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Exhibit 10.4
EXECUTION COPY
CONTRIBUTION AND EXCHANGE AGREEMENT ("Agreement") made as of
November
11, 2005 by and among Alleghany Insurance Holdings LLC, a Delaware
limited
liability company ("AIHL"), Darwin Group, Inc., a Delaware
corporation ("Darwin
Group"), and Darwin Professional Underwriters, Inc., a Delaware
corporation
("DPUI").
WHEREAS, AIHL currently owns 10,000 shares of common stock of
Darwin
Group, par value $.10 per share (the "Darwin Group Common Stock"),
representing
all of the issued and outstanding shares of Darwin Group Common
Stock; and
WHEREAS, AIHL intends to make a capital contribution to Darwin
Group
(the "Capital Contribution") in the amount of $135,000,000; and
WHEREAS, as of the date hereof, AIHL owns 400,000 shares of
common
stock of DPUI, par value $.10 per share (the "DPUI Common Stock"),
representing
80% of the issued and outstanding shares of DPUI Common Stock, and
105,300
shares of Series A Preferred Stock of DPUI, par value $.10 per
share (the
"Series A Preferred Stock"), representing all of the issued and
outstanding
shares of Series A Preferred Stock; and
WHEREAS, pursuant to the terms of a restricted stock plan
established
by DPUI (the "DPUI Restricted Stock Plan"), certain employees of
the Darwin
Companies (as defined herein) (the "Restricted Stockholders") may
be awarded an
aggregate of 100,000 restricted shares of DPUI Common Stock,
representing 20% of
the issued and outstanding shares of DPUI Common Stock (the
"Restricted DPUI
Shares"); and
WHEREAS, as of the date hereof, 91,250 Restricted DPUI Shares
are
issued and outstanding under the DPUI Restricted Stock Plan;
and
WHEREAS, pursuant to the terms of a long term incentive plan
established by DPUI (the "DPUI LTIP"), certain employees of the
Darwin Companies
(as defined herein) (the "LTIP Participants") have been awarded
interests in
annual profit pools established under the DPUI LTIP; and
WHEREAS, the parties contemplate that, on a date to be determined
by
AIHL as soon as practicable after the completion of the 2005
audited financial
statements of Darwin Group and DPUI (the "Exchange Date"), (i) AIHL
will
transfer, or cause to be transferred, to DPUI, either by exchange
or by merger
of Darwin Group with and into DPUI (with DPUI as the surviving
corporation in
the merger), all of the shares of Darwin Group Common Stock in
exchange for
shares of a new series of DPUI preferred stock having an aggregate
liquidation
preference equal to the GAAP Book Value (as defined herein) of
Darwin Group on
December 31, 2005, such new series of preferred stock to be
designated as Series
B Convertible Preferred Stock and to have the terms and conditions
set forth on
Exhibit A hereto, including the payment of dividends on such Series
B
Convertible Preferred Stock in the form of a new series of DPUI
preferred stock
to be
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designated as Series C Preferred Stock, and (ii) immediately
following such
transfer of Darwin Group to DPUI (the "Darwin Group Transfer"),
AIHL will
transfer to DPUI the 400,000 shares of DPUI Common Stock owned by
AIHL in
exchange for additional shares of Series A Preferred Stock having
an aggregate
liquidation preference equal to the GAAP Book Value of such 400,000
shares of
DPUI Common Stock on December 31, 2005; and
WHEREAS, in connection with the Capital Contribution and the
Darwin
Group Transfer, DPUI has amended and restated the DPUI Restricted
Stock Plan,
effective as of the date hereof, and has entered into an amended
and restated
restricted stock award agreement with each of the Restricted
Stockholders; and
WHEREAS, in connection with the Capital Contribution and the
Darwin
Group Transfer, DPUI has amended and restated the DPUI LTIP,
effective as of the
date hereof; and
WHEREAS, in connection with the Capital Contribution and the
Darwin
Group Transfer, DPUI has entered into an amended and restated
employment
agreement with each of Stephen J. Sills and Mark I. Rosen,
effective as of the
date hereof; and
WHEREAS, AIHL currently owns all of the issued and outstanding
shares
of common stock of each of Capitol Indemnity Corporation, Capitol
Specialty
Insurance Corporation and Platte River Insurance Company
(collectively, the
"Capitol Companies"); and
WHEREAS, each of Darwin Group and DPUI acknowledges that the
Capital
Contribution is to a large extent a bridge financing and that AIHL
desires,
although AIHL is not required, to reduce its equity interest in
Darwin Group
(prior to the Exchange Date) and/or in DPUI (subsequent to the
Exchange Date) as
soon as reasonably practicable; and
WHEREAS, in connection
with the Capital Contribution and the Darwin
Group Transfer, AM, Darwin Group and DPUI desire to enter into the
covenants and
agreements provided for herein; and
NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, the parties hereto agree as
follows:
1. Capital Contribution.
On the a date to be mutually agreed by Darwin Group and AIHL
(the
"Contribution Date"), but prior to the Exchange Date, AIHL will
make the Capital
Contribution in the amount of $135,000,000 to Darwin Group.
2. Darwin Group Transfer; Exchange of DPUI Common Stock.
(a) AIHL agrees to transfer, or cause to be transferred, to DPUI
on
the Exchange Date, either by exchange or by merger of Darwin Group
with and into
DPUI
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(with DPUI as the surviving corporation in the merger), all of the
shares of
Darwin Group Common Stock in exchange for shares of a new series of
DPUI
preferred stock having an aggregate liquidation preference equal to
the GAAP
Book Value of Darwin Group on December 31, 2005, such new series of
preferred
stock to be designated as Series B Convertible Preferred Stock and
to have the
terms and conditions set forth on Exhibit A hereto (the "Series B
Preferred
Stock"), including the payment of dividends on such Series B
Preferred Stock in
the form of a new series of DPUI preferred stock to be designated
as Series C
Preferred Stock, which Series C Preferred Stock shall have the
terms and
conditions set forth on Exhibit B hereto (the "Series C Preferred
Stock"). DPUI
agrees to issue such shares of Series B Preferred Stock to AIHL on
the Exchange
Date.
(b) On the Exchange Date, immediately following the Darwin
Group
Transfer, AIHL agrees to transfer to DPUI the 400,000 shares of
DPUI Common
Stock owned by AIHL in exchange for additional shares of Series A
Preferred
Stock having an aggregate liquidation preference equal to the GAAP
Book Value of
such 400,000 shares of DPUI Common Stock on December 31, 2005. DPUI
agrees to
issue such additional shares of Series A Preferred Stock to AIHL on
the Exchange
Date.
3. Reduction of AIHL Ownership.
Each of Darwin Group and DPUI acknowledges and agrees that the
Capital
Contribution is to a large extent a bridge financing and that AIHL
desires,
although AIHL is not required, to reduce its equity interest in
Darwin Group
(prior to the Exchange Date) and/or its equity interest in DPUI
(subsequent to
the Exchange Date) as soon as reasonably practicable, either
through sales of
securities of Darwin Group and/or DPUI by AIHL to Third Parties or
in an IPO the
proceeds of which are used to redeem shares of Series B Preferred
Stock held by
AIHL. In the event that, prior to the Exchange Date, AIHL sells
shares of DPUI
Common Stock, AIHL shall cause the purchaser of such shares of DPUI
Common Stock
to agree to transfer such shares of DPUI Common Stock to DPUI, on
the Exchange
Date, in exchange for shares of Series B Preferred Stock on the
terms set forth
in Section 2(a) above.
4. Related Party Transactions.
Each of AIHL, Darwin Group and DPUI acknowledges and agrees
that
certain of the Darwin Companies have engaged and will continue to
engage in
various transactions with the Capitol Companies and other
Affiliates of AIHL in
respect of insurance policies underwritten by the Darwin Companies
and other
business arrangements (the "Related Party Transactions") and that,
while such
parties have been wholly-owned Subsidiaries of AIHL, such Related
Party
Transactions have not necessarily reflected arm's-length
arrangements. In this
regard, and in contemplation of the transfer of Darwin Group to
DPUI (whereupon
Darwin Group will no longer be a wholly-owned Subsidiary of AIHL),
each of
Darwin Group and DPUI, for itself and for all of the Darwin
Companies, does
hereby consent and agree to the modifications of the existing
arrangements
between the Darwin Companies and the Capitol Companies described on
Exhibit C
hereto.
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5. Registration Rights Agreement.
DPUI agrees to enter into a registration rights agreement with
AIHL
(which shall be assignable by AIHL to any Person or Persons who
become holders
of Series B Preferred Stock) providing for customary demand
registration rights
prior to and following an IPO, and for customary demand and
piggy-back
registration rights subsequent to an IPO.
6. Certain Activities.
(a) Each of Darwin Group and DPUI, for itself and for all of
the
Darwin Companies, does hereby consent and agree that AIHL and its
Affiliates (as
defined herein), officers, directors, employees and agents
(including without
limitation those officers, directors, employees and agents of AIHL
and its
Affiliates who serve as officers and/or directors of any of the
Darwin
Companies) may, alone or in combination with any other Person (as
defined
herein), engage in activities or businesses, make or retain
investments in and
acquisitions of any Person, and enter into partnerships and joint
ventures with
any Person, whether or not competitive now or in the future with
the businesses
or activities of the Darwin Companies, and none of the Darwin
Companies shall
have the right to disclosure of any information in regard thereto,
to
participate therein, or to derive any profits therefrom.
Notwithstanding the
foregoing, this Section 6(a) shall not permit AIHL to use
confidential
information with respect to the Darwin Companies in connection with
any of the
activities described in the preceding sentence, unless such
information (i) was
developed by or provided to a Darwin Company by AIHL or an
Affiliate of AIHL,
(ii) is or becomes available in
