Exhibit 10.32
TRANSFER AND PURCHASE
AGREEMENT
dated December 2,
2003
by and between
IMAGINE INSURANCE
COMPANY LIMITED, as Buyer,
and
PMA CAPITAL INSURANCE
COMPANY, as Seller
TABLE OF
CONTENTS
Page
Article I. CLOSING; PURCHASE AND
SALE.............................................................................1
1.1
The
Closing.....................................................................................1
1.2
Sale and Purchase of
Assets.....................................................................1
1.3
Assumption of
Liabilities.......................................................................3
1.4
Right to Receive Payments; Power of
Attorney....................................................4
1.5
Excluded
Liabilities............................................................................5
1.6
Novation
Amendments.............................................................................5
1.7
Renewal
Rights..................................................................................5
1.8
Employees.......................................................................................6
1.9
Approvals.......................................................................................6
1.10
Buyer
Exclusivity...............................................................................6
1.11
Administration and
Servicing....................................................................6
Article II. PURCHASE
PRICE........................................................................................7
2.1
Consideration...................................................................................7
2.2
Payments........................................................................................8
2.3
Accounting......................................................................................9
2.4
Disputes........................................................................................9
Article III. REPRESENTATIONS AND WARRANTIES OF THE
SELLER........................................................10
3.1
Organization; Good
Standing....................................................................10
3.2
Authority; Enforceability;
Non-Contravention...................................................10
3.3
Consents and
Approvals.........................................................................10
3.4
Title to
Assets................................................................................11
3.5
Employees and Related
Agreements...............................................................11
3.6
Litigation and
Claims..........................................................................11
3.7
Governmental Permits; Compliance with
Laws.....................................................11
3.8
No
Finder......................................................................................11
3.9
Financial
Information..........................................................................11
3.10
Integration of Reinsurance
Contracts...........................................................11
3.11
No Retrocession
Agreements.....................................................................11
Article IV. REPRESENTATIONS AND WARRANTIES OF THE
BUYER..........................................................12
4.1
Organization; Good
Standing....................................................................12
4.2
Authority; Enforceability;
Non-Contravention...................................................12
4.3
Consents and
Approvals.........................................................................12
4.4
Governmental Permits; Compliance with
Laws.....................................................12
4.5
Litigation and
Claims..........................................................................12
4.6
No
Finder......................................................................................12
Article V. COVENANTS OF THE
PARTIES..............................................................................13
5.1
Access to Records After
Closing................................................................13
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5.2
Cooperation in Litigation and
Taxes............................................................13
5.3
Confidentiality................................................................................13
5.4
Non-Competition................................................................................14
5.5
Preferred Proposal
Rights......................................................................14
5.6
Conduct of the
Seller..........................................................................14
5.7
Provision of Information regarding Novated
Contracts...........................................14
Article VI.
INDEMNIFICATION......................................................................................15
6.1
Survival of
Representations....................................................................15
6.2
Indemnification by the
Seller..................................................................15
6.3
Indemnification by the
Buyer...................................................................15
6.4
Notice of
Claims...............................................................................15
6.5
Third Party
Claims.............................................................................16
6.6
Limitations....................................................................................17
6.7
Exclusive
Remedy...............................................................................17
Article VII.
MISCELLANEOUS.......................................................................................17
7.1
Expenses of the
Transaction....................................................................17
7.2
Sales
Taxes....................................................................................17
7.3
Further
Assurances.............................................................................17
7.4
Notices........................................................................................18
7.5
No Modification Except in
Writing..............................................................19
7.6
Entire
Agreement...............................................................................19
7.7
Severability...................................................................................19
7.8
Assignment.....................................................................................19
7.9
Publicity;
Confidentiality.....................................................................19
7.10
No Right of
Offset.............................................................................20
7.11
Governing Law;
Jurisdiction....................................................................20
7.12
Captions.......................................................................................20
7.13
Defined
Terms..................................................................................20
7.14
Counterparts...................................................................................20
Article VIII.
DEFINITIONS........................................................................................20
8.1
Definitions....................................................................................20
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INDEX OF
SCHEDULES
Schedule
I
Reinsurance Contracts
II
Employees
III Excluded
Contracts
IV Direct
Expenses
3.5 Employee
Information
Exhibit
A Form
of Novation Amendment
B
[Omitted]
C Escrow
Agreement
D Form of
Payment Statement
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TRANSFER AND
PURCHASE AGREEMENT
TRANSFER AND PURCHASE AGREEMENT (this “
Agreement ”), made and entered into this 2
nd day of December, 2003, by and between Imagine
Insurance Company Limited, a Barbados corporation (the “
Buyer ”), and PMA Capital Insurance Company, a
Pennsylvania corporation (the “ Seller ”).
W I T N E S S E T
H:
WHEREAS , the Seller is engaged, in part, in the finite
reinsurance business (the " Business ");
WHEREAS , the Buyer desires to purchase and acquire from the
Seller, and the Seller desires to sell and transfer to the Buyer,
certain of the assets of the Seller (excluding, for greater
clarity, those contracts listed on Schedule III hereto),
constituting part of the Business, on the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement shall have the meanings ascribed to
such terms in Article VIII of this Agreement.
NOW, THEREFORE , in consideration of the foregoing
premises and of the mutual covenants hereinafter contained, the
parties hereto hereby agree as follows:
ARTICLE I.
CLOSING; PURCHASE
AND SALE
1.1
The Closing . The closing (the “ Closing
”) of the transactions set forth in this Article I shall take
place on the date hereof at such time and place as the Buyer and
the Seller may mutually agree. Hereinafter, such date is referred
to as the “ Closing Date, ” such time on the
Closing Date is referred to as the “ Closing
Time” and such place is referred to as the “ Closing
Place ”.
1.2
Sale and Purchase of Assets .
(a)
Upon the terms, subject to the conditions and in reliance upon the
representations and warranties herein set forth, the Seller shall,
sell, convey, transfer, assign and deliver (collectively, “
Transfer ”) to the Buyer, and the Buyer shall purchase
and acquire from the Seller:
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(i)
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the Seller’s right, title and interest in the renewals
(the “ Renewal Rights ”) of the in-force
reinsurance policies, contracts, binders, endorsements and
extensions thereto issued or written by the Seller which comprise
the Business as of the Closing Date and which are listed on
Schedule I hereto (each, a “ Reinsurance Contract
” and collectively, the “ Reinsurance Contracts
”);
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(ii)
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at the option of the Buyer, which may be exercised by the Buyer
from time to time after the Closing and until the expiration or
termination date of a Reinsurance Contract, any and all of the
Seller’s right, title and interest in and to each
Reinsurance
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Contract, ;subject to the Seller’s obligations and
liabilities thereunder (each, a “ Novated Contract
,” and collectively, the “ Novated Contracts
”),
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(iii)
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such readily-marketable liquid assets or, as the case may be,
rights to funds withheld by the ceding insurer, measured on a fair
market value basis in amounts equal to the fair value of the assets
and liabilities assumed under each Novated Contract (the “
Reserve Transfer Amount ”),
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(iv)
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such additional assets owned by the Seller as the Buyer and the
Seller may agree to be Transferred from time to time after the
Closing Date (the “ Additional Assets ”),
and
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(v)
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all of the Seller’s original statistical and sales data,
records, papers, documents, books, memoranda, files, and, to the
extent owned by the Seller and transferable without the consent of
any third party, all of the Seller’s pricing and financial
models, electronic databases and files and software, in each case
pertaining to the Novated Contracts, and copies of all of the
Seller’s original statistical and sales data, records,
papers, documents, books, memoranda and files and, to the extent
owned by the Seller and transferable without the consent of any
third party, all of the Seller’s pricing and financial
models, electronic databases and files and software, in each case
pertaining to the Renewal Rights (the “ Records
,” together with the Renewal Rights, the Novated Contracts,
the Reserve Transfer Amount and the Additional Assets, the “
Assets ”), provided, that in the event any such Record
is not so owned and transferable, the Seller shall permit those of
its employees who have been offered and have accepted employment by
the Buyer pursuant to Section 1.8 below to continue to use such
Record (provided, further, that such use is permitted without the
consent of the owner or licensor of such Record) until the earlier
of (x) the date on which such employee commences his or her
employment with the Buyer and (y) the termination of the
Seller’s license to use such Record, and the Seller will use
its commercially reasonable efforts to (A) maintain the right of
such employees to continue to use such Records during such period,
and (B) facilitate the transfer of the Seller’s right or
license to use such Record to the Buyer for at least so long as the
Seller has prepaid the license fees therefor, provided, that any
and all costs and expenses incurred by the Seller in connection
with the use of such Record (above any license fees previously paid
by the Seller) will be borne by the Buyer (it being understood that
the parties will use their commercially reasonable efforts to limit
the extent of such costs, if practicable to do so).
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(b)
Notwithstanding the foregoing, the Buyer and the Seller agree and
acknowledge that the Buyer will not acquire or assume any right,
title or interest in or to or liability under any Novated Contract
or Reserve Transfer Amount until such time as (i) the Buyer has
provided written notice to the Seller of the Buyer’s exercise
of its right to acquire such asset, (ii) Novation Amendments (as
defined below) have been fully executed and delivered to the Buyer
and the Seller and (iii) all other consents and approvals necessary
to the assignment and assumption of such Novated Contracts have
been received in writing by the Buyer and the Seller (the date of
the occurrence of the final of such events is a “ Transfer
Date ”).
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(c)
From the Closing Date until December 31, 2004, the Buyer shall have
reasonable access during normal business hours to the Records and
to the employees of the Seller or its affiliates for purposes of
conducting its review of the Reinsurance Contracts.
(d)
Other than the Assets (subject to Section 1.2(b) above), all right,
title and interest in and to all other assets of the Seller will
remain the property of the Seller.
(e)
For greater certainty, in connection with paragraph 1.2(a)(ii)
above, with respect to any Reinsurance Contract, the Seller hereby
grants the Buyer the exclusive right from the Closing Date until
120 days after the expiration of such Reinsurance Contract (except,
in the case of (x) Reinsurance Contracts which expire on December
31, 2003, until 60 days after the expiration of such contracts and
(y) the Reinsurance Contracts with Nova Casualty Company and
Associated Industries Insurance Company, until December 31, 2003,
provided, that the Seller will not initiate discussions with
Associated Industries Insurance Company regarding the commutation
of the Reinsurance Contract to which the Seller and Associated
Industries Insurance Company are parties prior to December 19,
2003) (in each case, the “ Outside Date ”) to
novate or otherwise assume the liabilities under such Reinsurance
Contract or to introduce the Reinsurance Contracts to third parties
who are not affiliates of the Buyer and who may offer finite
reinsurance business as set forth in Section 1.10. The Buyer will
waive this right only by notice in writing to the Seller and such
notice shall only apply in respect of the individual Reinsurance
Contract referred to in such notice. The Seller acknowledges that
as part of any such novation or assumption, the Buyer may amend the
terms and conditions of any Novated Contract in its discretion,
subject to agreement with the Reinsured; provided, however, that
the Buyer shall not amend any Novated Contract if the effect of
such amendment would adversely affect the amounts of Margin
Payments otherwise payable to the Seller in accordance with the
terms of the Novated Contract without giving effect to such
amendment, unless the Seller consents to such amendment in writing.
Except as contemplated by this Section 1.2(e), the Seller shall not
cancel, commute, novate or otherwise alter or amend the terms of
any Reinsurance Contract until after the applicable Outside Date.
With respect to any particular Reinsurance Contract, after the
earlier of (a) the time that the Buyer waives its rights thereto as
set forth in this Section 1.2(e), and (b) the applicable Outside
Date, the Seller shall not be obligated to comply with this Section
1.2(e).
1.3
Assumption of Liabilities .
(a)
As of any Transfer Date, pursuant to the terms and conditions of
the Novation Amendments, the Seller shall assign and transfer to
the Buyer, and the Buyer shall assume as legally binding and
enforceable direct obligations, without recourse to Seller, one
hundred percent (100%) of the liabilities of the Seller as of the
Transfer Date, including, without limitation, whether such
liability is absolute, accrued, contingent or outstanding, asserted
or unasserted, known or unknown, with respect to all Liabilities
(as defined in Section 1.3(b)) with respect to those Novated
Contracts actually transferred to the Buyer pursuant to Section
1.2.
(b)
For purposes of this Agreement, the term “ Liabilities
” means the gross liability of the Sellers on a Novated
Contract, except for any liability of the Seller which was not
disclosed to the Buyer and arises from the Seller’s bad faith
in discharging its duties under Novated Contracts prior to the
applicable Transfer Date.
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(c)
All Liabilities and Novated Contracts for which the Buyer is liable
under this Agreement are subject in all respects to the same terms,
conditions, covenants, interpretations, waivers, modifications,
alterations and cancellations as the original Reinsurance
Contracts, except that the Reinsureds’ right of offset, if
any, shall apply only in respect of amounts due under those
Reinsurance Contracts that are Novated Contracts. The Buyer accepts
and assumes as of the applicable Transfer Date the Liabilities
subject to all defenses, setoffs and counterclaims to which the
Seller would be entitled with respect to the Novated Contracts. It
is expressly understood and agreed by the parties that, as between
the Buyer and all Reinsureds (as defined in Section 1.3(d)) or
third persons or entities other than the Seller, no such defenses,
setoffs or counterclaims are waived by the execution of this
Agreement or the consummation of the transaction contemplated under
this Agreement, and that as of the applicable Transfer Date, the
Buyer shall be fully subrogated to all such defenses, setoffs and
counterclaims.
(d)
The Buyer acknowledges that as of the applicable Transfer Date, the
Buyer is the successor to the Seller under the Novated Contracts
actually transferred to the Buyer pursuant to Section 1.2. Such
Novated Contracts shall be legally binding, enforceable and direct
obligations of the Buyer, without recourse to Seller, and the
Seller shall have no liabilities therefor. The Buyer shall
substitute itself in the place of the Seller as if named in the
place of the Seller. The Reinsureds (as defined in the following
sentence) shall thereafter disregard the Seller as a party to such
Novated Contracts, and shall treat the Buyer as if it had been
originally obligated under such Novated Contracts. For the purposes
of this Agreement, “ Reinsured ” or “
Reinsureds ” means the named reinsureds under any
Reinsurance Contract. After the applicable Transfer Date,
Reinsureds shall only have the right to file claims arising under
such Novated Contracts directly with the Buyer. The Reinsureds
shall have a direct right of action against the Buyer and the Buyer
hereby consents to be subject to direct action taken by any
Reinsured. The rights of any Reinsured shall be limited to and
consist of those rights set forth in the applicable Novated
Contract (including any amendment to such Novated Contract) and no
Reinsured shall have the right to receive a greater amount under
such Novated Contract than such party would have had in the absence
of this Agreement.
(e)
In assessing the rights of any Reinsured under a Novated Contract,
no effect shall be given to the bankruptcy, liquidation,
insolvency, reorganization or moratorium of the Seller, or the
effect of laws or legal procedures affecting enforcement of
creditors’ rights against the Seller generally.
1.4
Right to Receive Payments; Power of Attorney . Premiums and
other income amounts due or paid on the Novated Contracts actually
transferred to the Buyer pursuant to Section 1.2 on and after the
applicable Transfer Date shall be the sole property of the Buyer.
From and after the applicable Transfer Date, all Reinsureds under
the applicable Novated Contracts shall pay all premiums on such
contracts directly to the Buyer. All monies, checks, drafts, wire
transfers, orders, postal notes, other instruments and any net set
off to the benefit of any Seller Group Member in connection with a
Novated Contract received by the Seller after the applicable
Transfer Date for such premiums, loan repayments and other income
amounts shall be transferred and delivered to the Buyer, and any
such instruments when so delivered shall bear all endorsements
required to effect such transfer and delivery. From and after the
applicable Transfer Date, the Buyer shall be authorized, and hereby
is authorized, to endorse for payment any such instruments payable
to, or to the order of, the Seller and received by the Buyer under
this Section 1.4. For each Novated Contract actually transferred to
the Buyer pursuant to Section
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1.2, the Seller hereby constitutes and appoints, effective as of
the Transfer Date with respect to any such Novated Contract, the
Buyer and its successors and assigns as the true and lawful
attorney of the Seller with full power of substitution in the name
of the Buyer or in the name of the Seller, but for the benefit of
the Buyer (i) to collect for the account of the Buyer but as agent
of the Seller any items of Assets and (ii) to institute and
prosecute all proceedings which the Buyer may in its sole
discretion deem proper in order to assert or enforce any right,
title or interest in, to or under the Assets, and to defend or
compromise any and all actions, suits or proceedings in respect of
the Assets. The Buyer shall be entitled to retain the Assets
actually transferred to the Buyer pursuant to Section 1.2 for its
account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest in respect thereof. The
Seller acknowledges that such powers are coupled with an interest
and shall not be revocable by it in any manner or for any reason,
including, without limitation, the liquidation or dissolution of
the Seller.
1.5
Excluded Liabilities . Except to the extent provided in
Section 1.3 and the Novation Amendments, it is expressly agreed and
understood that the Buyer shall not have any liability with respect
to, and shall not assume, and the Seller shall remain liable for,
any and all of the Seller’s liabilities, obligations,
damages, payments, costs, expenses or claims (collectively, the
“ Excluded Liabilities ”).
1.6
Novation Amendments . On or before any applicable Transfer
Date, the Buyer shall present a “ Novation Amendment
” substantially in the form attached hereto as Exhibit A (or
in such form and containing such provisions as may be required by
the insurance regulatory authorities in a particular jurisdiction)
to each Reinsured that is reinsured under any Novated Contract, and
shall use its reasonable best efforts to arrange for the execution
and delivery of such Novation Amendment by such Reinsured as
promptly as is commercially practicable. Each such Novation
Amendment shall become effective on the applicable Transfer Date
and when executed by the Reinsured. A Novated Contract whose
assignment to the Buyer is rejected by the Reinsured or which
assignment is deemed by operation of law to have been rejected
shall hereinafter be referred to as a “ Rejected
Reinsurance Contract ” and shall remain a direct
obligation of the Seller not subject to this Agreement.
1.7
Renewal Rights . In connection with the sale of the Renewal
Rights, the Seller will provide reasonable assistance to the Buyer
in establishing or expanding business relationships with the
Reinsureds under the applicable Reinsurance Contracts, and shall
use its reasonable best efforts to encourage its cedents and
brokers to engage in the Business with respect to the Renewal
Rights with the Buyer. The Seller will provide such assistance by
cooperating with the Buyer in sending each reinsured a letter in a
form to be agreed upon by the Buyer and the Seller. The Buyer
expressly acknowledges that its purchase of the Renewal Rights is
not a guarantee that the Reinsureds under the Reinsurance Contracts
will each desire to have the Buyer continue as the reinsurer
through which they obtain reinsurance. Other than the letters which
the Seller will cooperate in sending to Reinsureds, the Seller will
have no responsibility for ensuring that such Reinsureds establish
or expand business relationships with the Buyer . While the
Buyer shall consider the existing terms and conditions provided by
the Seller under the Reinsurance Contracts, the Buyer reserves the
right to apply its own underwriting guidelines and judgement in the
exercise of the Renewal Rights.
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1.8
Employees . The Buyer shall, at its option, but not later
than December 31, 2003, make offers of employment to at least four
employees of the Seller from the available persons set forth in
Schedule II, provided that any such offer be on terms and
conditions that are substantially the same, and no less favorable,
as to base salary and annual bonus only, as those provided by the
Seller to such employee immediately prior to the Closing Date (and
excluding any extraordinary bonus, outside of or in addition to
such employee’s regular annual bonus, paid by the Seller in
connection with the transactions contemplated by this Agreement).
Other terms and conditions of such offers of employment shall be as
agreed between the Buyer and such employees, including that such
employees will be entitled to participate in the Buyer’s
existing benefit arrangements, subject to normal eligibility and
vesting criteria. The Buyer shall use its commercially reasonable
efforts to credit periods of service prior to the Closing for
purposes of determining eligibility and vesting of all Plans
maintained by the Buyer on or after the Closing Date, except where
such credit would result in the duplication of benefits or except
with respect to any benefit where only future service is taken into
account. The Buyer will advise the Seller in advance of any and all
discussions with such employees regarding such employment.
1.9
Approvals . The Seller and the Buyer shall use their
reasonable best efforts to cooperate in obtaining all consents,
approvals and agreements of, and to provide or make all required
notices to and filings with, all regulatory authorities and other
third parties as may be necessary to effect, authorize and permit
the execution, delivery and performance of each Novation
Agreement.
1.10
Buyer Exclusivity . The Seller agrees and acknowledges that
following the Closing Date and subject to Section 1.2(e), the Buyer
shall have the right, at its sole discretion, to introduce
Reinsurance Contracts not underwritten by the Buyer to
non-affiliated third parties who may offer finite reinsurance
business.
1.11
Administration and Servicing .
(a)
Commencing as of the applicable Transfer Date and except as
hereinafter provided, all administration and servicing of the
Novated Contracts and the supervision and payment of all claims
incurred under the Novated Contracts shall be provided by the
Buyer, and the expense of such administration, servicing,
supervision and payment shall be borne solely by the Buyer. Subject
to any contrary provisions set out in any Novation Amendment or as
may otherwise be agreed between the Buyer and any Reinsured, the
obligations of the Buyer under each Novated Contract shall be the
same as those of the Seller in accordance with the terms of the
Novated Contracts.
(b)
The Buyer reserves the right, and shall be authorized, to make any
defense at law or in equity to any action or claim instituted or
made under any Novated Contract which could have been instituted or
made by the Seller had this Agreement not been executed. All of the
provisions, conditions, limitations and exclusions contained in
such Novated Contracts shall remain in effect and be applicable in
accordance with the terms and conditions of the Novated Contracts,
except as they may be specifically amended by the Buyer after the
applicable Transfer Date; provided , however , any
such amendments shall not impose any additional liability on the
Seller under the Novated Contracts. The Seller shall offer
reasonable assistance to the Buyer in asserting its rights under
this paragraph 1.11(b).
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ARTICLE II.
PURCHASE
PRICE
2.1
Consideration .
(a)
As consideration for the Assets, the Buyer shall pay to the Seller
cash payments as follows (each a “Margin Payment
”):
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(i)
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amounts equal to 67% of the cumulative Net Margin Earned by the
Seller under the Novated Contracts from the effective date of such
Novated Contract to the applicable Transfer Date, such amounts to
accrue to the benefit of the Seller as of the applicable Transfer
Date; plus
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(ii)
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amounts equal to 50% of the cumulative Net Margin Earned in
connection with the Novated Contracts, such amounts, after
deducting cumulative Net Margin Earned under paragraph 2.1(a)(i),
to accrue to the benefit of the Seller as such Net Margin Earned is
earned by the Buyer after the applicable Transfer Date; plus
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(iii)
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amounts equal to 33% of the cumulative Net Margin Earned by the
Buyer in connection with business written pursuant to the Renewal
Rights during the period ending one year from the Closing Date,
such amounts to accrue to the benefit of the Seller as such Net
Margin Earned is earned by the Buyer.
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Margin
Payments shall be calculated and paid quarterly as set forth in
Section 2.2 and shall only accrue on those Reinsurance Contracts
which are subject to Renewal Rights during the first renewal
period, regardless of the number of renewals subsequently provided
by the Buyer. For greater certainty, for any Reinsurance Contract
covering a multi-year period, the calculation of Net Margin Earned
in the first 12 months will be agreed between the Seller and the
Buyer for the purpose of calculating the amount set forth under
Section 2.1(a)(iii). Net Margin Earned will be calculated by the
Seller for each of the Reinsurance Contracts listed on Schedule I
as of September 30, 2003 and as of the applicable Transfer Date.
Notwithstanding the foregoing, the Buyer and the Seller may
mutually agree to alternate calculations of Net Margin Earned on an
individual contract basis.
(b)
Annually, or at such other time intervals as the parties may agree,
the Buyer and the Seller shall each prepare and mutually agree to a
schedule of Direct Expenses substantially in the form of Schedule
IV attached hereto. For purposes of this schedule, “
Direct Expenses ” shall be expenses not already
explicitly included in the definition of Net Margin Earned, and
shall be allocated to individual Novated Contracts or renewed
Reinsurance Contracts based on the proportion that the initial
estimate of Net Margin Earned on each Reinsurance Contract bears to
the total Net Margin Earned initially estimated by the Seller on
all Reinsurance Contracts. Direct Expenses will be amortized in
proportion to, and over, the period that Net Margin Earned is
earned. Expenses shall be paid or allocated as Net Margin Earned is
earned and according to the amounts set forth under Section
2.1(a).
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(c)
The Buyer shall pay to the Seller by wire transfer of immediately
available funds at the Closing an amount equal to $2,000,000 (the
“ Closing Payment ”). From the Closing Payment,
a total of $750,000 will be placed into escrow (the “
Escrow Fund ”) pursuant to an Escrow Agreement,
substantially in the form of Exhibit C hereto, until the earlier of
(i) January 31, 2004 or (ii) the occurrence of an Employee
Termination Provision (as defined below). The Closing Payment shall
be non-refundable, subject to the provisions of this Section 2.1(c)
(the “Non-Refundable Amount ”). No quarterly
payments of Margin Payments, as set forth in Section 2.2, shall be
required to be paid to the Seller unless and until the aggregate
Margin Payments accrued to the Seller exceeds $2,000,000, subject
to the provisions of this Section 2.1(c) (the “ Trigger
Amount ”). An “ Employee Termination
Provision ” shall occur in the event Vic Baillargeon and
any other three persons listed in Schedule II either (x) choose not
to accept an offer of permanent employment extended by the Buyer
under Section 1.8, or (y) having accepted such offer, cease or
provide written notice of his or her intention to cease to be
employed by the Buyer (or, in the case of Vic Baillargeon, by the
Buyer or the Seller, except where he ceases to be employed by the
Seller and later becomes employed by the Buyer) for any reason
(other than termination by the Buyer without cause) prior to
February 1, 2004. If an Employee Termination Provision does not
occur, then the entire Escrow Fund will be released and paid to the
Seller no later than ten business days after January 31, 2004. If
an Employee Termination Provision does occur, then the entire
Escrow Fund will be released and paid to the Buyer no later than
ten business days after January 31, 2004. Each of the
Non-Refundable Amount and the Trigger Amount shall be reduced by
$750,000 if the Escrow Fund is paid to the Buyer as provided in the
previous sentence. For the avoidance of doubt, in no event shall
the Seller earn less than $2,000,000 if the Employee Termination
Provision is not triggered and if triggered, not less than
$1,250,000, excluding any amounts received from the sale of
Additional Assets, if any, as a result of this transaction.
(d)
As consideration for any Additional Assets acquired by the Buyer
pursuant to this Agreement, the Buyer shall pay the Seller an
amount to be agreed upon by the Buyer and the Seller at the time of
the Transfer of such Additional Assets.
(e)
In the event the Buyer requires the use of the Seller’s
premises and infrastructure beyond December 31, 2003, the Buyer
will pay the Seller its cost of rent as set out or calculated in
the Seller’s existing lease (equal to $2.00 per square foot
per month) in respect of the period from January 1, 2004 through
March 31, 2004 based on the amount of space utilized. For greater
certainty, (i) the Seller shall be responsible for all costs of the
Business relating to premises and infrastructure from the Closing
Date to and including December 31, 2003 and (ii) any space
requirements beyond March 31, 2004 will be negotiated by the
parties in good faith.
2.2
Payments.
(a)
Margin Payments will be calculated quarterly as of the end of each
calendar quarter by the Buyer, in conjunction with the Seller, in
accordance with Sections 2.1 and this 2.2, and paid and reported
(such payment and report, a “ Payment Statement
”) in substantially the form of Exhibit D hereto by the Buyer
to the Seller on a quarterly basis within 30 days from the end of
each calendar quarter (subject to the Buyer’s set off rights
in clause (b) below). The parties agree and understand that all
Margin Payments will be paid to the Seller in respect of the
calendar quarter during which such Margin Payments accrue to the
benefit of the Seller pursuant to Section 2.1(a).
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(b)
Notwithstanding anything to the contrary set forth in Section 2.1
or this Section 2.2, if at the time of any quarterly Margin Payment
calculation, the aggregate Margin Payments as of the most recently
completed calendar quarter are less than the aggregate Margin
Payments calculated for the calendar quarter immediately preceding
the most recently completed calendar quarter, the Buyer shall be
entitled to (i) set off such shortfall against future payments to
the Seller under Section 2.1 and this Section 2.2, or (ii) request
repayment of such shortfall from the Seller to the Buyer within 30
days of such calculation; provided, however, that such set off or
repayment shall not cause the total consideration to be paid to the
Seller pursuant to this Agreement to be less than the
Non-Refundable Amount.
(c)
All payments pursuant to this Article II shall be paid to an
account designated by the Seller by wire transfer of immediately
available funds.
2.3
Accounting . The Buyer shall provide the Seller and its
agents, representatives and advisors with access during normal
business hours and on at least 48 hours prior notice to the
Buyer’s books, records, workpapers and employees supporting
or relating to the calculation of the Margin Payments (or
components of such calculations). In addition, the Buyer shall
provide to the Seller, together with each Payment Statement, a
certificate from the Chief Financial Officer of the Buyer to the
effect that to the best of such person’s knowledge, the
financial data used to calculate such Margin Payment is true and
complete, fairly states the amount of such Margin Payment based on
the Buyer’s books and records, and the calculation of such
Margin Payment has been made in accordance with this Agreement.
2.4
Disputes . Within five (5) business days of receipt by the
Buyer of a written request therefor from the Seller or its
representative, the Seller or its representatives shall have the
right to review the work papers, schedules, memoranda and other
documents and information prepared or reviewed by the Buyer and to
communicate with the persons who conducted such preparation or
review in connection with each Payment Statement. Within 30 days
after the end of each calendar quarter, the Seller shall notify the
Buyer of any objection to the Payment Statement delivered during
such calendar quarter, specifying in reasonable detail any such
objections. If the Seller does not notify the Buyer of any
objections within such period the Seller shall be deemed to have
agreed to such Payment Statement as prepared by the Buyer. If the
Buyer and the Seller agree on the resolution of all such
objections, such Payment Statement (with any such changes as may be
agreed) shall be final and binding. The Buyer and the Seller shall
negotiate in good faith to attempt to resolve any such objections,
provided that the Buyer and the Seller shall each have the right,
at any time, to unilaterally terminate in writing all discussions
with respect to such objections or changes. If the Buyer or the
Seller shall have terminated such discussions and such dispute
shall remain unresolved, then the Seller shall have the right to
submit all such disputed items for resolution to a certified public
accounting firm of national standing (an “ Accounting
Firm ”) mutually acceptable to the Buyer and the Seller
or if the Buyer and the Seller are unable to agree on a single
Accounting Firm, each shall select an Accounting Firm and such
Accounting Firm shall, by mutual agreement, select a third
Accounting Firm (the “ Designated Accounting Firm
”). The Designated Accounting Firm shall be independent of
and have no ongoing business relationship with the Seller or the
Buyer or their respective affiliates. The Buyer and the Seller
shall use reasonable efforts to cause the report of the Designated
Accounting Firm to be rendered within 30 days of its appointment,
and the Designated Accounting Firm’s determination as to the
appropriateness and extent of changes (if any) to any such Payment
Statement shall be final and binding. The fees and expenses of the
Accounting
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Firms shall be borne one half by the Seller and one half by the
Buyer. After the resolution of any dispute with respect to a
Payment Statement in accordance with this Section 2.4, any
adjustment to any payment shall be made by wire transfer of
immediately available funds by the Buyer to the Seller or the
Seller to the Buyer, as the case may be.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
The
Seller hereby represents and warrants to the Buyer that:
3.1
Organization; Good Standing . The Seller is a corporation
duly organized, validly existing and subsisting under the laws of
Commonwealth of Pennsylvania. The Seller has full power and
authority to conduct all of the business and activities conducted
by it which is associated with the Reinsurance Contracts.
3.2
Authority; Enforceability; Non-Contravention . The Seller
has full power and authority to execute and deliver this Agreement
and all other documents required to be executed and delivered by
the Seller in connection with the transactions hereby contemplated,
to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by the Seller pursuant to the
provisions hereof. All corporate acts and other proceedings
required to be taken by the Seller to authorize the execution,
delivery and performance of this Agreement have been duly and
properly taken. This Agreement, if applicable, and all other
documents required to be executed hereby have been duly executed
and delivered by the Seller, constitute valid and binding
obligations of the Seller and are enforceable against the Seller in
accordance with their respective terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors rights generally and subject to equitable
principles of general application. Neither the execution and
delivery of this Agreement or any other documents required hereby
nor the consummation of the transactions hereby or thereby
contemplated by the Seller will (i) constitute any violation or
breach of the certificate of incorporation or by-laws of the
Seller, (ii) constitute a default under or a violation or breach
of, or result in the acceleration of any obligation under, any
provision of any Novated Contract to which the Seller is a party,
(iii) violate any judgment, order, writ, injunction or decree,
statute, rule or regulation affecting the Seller or any of the
Assets, (iv) result in the creation of any Lien, security interest,
charge or encumbrance on any of the Assets, or (v) result in the
termination of any license, franchise, lease or permit to which the
Seller is a party or by which it is bound, and which is part of the
Assets, except that the transfer and novation of the Novated
Contracts may require the consent of the counterparty to such
Novated Contract or a filing with, or consent of, a Governmental
Authority.
3.3
Consents and Approvals . No consent, approval, license,
permit, order or authorization of, or registration, declaration or
filing with, any Governmental Authority, and no consent or approval
of any Person under any Novated Contract is required to be obtained
by or on behalf of the Seller in connection with the execution,
delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby, except that the transfer and
novation of the Novated Contracts may require the consent of the
counterparty to such Novated Contract.
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3.4
Title to Assets . The Seller has good, marketable and valid
title to all of the Assets, free and clear of all Liens.
3.5
Employees and Related Agreements . (a) (a) Schedule
3.5 lists each written employment, consulting or other similar
contract between the Seller and any of the employees listed on
Schedule II hereto. The Seller has, with respect to all such
contracts, performed all obligations required to be performed by it
and is not in default under any such contract.
(b)
Schedule 3.5 lists the following information for each
employee listed on Schedule II: name, job title, date of hire,
salary, bonus, perquisites, fringe benefits and other compensation
and the amount of vacation and sick leave accrued as of the date of
such Schedule.
3.6
Litigation and Claims . There is no action, suit, claim,
proceeding, arbitration or investigation pending or, to the
knowledge of the Seller, threatened against or affecting the Assets
or the propriety or validity of the transactions contemplated by
this Agreement.
3.7
Governmental Permits; Compliance with Laws . The Seller
owns, holds or possesses all Governmental Permits which are
necessary to entitle it to own or lease, operate and use the Assets
and to carry on and conduct its business substantially as currently
conducted, except where the failure to own, hold or possess such
Governmental Permits would not have a Seller Material Adverse
Effect. The Seller is in compliance in all respects with all
Governmental Rules which are applicable to the Assets or the
Business other than any failure to comply which would not have a
Seller Material Adverse Effect.
3.8
No Finder . Neither the Seller nor any party acting on its
behalf has paid or become obligated to pay any fee or commission to
any broker, finder or intermediary for or on account of the
transactions contemplated hereby, other than Banc of America
Securities LLC.
3.9
Financial Information . The financial information provided
by the Seller relating to the Business, as set forth on Schedule IV
hereto:
(i)
is true and correct in all material respects; and
(ii)
is consistent in all material respects with the financial records
of the Seller, which financial records are prepared in accordance
with U.S. Generally Accepted Accounting Principles
(“GAAP”).
3.10
Integration of Reinsurance Contracts . Each Reinsurance
Contract, in the form and pursuant to the documentation previously
disclosed to the Buyer or its representatives by the Seller, sets
forth the entire agreement and understanding between the Seller and
the Reinsured thereunder with respect to the subject matter
thereof, and supersedes any other discussions, agreements and
understandings of every kind and nature between the parties
thereto.
3.11
No Retrocession Agreements . None of the Reinsurance
Contracts is subject to any retrocession agreement of the Seller
with another third party.
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ARTICLE IV.
REPRESENTATIONS AND
WARRANTIES OF THE BUYER
The
Buyer represents and warrants to the Seller that:
4.1
Organization; Good Standing . The Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of Barbados.
4.2
Authority; Enforceability; Non-Contravention . The Buyer has
full power and authority to execute and deliver
