) The representations and warranties of the Obligors in the
Transaction Documents shall be true and correct in all material respects at such
time (without giving effect to any qualifications as to materiality or knowledge
contained therein). The Company shall have performed and complied with all
covenants and agreements required by such Transaction Documents to be performed
or complied with by it at such time. Before and after giving effect to the use
of proceeds of the Purchase Price, no Default or Event of Default (as defined in
the Debentures) shall have occurred and be continuing. The Purchasers shall have
received an Officers' Certificate dated as of the Closing Date to the effect
that the conditions in this clause (c) and clauses (i)(i) and (j) of this
Section 5.1 have been satisfied.
(d) The Purchasers shall have received an opinion, dated the
Closing Date, of each of Xxxxx, Xxxxx & Xxxxx, special counsel to the Company,
Xxxxxxx Xxxx & Xxxxxxx, Bermuda counsel to the Company, and Xxxxxxx X'Xxxxx,
General Counsel of the Company, in each case, covering such matters as are
requested by the Purchasers and in form and substance satisfactory to the
Purchasers.
-28-
(e) The Purchasers shall have received the Convertible
Exchangeable Debentures, together with the related Voting Preferred Stock, to be
issued on the Closing Date, duly executed by the Company and in the
denominations and registered in the names specified in or pursuant to Section
2.1(c).
(f) The Collateral Agreement shall have been duly executed and
delivered by the Company and the Collateral Agent thereunder.
(g) The Registration Rights Agreements shall have been duly
executed and delivered by the Company and its Subsidiaries party thereto and the
Purchasers.
(h) The Company and each of its Subsidiaries shall have taken
such requisite action necessary to ensure that it will be able to comply with
Section 6.3 and have implemented any requests made pursuant to Section 6.3.
(i) (i) There shall not have occurred or become known to the
Purchasers any events or changes (A) since December 31, 2000 that, individually
or in the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect, or (B) that have had or could reasonably be expected to have an
adverse effect on the rights or remedies of the Purchasers, or on the ability of
any of the Obligors to perform their respective obligations hereunder or under
the other Transaction Documents, (ii) the Purchasers shall not have become aware
after the date hereof of any information or other matter affecting the Company,
any of its Subsidiaries or the transactions contemplated hereby which is
inconsistent in a material and adverse manner with any such information or other
matter disclosed to the Purchasers prior to the date hereof, (iii) trading in
securities generally on the New York Stock Exchange, American Stock Exchange or
the Nasdaq National Market shall not have been suspended or limited and minimum
or maximum prices or maximum ranges for prices shall not have been established
on any such exchange; (iv) a banking moratorium shall not have been declared by
New York or United States authorities; and (v) there shall not have been (A) an
outbreak or escalation of material hostilities between the United States and any
foreign power, (B) an outbreak or escalation of any other material insurrection
or armed conflict involving the United States or any other national or
international calamity or emergency or (C) any material change or disruption in
the general financial banking or capital markets of the United States.
(j) Since the date of this Agreement, neither A.M. Best
Company nor Standard & Poor's Ratings Services shall have downgraded the ratings
ascribed to the Company or any of its Subsidiaries on the date of this
Agreement; and since the date of this Agreement, neither A.M. Best Company nor
Standard & Poor's Ratings Services shall have issued any warning of or announced
that it is considering a possible downgrade.
(k) The Purchasers shall have received confirmation to their
satisfaction that the transactions contemplated hereby will not trigger any
payments under any of the Com-
-29-
pany's employment arrangements or loss of benefits under any of the Company's
reinsurance or other material contracts.
(l) The fees and expenses of the Purchasers' counsel,
accountants and other advisors and consultants, including, with respect to XL,
Xxxxxx Xxxxxx & Xxxxxxx, Am-Re Consultants, Inc. and PriceWaterhouseCoopers,
LLP, shall have been paid in accordance with Section 7.4 hereof.
(m) No insurance regulatory department shall have indicated
that it may take any action to seize control of the Company.
(n) The Purchasers shall have received a duly executed Lock-Up
Agreement from each of the directors (other than outside directors) and
executive officers of the Company.
(o) The Purchasers shall have received a certificate of the
Secretary or Assistant Secretary of the Company, dated as of the Closing Date,
certifying (A) (i) that attached thereto is a true, complete and correct copy of
resolutions duly adopted by the Board of Directors of the Company, authorizing
(1) the execution, delivery and performance of the Transaction Documents to
which it is a party and (2) the Transactions and (ii) that such resolutions have
not been amended, modified, revoked or rescinded; (B) as to the incumbency and
specimen signature of each officer executing any Transaction Documents on its
behalf and (C) that attached thereto are true and complete copies of its
constituent documents; and such certificate and the resolutions attached thereto
shall be in form and substance satisfactory to the Purchasers.
(p) On the Closing Date, in addition to any Convertible
Exchangeable Debentures purchased by Century, directors and officers of the
Company or their Affiliates shall purchase Convertible Exchangeable Debentures
in an aggregate principal amount of at least $2.0 million and no more than $2.5
million; provided, however, that no individual director or officer (or affiliate
-------- -------
thereof) of the Company may purchase Convertible Exchangeable Debentures in a
principal amount of less than $500,000.
(q) XL shall have received a duly executed voting proxy (the
"D&O Proxies"), in form and substance satisfactory to XL, from each of the
directors and officers of the Company that purchase Convertible Exchangeable
Debentures (other than any outside directors of the Company that purchase
Convertible Exchangeable Debentures indirectly through Century) pursuant to
which such directors and officers shall assign to XL the voting power of the
Debentures, Voting Preferred Stock, Newco Voting Preferred Stock and Common
Stock of the Company and Newco into which such Debentures are convertible or for
which they are exchangeable.
-30-
SECTION 5.2. Conditions to the Company's Obligations. The
---------------------------------------
Company's obligations to issue the Convertible Exchangeable Debentures to be
purchased or otherwise acquired by the Purchasers on the Closing Date pursuant
to Section 2.1 are subject to the prior satisfaction in full of each of the
following conditions:
(a) The representations and warranties of the Purchasers in
the Transaction Documents shall be true and correct in all material respects at
such time (without giving effect to any qualifications as to materiality or
knowledge contained therein). The Purchasers shall have performed and complied
with all covenants and agreements required by such Transaction Documents to be
performed or complied with by the Purchasers at such time. The Company shall
have received an Officers' Certificate dated as of the Closing Date to the
effect that the conditions in this clause (a) of this Section 5.2 have been
satisfied.
(b) Not less than $100.0 million in principal amount of
Convertible Exchangeable Debentures shall be purchased by XL, First Union and
High Ridge, in the aggregate, on the Closing Date.
ARTICLE VI
COVENANTS
SECTION 6.1. Restructuring. The Company will use its best
-------------
efforts, as promptly as practicable after the Closing Date, to obtain all
Required Approvals and to complete the Restructuring. At such time as the
Company believes that the Restructuring has been completed, the Company shall
deliver to the Purchasers (a) an Officer Certificate certifying that (i) the
Restructuring has been completed in accordance with the description thereof in
this Agreement and all applicable laws and regulations, (ii) after giving effect
to the Restructuring, neither the Company and its Subsidiaries on the one hand
nor Newco and its Subsidiaries on the other hand will be insolvent or otherwise
unable to pay their debts as they come due and (iii) the Restructuring will not
be voidable under fraudulent conveyance, fraudulent transfer or other similar
laws affecting creditors' rights generally and (b) written opinions, in form and
substance reasonably satisfactory to the Purchasers, from an independent
investment banking or appraisal firm satisfactory to the Purchasers as to the
solvency of the Company and its Subsidiaries on the one hand and Newco and its
Subsidiaries on the other hand.
-31-
SECTION 6.2. Preemptive Rights. If, at any time or from time
-----------------
to time, Newco offers or proposes to offer any equity interests or debt that is
convertible into or exercisable or exchangeable for equity interests in Newco or
any of its Subsidiaries, Newco shall offer, or shall cause to be offered (and
the Company, if then Controlling Newco, shall cause Newco to offer), to each
Holder such interests or such convertible debt on a pro rata basis in accordance
with its ownership interest in Newco on terms and conditions no less favorable
than the most favorable terms offered to others.
Newco will give the Holders at least 20 days' written notice
of the purchase right set forth in the paragraph above. Such notice shall set
forth a description of the securities, the proposed number of such securities
and the form of consideration to be paid for such securities and the other
expected terms and conditions of the offer. To the extent that the Holders have
elected to exercise such rights within such 20-day period, any sales to such
Holders shall be consummated concurrently and, in any case, within 45 days from
the date the offer is first made. To the extent that the Holders have not
elected to exercise such rights within such 20-day period, Newco shall have 180
days from the date on which the offer is first made to consummate the
transactions contemplated by the offering on no more favorable terms to the
purchasers thereof than offered to the Holders.
The foregoing notwithstanding, this Section 6.2 shall not
apply to the offer or issuance of any Common Stock of Newco (i) upon the grant
or exercise of any options issued under a plan for employees of Newco approved
by Newco's board of directors not to exceed 5% of Newco's outstanding Capital
Stock on a Fully Diluted Basis, (ii) in a Qualified Offering or (iii) pursuant
to the Company's obligation to spin off shares of Common Stock of Newco to its
existing shareholders arising under the Debenture Registration Rights Agreement.
SECTION 6.3. Board Representation. (a) From the Closing Date
--------------------
until XL no longer owns at least 20% of the principal amount of the outstanding
Debentures, (x) the Company shall cause all of the XL Designees (as defined
below) to be nominated for election to the board of directors of the Company at
the Company's next stockholders' meeting and the Company shall support and use
its best efforts to cause the election of such individuals to the board of
directors of the Company and (y) XL shall have the right to request, and upon
such request the Company shall cause, the XL Designees to be elected to serve on
the boards of directors of each of the Company's direct and indirect
Subsidiaries. In addition, all such XL Designees will be permitted to serve on
any committees, including any executive committee of the board of directors of
the Company and each Subsidiary, unless such XL Designee is not qualified
therefor under applicable law, rule or regulation, in which event XL shall have
the right to select one individual to observe all such meetings in substitution
therefor. "XL Designees" shall mean a number of individuals designated by XL
equal to the greater of (x) two and (y) the number derived from multiplying the
number of seats on the applicable board of
-32-
directors times a fraction the numerator of which is the number of shares of
Common Stock of the Company owned by XL (assuming conversion of all Debentures
held by XL) and the denominator of which is the number of outstanding shares of
Common Stock of the Company on a Fully Diluted Basis (rounding up in the case of
any fractions).
At any time while an XL Designee is not a member of the
Company's and each such Subsidiary's boards of directors, at the sole discretion
of XL, XL may appoint a representative of XL, and the Company and each such
Subsidiary will permit such representative, to attend all meetings of the boards
of directors of the Company and each such Subsidiary and any committees thereof.
XL will continue to have the right to designate the XL Designees for election or
appointment to the boards of directors of the Company and each such Subsidiary
in lieu of any representative of XL.
(b) From the Closing Date until First Union and High Ridge, in
the aggregate, no longer own at least 20% of the principal amount of the
outstanding Debentures, (x) the Company shall cause the First Union and High
Ridge Designee (as defined below) to be nominated for election to the board of
directors of the Company at the Company's next stockholders' meeting and the
Company shall support and use its best efforts to cause the election of such
persons to the board of directors of the Company and (y) First Union and High
Ridge shall have the right to request, and upon such request the Company shall
cause, the First Union and High Ridge Designee to be elected to serve on the
boards of directors of each of the Company's direct and indirect Subsidiaries.
In addition, the First Union and High Ridge Designee will be permitted to serve
on any committees, including any executive committee of the board of directors
of the Company and each Subsidiary, unless such First Union and High Ridge
Designee is not qualified therefor under applicable law, rule or regulation, in
which event First Union and High Ridge shall have the right to select one Person
(in addition to the Observer) to observe all such meetings in substitution
therefor. "First Union and High Ridge Designee" shall mean an individual
designated by First Union and High Ridge for nomination to the board of
directors of the Company, following consultation by First Union and High Ridge
with Century. In addition, First Union and High Ridge will together have the
right to select one individual to observe all meetings of the board of directors
of the Company and each of the Company's direct and indirect Subsidiaries and
each committee thereof (the "Observer").
At any time while the First Union and High Ridge Designee is
not a member of the Company's and each such Subsidiary's boards of directors, at
the sole discretion of First Union and High Ridge, First Union and High Ridge
may together appoint a representative of First Union and High Ridge, and the
Company and each such Subsidiary will permit such representative, to attend all
meetings of the boards of directors of the Company and each such Subsidiary and
any committees thereof. First Union and High Ridge will continue to have the
right to designate the First Union and High Ridge Designee for election or
appointment to the
-33-
boards of directors of the Company and each such Subsidiary in lieu of any
representative of First Union and High Ridge.
(c) At the end of the term of any Designee, the Person who
designated such Designee shall have the right to designate the same or another
Designee for the next term and the Company shall then support and use its best
efforts to cause the election of such individual to such board of directors. In
the event that a Designee shall cease to serve as a director for any reason, the
vacancy resulting therefrom shall be filled by a Designee selected by the Person
that selected the Designee whose vacancy is to be filled according to the
procedures described above. Any such director shall comply with all applicable
statutory requirements of the Insurance Departments.
(d) The Company and each Subsidiary will provide the
Designees, the Observer, any other observers selected pursuant to Sections
6.3(a) or (b) above or any representatives of XL and First Union and High Ridge
with all information provided to such boards of directors and any committees
thereof.
SECTION 6.4. Information. Each of the Company and Newco hereby
-----------
agrees for the benefit of the Purchasers and the Holders that, from and after
the date hereof, so long as any Securities may be issued or remain outstanding
and unpaid or any other amount is owing to any of the Holders under any
Transaction Document, it will deliver or cause to be delivered the following
materials and information to the respective parties listed below:
(a) to the Holders, as soon as available and in any event
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year, (i) consolidated and consolidating balance sheets of the Company
and Newco and their Subsidiaries as of the end of such quarter and the related
consolidated statements of income, cash flows and stockholders' equity (deficit)
for such quarter and for the portion of the fiscal year ended at the end of such
quarter, setting forth, in each case, in comparative form the figures for the
corresponding quarter and the corresponding portion of the previous fiscal year,
accompanied by a certificate of the chief financial officer or the chief
accounting officer of the Company and Newco, as applicable, to the effect that
they fairly present the financial condition at such dates and the results of
operations and cash flows and stockholders' equity (deficit) for such periods
and were prepared in accordance with GAAP (or, in the case of the Insurance
Subsidiaries, Statutory Accounting Principles prescribed or permitted by the
Insurance Acts), subject to year-end audit adjustments (consisting only of
normal recurring accruals), (ii) in the case of any Holder of at least 10% of
the outstanding Securities, such operating information of the Company and Newco
as may be reasonably requested by any Holder and (iii) in the case of any Holder
of at least 10% of the outstanding Securities, a comparison of the results of
such quarter against the operating plan and budget, together with an explanation
of any deviations therefrom;
-34-
(b) to the Holders, as soon as available and in any event
within 90 days after the end of each fiscal year, (i) consolidated and
consolidating balance sheets of the Company and Newco and their Subsidiaries as
of the end of such fiscal year and the related consolidated statements of
income, cash flows and stockholders' equity (deficit) for such fiscal year,
setting forth, in each case, in comparative form the figures for the previous
fiscal year, accompanied by a certificate of the chief financial officer or the
chief accounting officer of the Company and Newco, as applicable, to the effect
that they fairly present the financial condition at such dates and the results
of operations and cash flows and stockholders' equity (deficit) for such periods
and were prepared in accordance with GAAP (or, in the case of the U.S. Insurance
Subsidiaries, Statutory Accounting Principles prescribed or permitted by the
Insurance Acts), and a report (unqualified as to scope) of a firm of independent
public accountants of nationally recognized standing and, in the case of any
Holder of at least 10% of the outstanding Securities, a "management letter" from
such firm regarding the internal control structure of the Company and Newco and
(ii) in the case of any Holder of at least 10% of the outstanding Securities and
in exchange for the express agreement of such Holder to keep such information
confidential, an opinion in form and substance reasonably satisfactory to the
Purchasers as to the loss reserves of the Insurance Subsidiaries as of the end
of such fiscal year by Xxxxxxxxxxx, Towers & Xxxxxx or another actuarial
consultant selected by the Company and acceptable to the Purchasers and the
Holders;
(c) to any Holder of at least 10% of the outstanding
Securities and in exchange for the express agreement of such Holder to keep such
information confidential, as soon as available and in any event within 60 days
after the end of each fiscal quarter, the results of the "early warning" tests
described in Section 7(m) of the Debentures and any supporting documentation
requested by such Holder;
(d) to any Holder of at least 10% of the outstanding
Securities, as soon as available, prior to the beginning of each fiscal year and
in exchange for the express agreement of such Holder to keep such information
confidential, an annual budget and operating plan of the Company and Newco,
including an investment policy and plan, presented on a quarterly basis for such
fiscal year;
(e) to any Holder of at least 10% of the outstanding
Securities and in exchange for the express agreement of such Holder to keep such
information confidential, as soon as available, annual financial projections
(including forecasted consolidated and consolidating balance sheets of the
Company and Newco and their Subsidiaries and the related consolidated statements
of income, cash flows and stockholders' equity (deficit)) for the fiscal years
ending December 31, 2001 through December 31, 2006 (including monthly financial
projections) containing all material assumptions relating to such projections,
accompanied by a statement by the Company and Newco that its projections are
based on assumptions believed by it in
-35-
good faith to be reasonable as to the future financial performance of the
Company or Newco, as the case may be;
(f) to any Holder of at least 10% of the outstanding
Securities and in exchange for the express agreement of such Holder to keep such
information confidential, as soon as available, and in any event within 30 days
after the filing thereof, copies of annual and quarterly reports and all other
filings of the Insurance Subsidiaries filed with the Insurance Departments;
(g) to XL, so long as it continues to own at least 10% of the
outstanding Securities and in exchange for the express agreement of XL to keep
such information confidential, copies of the monthly and quarterly reports
provided to the boards of directors of the Company and Newco and the Insurance
Subsidiaries, at or about the same time such reports are distributed to such
boards;
(h) to each Holder, and in exchange for the express agreement
of such Holder to keep such information confidential, promptly following the
occurrence thereof, notice and a description in reasonable detail of any
material adverse change in the assets, liabilities, business, results of
operations, condition (financial or otherwise), Permits or prospects of the
Company and its Subsidiaries taken as a whole, or of Newco and its Subsidiaries
taken as a whole;
(i) to any Holder of at least 10% of the outstanding
Securities, and in exchange for the express agreement of such Holder to keep
such information confidential, from time to time such additional information
regarding the financial position or business of the Company or any of its
Subsidiaries or of Newco or any of its Subsidiaries as such Holder may
reasonably request;
(j) to the Holders, as soon as available, copies of all
reports and memoranda relating to the current status of the Restructuring and
copies of all related applications, agreements and other documents executed in
connection with the Restructuring; and
(k) to each Holder and in exchange for the express agreement
of such Holder to keep such information confidential, copies of any presentation
made by the Company or any of its Subsidiaries to Standard & Poor's Ratings
Services, Moody's, A.M. Best Company or any other rating agency.
SECTION 6.5. Use of Proceeds. Upon completion of the
---------------
Restructuring and the receipt by the Company of all Required Approvals, the
Company will contribute $80.0 million of the net proceeds from the issuance and
sale of the Convertible Exchangeable Debentures and the Voting Preferred Stock
to the statutory capital and surplus of the U.S. Insurance Subsidiaries (the
"Contributed Amounts"). The remainder of the net proceeds shall be
-36-
deposited into the Collateral Account for the benefit of the Holders on the
Closing Date. Upon the 90th day after consummation of the Restructuring and the
receipt by the Company of all Required Approvals, provided, however, that no
-------- -------
Default or Event of Default (as defined in the Debentures) shall have occurred
and be continuing, all amounts in the Collateral Account shall be released to
the Company and the Company will retain all of such proceeds and will not
contribute, loan or otherwise transfer or dispose of any such amounts disbursed
from the Collateral Account to any Insurance Subsidiary.
SECTION 6.6. Non-Competition. (a) From and after the date on
---------------
which the Restructuring is consummated until the third anniversary of the date
on which the Company ceases to own, directly or indirectly, any Common Stock or
other ownership interests of Newco (the "Non-Competition Period"), the Company
will not, and will cause each of its Affiliates not to, directly or indirectly,
engage in or own any interest in any business substantially similar to the
businesses transferred to Newco; provided, however, that (i) this Section 6.6(a)
-------- -------
shall not be construed to prevent or restrict the Company or any of its
Affiliates from, directly or indirectly, acquiring, owning or investing in
securities representing less than 5% of the outstanding voting power of the
securities of a publicly traded company and (ii) this Section 6.6(a) shall not
prevent or restrict the Company from owning Common Stock or other ownership
interests of Newco.
(b) During the Non-Competition Period, the Company will not,
and will not cause or permit any of its Subsidiaries to, transfer or reassign
any of its employees who are primarily dedicated to the CRM business to any
other business or division of the Company or any of its Subsidiaries, solicit
for employment or hire any Person who, at the time of such solicitation or
hiring, is employed by Newco or any of its Subsidiaries or induce or encourage
any such Person to leave the employ of Newco or any of its Subsidiaries or to
become employed by any Person other than Newco or any of its Subsidiaries.
SECTION 6.7. Certain Transactions. The Company shall not, and
--------------------
shall not cause or permit any of its Subsidiaries (other than Subsidiaries of
Newco) to, engage in any intercompany transactions outside of the ordinary
course of business with Newco or any other action that would adversely affect
Newco, without the prior written consent of XL.
SECTION 6.8. Insurance Professional. The Company shall use its
----------------------
best efforts to hire an insurance professional approved by XL for the Company's
specialty insurance operations as successor to its Program Business as promptly
as practicable.
SECTION 6.9. Purchase Option. In connection with the
---------------
Restructuring, the Company shall grant to Newco an option to purchase, at book
value, Villanova Insurance Company and/or any new Insurance Subsidiary of the
Company formed in connection with the writing of new or renewal insurance
policies underlying the CRM business relating to the Company's IPC (i.e.,
rent-a-captive) Subsidiaries.
-37-
SECTION 6.10. Employment Agreements. The Company shall use its
---------------------
best efforts to enter into written employment agreements and non-compete
agreements with such executive officers of the Company as shall be identified in
writing by XL and shall be reasonably acceptable to the Company within a
reasonable time following receipt of such request, in each case on terms
reasonably acceptable to XL.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Notices. All notices, demands and other
-------
communications to any Person shall be in writing (including telecopier or
similar writing) and shall be given to such Person at the address set forth
below:
if to any Holder, at its address set forth in the Register;
if to XL, at:
XL Insurance Ltd
c/o XL Capital Ltd.
XL Xxxxx
Xxx Xxxxxxxxxx Xxxx
Xxxxxxxx XX 00
Xxxxxxx
Xxxxxxxxx: Xxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx & Xxxxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
-38-
if to First Union, at:
First Union Merchant Banking 2001, LLC
One First Union Center - 12th Floor
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Attention: Xxxxxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.A.
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to High Ridge, at:
High Ridge Capital Partners II, L.P.
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.A.
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
-39-
if to Century, at:
Century Capital Partners II, L.P.
c/o Century Capital Management Inc.
Xxx Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Dodge LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to Taracay Investors Company, at:
Taracay Investors Company
000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to Intrepid, at:
Intrepid Funding Master Trust
c/o Wilmington Trust Company,
as Owner-Trustee
Xxxxxx Square North
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
-40-
if to the Obligors, at:
Mutual Risk Management Ltd.
00 Xxxxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Xxxxxxxxx: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx, Xxxxx & Xxxxx
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or such other address as such Person may hereafter specify (in accordance with
this Section 7.1) for the purpose to the other parties. Each such notice, demand
or other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to such Person's telecopy number and receipt thereof is
confirmed by telephone or in writing, (ii) if given by mail, three Business Days
after such communication is deposited in the mail with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in or pursuant to this Section.
SECTION 7.2. No Waivers; Powers and Remedies Cumulative;
------------------------------------------
Amendments. (a) No failure or delay on the part of any party in exercising any
----------
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(b) No right or remedy herein conferred upon or reserved to
the Purchasers or the Holders from time to time of Securities is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. Every power and remedy given by any Transaction
Document or by law may
-41-
be exercised from time to time, and as often as shall be deemed expedient, by
the Obligors, the Purchasers or the Holders from time to time of Securities.
(c) Any provision of this Agreement may be amended, supplemented
or waived if, but only if such amendment, supplement or waiver is in writing and
is signed by the Company and the Purchasers, if such proposed amendment,
supplement or waiver is effective on or prior to the Closing Date, and the
Requisite Holders, if such proposed amendment, supplement or waiver is effective
after the Closing Date. In determining whether the Requisite Holders have
concurred in any direction, consent, or waiver as provided in any Transaction
Document, Debentures which are owned by the Company or any of its Affiliates
shall be disregarded and deemed not to be outstanding for the purpose of any
such determination; provided, however, that any amendment, supplement or waiver
-------- -------
which adversely affects the rights of any Holder hereunder shall require such
Holder's consent unless the amendment, supplement or waiver adversely affects
the rights of all Holders in the same manner.
SECTION 7.3. Indemnification. The Obligors, jointly and
---------------
severally, agree to indemnify and hold harmless the Purchasers and each Holder,
their respective Affiliates, directors, officers and employees and each Person,
if any, who controls any Purchaser and each Holder, or any of their Affiliates,
within the meaning of the Securities Act or the Exchange Act (a "Controlling
Person"), and the respective partners, agents, employees, officers and directors
of the Purchasers and each Holder, their respective Affiliates and any such
Controlling Person (each, an "Indemnified Party" and, collectively, the
"Indemnified Parties"), from and against any and all losses, claims, damages,
liabilities and expenses (including, as incurred, reasonable costs of
investigating, preparing or defending any such claim or action, whether or not
such Indemnified Party is a party thereto), that arise out of, or are in
connection with (i) any breach of representation or warranty (including any
misrepresentation in, or omission from, any certificate or other document
furnished or to be furnished by it to any Purchaser and/or the Holders
hereunder) or nonfulfillment of any covenant or agreement on the part of the
Obligors under any Transaction Document (without giving effect to any
qualifications of any representation or warranty with respect to knowledge) or
(ii) any pending or threatened claims, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing or
to the Transaction Documents or the Transactions; provided, however, that the
Obligors will not be responsible for any losses, claims, damages, liabilities or
expenses that are determined by final judgment of a court of competent
jurisdiction to result solely from such Indemnified Party's gross negligence or
willful misconduct. The Obligors and the Purchasers also agree that no
Indemnified Party shall have any liability (except for breach of provisions of
this Agreement) for losses, claims, damages, liabilities or expenses, including
legal fees, incurred by the Obligors in connection with this Agreement unless
they are determined by final judgment of a court of competent jurisdiction to
result from such Indemnified Party's gross negligence or willful misconduct.
-42-
In case any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Obligors under this
Agreement, such Indemnified Party shall promptly notify the Obligors in writing
and the Obligors shall, if requested by such Indemnified Party or if the
Obligors desire to do so, assume the defense thereof, including the employment
of counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Obligors shall not
affect any obligations the Obligors may have to such Indemnified Party under
this Agreement or otherwise unless the Obligors are materially adversely
affected by such failure. Such Indemnified Party shall have the right to employ
separate counsel in such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party, unless: (i) the Obligors have failed to assume the defense and employ
counsel reasonably satisfactory to such Indemnified Party or (ii) the named
parties to any such action (including any impleaded parties) include such
Indemnified Party, and one or more of the Obligors, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
such Obligor, in which case, if such Indemnified Party notifies the Obligors in
writing that it elects to employ separate counsel at the expense of the
Obligors, the Obligors shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Party; provided, however,
that the Obligors shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be responsible hereunder for the reasonable fees and expenses
of more than one such firm of separate counsel, in addition to any local
counsel, which counsel shall be designated by XL if XL is at such time an
Indemnified Party with respect to such matter and otherwise by such Indemnified
Party. The Obligors shall not be liable for any settlement of any such action
effected without the written consent of the Obligors (which shall not be
unreasonably withheld or delayed) and the Obligors agree to indemnify and hold
harmless each Indemnified Party from and against any loss or liability by reason
of settlement of any action effected with the consent of the Obligors. In
addition, the Obligors will not, without the prior written consent of XL, if XL
is at such time and Indemnified Party with respect to such matter and otherwise
by such Indemnified Party, settle or compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened action,
claim, suit or proceeding in respect to which indemnification or contribution
may be sought hereunder (whether or not any Indemnified Party is a party
thereto) unless such settlement, compromise, consent or termination includes an
express, unconditional release of the Purchasers and the other Indemnified
Parties, satisfactory in form and substance to the Purchasers, from all
liability arising out of such action, claim, suit or proceeding.
The indemnification and expense reimbursement obligations set
forth in this Section 7.3 (i) shall be in addition to any liability the Obligors
may have to any Indemnified Party at common law or otherwise, (ii) shall survive
the termination of this Agreement and the
-43-
other Transaction Documents and the payment, conversion and/or exchange in full
of the Debentures and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchasers or any
other Indemnified Party.
SECTION 7.4. Expenses; Documentary Taxes. The Obligors, jointly
---------------------------
and severally, agree to pay, whether or not the closing in respect of the
issuance and sale of the Convertible Exchangeable Debenture to the Purchasers
occurs, the costs, fees and expenses of the Purchasers incurred in connection
with the Transaction Documents, including the fees and expenses of its legal
counsel, actuaries, accountants and other advisors and consultants, including in
connection with any amendments, modifications or waivers of the provisions of
any of the Transaction Documents, or any enforcement of the rights of the
Purchasers under any of the Transaction Documents or in connection with any
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. Furthermore, the Obligors agree to pay any and all stamp, transfer
and other similar taxes, assessments or charges payable in connection with the
execution and delivery of any Transaction Document or the issuance of the
Securities.
SECTION 7.5. Register. Each of the Company and Newco shall keep
--------
at its principal office a register (the "Register") in which shall be entered
the names and addresses of the registered holders of the Securities issued by it
and particulars of the respective Securities held by them and of all transfers
of such Securities. References to the "Holder" or "Holders" shall mean the
Person or Persons listed in the Register as the payee of any Security. The
ownership of the Securities shall be proven by the Register.
SECTION 7.6. Termination. This Agreement may be terminated (i) by
-----------
the parties hereto by mutual agreement or (ii) if the Closing Date does not
occur by May 17, 2001, by any party by written notice to the other parties
hereto. Sections 7.3, 7.4, 7.8 and 7.9 shall survive any such termination.
SECTION 7.7. Successors and Assigns. This Agreement shall be
---------------------
binding upon the Company and upon the Purchasers and their respective successors
and assigns, including, in the case of the Company, any transferee of
substantially all of the business or assets of the Company; provided, however,
-------- -------
that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Requisite Holders. The Company shall not be permitted to
circumvent the rights of the Purchasers under any Transaction Document by
reorganization, recapitalization, transfer of business or assets or otherwise,
any attempt to do so shall be void, and any entity or entities surviving any
reorganization, recapitalization, transfer or other similar transaction shall be
deemed the Company. In the event of a transfer of any Debenture, the rights of a
Holder under this Agreement, respectively, shall pass to such transferee.
-44-
SECTION 7.8. Governing Law; Waiver of Jury Trial; Submission
-----------------------------------------------
to Jurisdiction; Net Payments. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
-----------------------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY
DISPUTE UNDER THIS AGREEMENT THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE
FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY
AND STATE OF NEW YORK, AND THE COMPANY CONSENTS TO THE EXCLUSIVE JURISDICTION OF
SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
(b) By the execution and delivery of this Agreement, the Company
and each of the Guarantors (i) acknowledges that it will, by separate written
instrument, designate and appoint The CT Corporation System, Inc., 000 Xxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (and any successor entity) as its authorized
agent upon which process may be served in any suit or proceeding arising out of
or relating to any of the Transaction Documents that may be instituted in any
Federal or state court in the State of New York, New York County or brought
under Federal or state securities laws, and acknowledges that The CT Corporation
System, Inc. will accept such designation, (ii) waives trial by jury, (iii)
agrees that service of process upon The CT Corporation System, Inc. and written
notice of said service to the Company or such Guarantor, as the case may be, in
accordance with Section 7.1 shall be deemed in every respect effective service
of process upon the Company or such Guarantor, as the case may be, in any such
suit or proceeding and (iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law.
(c) All payments made or required to be made hereunder shall
be made in U.S. dollars. The Obligors agree to indemnify the Holder against any
loss incurred by such party as a result of any judgment or order being given or
made against the Obligors, for any U.S. dollar amount due under this Agreement
and such judgment or order being expressed and paid in a currency (the "Judgment
Currency") other than United States dollars and as a result of any
-45-
variation as between (i) the rate of exchange at which the United States dollar
amount is converted into the Judgment Currency for the purpose of such judgment
or order and (ii) the spot rate of exchange in The City of New York at which
such party on the date of payment of such judgment or order is able to purchase
United States dollars with the amount of the Judgment Currency actually received
by such party if such party had utilized such amount of Judgment Currency to
purchase United States dollars as promptly as practicable upon such party's
receipt thereof. The foregoing indemnity shall continue in full force and effect
notwithstanding any such judgment or order as aforesaid. The term "spot rate of
exchange" shall include any premiums and costs of exchange payable in connection
with the purchase of, or conversion into, United States dollars.
All amounts paid by the Company or any Guarantor hereunder shall
be paid free and clear of, and without any deduction or withholding for or on
account of, any present or future taxes, duties, assessments or other
governmental charges of whatever nature imposed or levied by or on behalf of
Bermuda or any political subdivision thereof or by any authority therein or
thereto or within any other jurisdiction in which the Company or any of its
Subsidiaries is organized or engaged in business for tax purposes having power
to tax, unless such deduction or withholding is required by applicable law, in
which event, each of the other parties hereto agrees to pay additional amounts
so that the persons entitled to such payments will receive the amount that such
persons would otherwise have received but for such deduction or withholding.
SECTION 7.9. Survival. (a) All covenants, agreements,
--------
representations and warranties in any Transaction Document and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to any Transaction Document shall be considered to have been relied
upon by the Purchasers and shall survive the purchase of the Securities
regardless of any investigation made by or on behalf of the Purchasers, and
shall continue in full force and effect in accordance with their terms.
(b) All indemnities set forth herein, including in Section
7.3, shall survive the execution and delivery of this Agreement, the issuance
and purchase of the Securities and the repayment and cancellation of the
Debentures.
SECTION 7.10. Independence of Representations, Warranties and
------------------------------------------------
Covenants. The representations, warranties and covenants contained herein shall
---------
be independent of each other, and no exception to any representation, warranty
or covenant (including any exception contained in a schedule hereto) shall be
deemed to be an exception to any other representation, warranty or covenant
contained herein unless expressly provided, nor shall any such exception be
deemed to permit any action or omission that would be in contravention of
applicable law.
SECTION 7.11. Severability. If any term, provision, covenant
------------
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforce-
-46-
able, the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 7.12. Counterparts. This Agreement may be executed in any
------------
number of counterparts each of which shall be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 7.13. Entire Agreement; Benefit. This Agreement and
-------------------------
the other Transaction Documents constitute the entire agreement among the
parties relating to the subject matter hereof. Any previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Transaction Documents. Nothing in any Transaction
Document is intended to confer upon any Person (other than the parties thereto
and any Indemnified Party) any rights, remedies, obligations or liabilities
under or by reason of the Transaction Documents.
SECTION 7.14. Headings. Article and Section headings and the
--------
Table of Contents are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 7.15. Execution by Newco. Promptly after the formation
------------------
of Newco, the Company will cause Newco to execute and deliver a counterpart to
this Agreement pursuant to which Newco shall, by so executing this Agreement,
become a party to this Agreement as if Newco were an original party hereto and
upon which this Agreement shall constitute a valid and binding agreement of
Newco, enforceable in accordance with its terms. Upon execution of this
Agreement by Newco in accordance with this Section 7.15, Newco shall be deemed
to have made, as of the date of such execution, the representations and
warranties contained in Sections 3.1, 3.2, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11,
3.19, 3.20, 3.22 and 3.23 of this Agreement to the holders as if all references
contained therein to the Company were references to Xxxxx.
X-0
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers.
Executed: May 8, 2001
MUTUAL RISK MANAGEMENT LTD.
By: /s/ Xxxxxxx X. X'Xxxxx
------------------------------------
Name: Xxxxxxx X. X'Xxxxx
Title: Senior Vice President
MUTUAL GROUP LTD.
By: /s/ Xxxxxxx X. X'Xxxxx
------------------------------------
Name: Xxxxxxx X. X'Xxxxx
Title: Senior Vice President
LEGION FINANCIAL CORP.
By: /s/ Xxxxxxx X. X'Xxxxx
-------------------------------------
Name: Xxxxxxx X. X'Xxxxx
Title: Senior Vice President
MGL INVESTMENTS LTD.
By: /s/ Xxxxxxx X. X'Xxxxx
------------------------------------
Name: Xxxxxxx X. X'Xxxxx
Title: Senior Vice President
MRM SECURITIES LTD.
By:/s/ Xxxxxxx X. X'Xxxxx
------------------------------------
Name: Xxxxxxx X. X'Xxxxx
Title: Senior Vice President
S-2
MUTUAL FINANCE LTD.
By: /s/ Xxxxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxxxx X. Xxxxx
Title: Secretary
MUTUAL RISK MANAGEMENT
(HOLDINGS) LTD.
By: /s/ Xxxxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxxxx X. Xxxxx
Title: Secretary
S-3
PRINCIPAL AMOUNT OF
CONVERTIBLE EXCHANGEABLE
PURCHASERS: DEBENTURES PURCHASED:
XL INSURANCE LTD $52,500,000
By: /s/ Xxxxx Xxxxx
--------------------------------
Name: Xxxxx Xxxxx
Title: President & Chief Executive Officer
FIRST UNION MERCHANT BANKING 2001, LLC $30,400,000
By: /s/ Xxxxxxxxx X. Xxxxxx XX
--------------------------------------
Name: Xxxxxxxxx X. Xxxxxx XX
Title: Partner
HIGH RIDGE CAPITAL PARTNERS II, L.P. $17,100,000
By: /s/ Xxxxx Xxxxx
---------------------------------------
Name: Xxxxx Xxxxx
Title: President, Liberty Street Corp.,
as general partner of Liberty Street Partners, LP,
as member of High Ridge XX XX LLC,
as general partner of High Ridge Capital
Partners II, L.P.
S-4
CENTURY CAPITAL PARTNERS II, L.P. $ 10,000,000
BY: CCP CAPITAL II LLC, its general partner
By: /s/ Xxxxx Xxxxxxxxxx
------------------------------------
Name: Xxxxx Xxxxxxxxxx
Title: Managing Member
/s/ Xxxxxx X. Xxxxxxxx
---------------------------------------- $ 2,000,000
Xxxxxx X. Xxxxxxxx
TARACAY INVESTORS COMPANY $ 500,000
By: /s/ Xxxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxxx
Title:
------------
Total for Purchasers
(other than Intrepid)......... $112,500,000
============
INTREPID FUNDING MASTER TRUST $ 30,000,000
WILMINGTON TRUST COMPANY
not in its individual capacity
but solely as Owner - Trustee.
By: /s/ Xxxx Xxx Xxxxxxx
---------------------------------
Name: Xxxx Xxx Xxxxxxx
Title: Senior Financial Services Officer
