EXHIBIT 2.1
CONFORMED COPY
(AS AMENDED ON 30.08.02)
DATED 15TH JULY 2002
CONTINENTAL CASUALTY COMPANY
AND
TAWA UK LIMITED
SHARE PURCHASE AGREEMENT
for the sale and purchase of
the entire issued share capital of
CNA RE MANAGEMENT COMPANY LIMITED
LEBOEUF, LAMB, GREENE & MACRAE
UNITED STATES LAWYERS & ENGLISH SOLICITORS
1
TABLE OF CONTENTS
<Table>
1. DEFINITIONS AND INTERPRETATION.................................................................5
2. SALE AND PURCHASE.............................................................................20
3. COMPLETION ADJUSTMENTS........................................................................21
4. CONDITIONS TO COMPLETION......................................................................30
5. COMPLETION....................................................................................37
6. SELLER'S WARRANTIES...........................................................................39
7. REMEDIES FOR BREACH...........................................................................42
8. LIMITATIONS ON SELLER'S LIABILITY.............................................................43
9. SELLER'S UNDERTAKINGS.........................................................................49
10. BUYER'S UNDERTAKINGS..........................................................................55
11. BUYER'S WARRANTIES............................................................................57
12. PENSIONS......................................................................................59
13. NOVATION......................................................................................60
14. RESTRUCTURING.................................................................................61
15. GOVERNING LAW AND DISPUTES....................................................................63
16. MISCELLANEOUS PROVISIONS......................................................................66
SCHEDULE 1.......................................................................................74
INFORMATION ABOUT THE TARGET COMPANY AND THE TARGET SUBSIDIARY...................................74
SCHEDULE 2.......................................................................................74
ITEMS FOR DELIVERY BY THE SELLER AT COMPLETION...................................................74
SCHEDULE 3.......................................................................................74
WARRANTIES.......................................................................................74
</Table>
2
<Table>
SCHEDULE 4......................................................................................74
ACTION PENDING COMPLETION.......................................................................74
SCHEDULE 5......................................................................................74
THE REAL PROPERTIES.............................................................................74
SCHEDULE 6......................................................................................74
INTELLECTUAL PROPERTY...........................................................................74
SCHEDULE 7......................................................................................75
PART I - COMPLETION ADJUSTMENT..................................................................75
PART II - WORKED EXAMPLE........................................................................87
SCHEDULE 8......................................................................................87
NOVATION AGREEMENT..............................................................................87
SCHEDULE 9......................................................................................87
MAC THRESHOLDS - (MAC 4.6 ILLUSTRATION 19_6.XLS)................................................87
SCHEDULE 10.....................................................................................87
PENSION SUBSTITUTION DEED.......................................................................87
SCHEDULE 11.....................................................................................88
REINSURANCE RECOVERABLES........................................................................88
</Table>
AGREED FORM DOCUMENTS
1. Tax Deed
2. Management Fee Security Deed
3. Distribution Security Deed
4. Stop Loss Contract
5. Pro Forma Balance Sheet
3
6. Management Agreement
7. Settlement with respect to Allianz Stop Loss from 1999, 2000 and 2001
accident years
8. Settlement of 100 per cent quota share for 1987 and prior underwriting
years
9. Settlement of aggregate stop loss providing $125,000,000 of cover in
respect of underwriting years 1997, 1998 and 1999
10. Commutation of CRG reinsurance facility
11. Commutation of BU2 reinsurance facility
12. Retrocession contract in respect of CNA Re (UK) net exposure in respect
of the IGI portfolio
13. Agreement with respect to Underwriters Re Stop Loss for 2000 and 2001
accident years
14. 2002 outwards reinsurance treaty where cover does not survive change of
control (Swiss Re)
15. 2002 outwards reinsurance treaty where cover does not survive change of
control (other)
16. Retrocession contract in respect of CNA Re (UK) net exposure in respect
of liabilities settled under the PPG settlement agreement
17. Trade Mark Licence Agreement
18. Broker Ledger Settlement Deed
19. IGI Transfer of Balance Agreement
4
THIS AGREEMENT is made on 15th July 2002
BETWEEN:
(1) CONTINENTAL CASUALTY COMPANY, a corporation incorporated under
the laws of the State of Illinois, USA, whose principal place of
business is at CNA Plaza, 333 South Wabash Avenue, Chicago,
Illinois 60685, USA (the "SELLER"); and
(2) TAWA UK LIMITED, a company incorporated under the laws of
England and Wales under number 4200676, whose registered office
is at No.1 Minster Court, Mincing Lane, London EC3R 7AA (the
"BUYER").
RECITAL:
The Seller wishes to sell and the Buyer wishes to purchase the entire
issued share capital of CNA Re Management Company Limited (the "TARGET
COMPANY") on the terms and subject to the conditions of this Agreement.
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 SPECIFIC DEFINITIONS
In this Agreement:
"ACCOUNTS" means each Target Group Company's individual accounts (as
that term is used in section 226 of the Companies Act) and the Target
Group's group accounts (as that term is used in section 227 of the
Companies Act) for the financial year ended on the Last Accounting Date,
the auditors' reports on those accounts and the directors' report of
each Target Group Company for that year;
"ADDITIONAL CONSIDERATION" means the additional consideration referred
to in Clause 3.5.1;
"ANNUAL REGULATORY RETURNS" means the returns of the Target Subsidiary
for the years ended 31 December 2001, 31 December 2000 and 31 December
1999 together with all exhibits and schedules thereto, as furnished to
HM Treasury or the FSA, as the case may be, pursuant to the ICA or FSMA,
as appropriate;
"ALLIANZ CONTRACT" means the agreement with respect to the Allianz Stop
Loss Contract from the 1999, 2000 and 2001 accident years in the Agreed
Form;
"APPROVED" is defined in paragraph 19.1 of Schedule 3;
"APPROVED SETTLEMENTS" is defined in Clause 4.6.2(d);
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"ASSUMED REINSURANCE" means reinsurance assumed by the Target Subsidiary
from any ceding insurer or reinsurer;
"BUYER'S ADDITIONAL CAPITAL" is defined in Clause 3.1.1(a);
"BUYER'S SOLICITORS" means LeBoeuf, Lamb, Greene & MacRae of No. 1
Minster Court, Mincing Lane, London EC3R 7AA;
"CEDED REINSURANCE" means reinsurance ceded by the Target Subsidiary to
any reinsurer;
"CHF" shall mean Swiss Franc;
"CLOSING F/X ADJUSTMENT" shall mean the sum of (i) the lesser of (a)
one-half of the Net F/X Losses or (b) one-half of the foreign currency
loss/gain shown in Ending Foreign Currency Statement and (ii) the Excess
Net F/X Loss if the Seller has given an undertaking to contribute the
Excess Net F/X Loss in order to avoid a Material Adverse Change.
"COMPLETION" means completion of the sale and purchase of the Sale
Shares in accordance with this Agreement;
"COMPLETION ACCOUNTS" is defined in Clause 1(b) of Schedule 7;
"COMPLETION ADJUSTMENT" is defined in Clause 4.2.1 of Schedule 7;
"COMPLETION BALANCE" is defined in Clause 3.1.1(b);
"COMPLETION DATE" means the date on which Completion takes place in
accordance with Clause 5.1;
"COMPUTER PROGRAMS" means current versions of existing (i) computer
programs, including all object code, all executables, and all available
source code, (ii) descriptions, flow-charts and other work product used
to design, plan, organise and develop any of the foregoing, and (iii)
documentation, including user manuals and training materials, relating
to any of the foregoing;
"CONFIDENTIAL BUSINESS INFORMATION" means all information relating to
the business written by the Target Subsidiary and all claims arising
thereunder;
"CONVERTED REVALUED AMOUNTS" shall mean the aggregate of the negative
amounts set out against the line "Excess assets over liabilities at
31/12/01" in Appendix 1 to the First Amendment Letter converted into the
amounts of their respective Foreign Currencies using the exchange rate
as at 31 December 2001 set out in Appendix 1 to the First Amendment
Letter, and then reconverted to a USD amount using the Prescribed
Exchange Rate;
"CURRENT USE" means in relation to each Real Property, the use specified
as the current use of that Real Property in Schedule 5;
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"DATA" means any data or information solely used by or for the sole
benefit of a Target Group Company at any time and stored electronically
at any time;
"DATA ROOM" means the forty seven files of documents and information
relating to the Target Group identified as such and initialled by the
parties for identification on the front of each such file and the index
of such files also initialled by the parties for identification
"DEFAULTING PARTY" is defined in Clause 7.1;
"DISCLOSED SCHEME" is defined in paragraph 19.1 of Schedule 3;
"DISCLOSURE LETTER" means the letter from the Seller to the Buyer in
relation to the Warranties having the same date as this Agreement;
"DISTRIBUTIONS" means:
(a) all profits of the Target Subsidiary available for distribution
and resolved to be distributed in accordance with applicable
laws and any required approvals of the relevant authorities; and
(b) all repayments of capital (including reductions which result in
repayments of capital) of the Target Subsidiary and all
repurchases of shares by the Target Subsidiary made in
accordance with applicable laws and any required approvals of
the relevant authorities and, if necessary, sanctioned by a
court;
"DISTRIBUTION SECURITY" means the security deed in the Agreed Form
pursuant to which the Buyer grants the Seller a first charge over the
Sale Shares;
"DKK" shall mean Danish Krone;
"EMPLOYEE" is defined in paragraph 19.1 of Schedule 3;
"ENDING FOREIGN CURRENCY STATEMENT" shall mean the statement referred to
in paragraph 4.1 of Schedule 4;
"ESCROW AMOUNT" is defined in Clause 3.8.1(a);
"ESTIMATED COMPLETION ADJUSTMENT" means the amount which the Completion
Adjustment would be if the criteria in paragraph 4 of Schedule 7 were
applied on the last day of the month preceding the delivery of the
calculation pursuant to Clause 4.4.1;
"EUR" shall mean Euros;
"EXCESS NET F/X LOSS" shall mean the amount of the Net F/X Losses in
excess of $40 million ($40,000,000);
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"FIRST AMENDMENT LETTER" shall mean the letter between the Buyer and the
Seller dated 30 August 2002 amending this Agreement;
"FOREIGN CURRENCY" shall mean a currency other than USD displayed in
Appendix 1 of the First Amendment Letter;
"GBP" shall mean pounds Sterling;
"HARDWARE" means any computer equipment owned by and solely used by or
for the sole benefit of a Target Group Company at any time including,
without limitation, PCs, servers, mainframes, screens, terminals,
keyboards, disks, printers, cabling, associated and peripheral
electronic equipment but excluding all Computer Programs;
"IGI RETROCESSION" means the Aggregate Retrocession Agreement of the IGI
Loss Portfolio in the Agreed Form;
"INITIAL CONSIDERATION" means the initial consideration referred to in
Clause 2.2.2;
"INSURANCE CONTRACT" means any contract by which a person has provided
insurance to another person;
"INVESTED ASSETS" means transferable shares and other transferable
variable yield securities and transferable units in unit trusts,
transferable debt securities and other transferable fixed income
securities;
"INVESTMENT INCOME ADJUSTMENT" is defined in Clause 3.1.1(d);
"INVESTMENT INCOME DEDUCTION" is defined in Clause 3.1.1(c);
"INVESTMENT POLICIES" means the overall investment policies used in the
management of a person's investment portfolio, including policies with
respect to duration, liquidity, currency, asset allocation and asset
quality;
"KEY EMPLOYEES" means Cathy Pierce, Debra Lynn McClenahan, Ralph Richard
Mueller and Marcia Munn provided that such persons are employed by the
Seller or one of its Affiliates at the time that their services are
required under this Agreement, and such other persons as may be agreed
between the Buyer and the Seller from time to time;
"LAST ACCOUNTING DATE" means 31 December 2001;
"LEASE" is defined in paragraph 11.9 of Schedule 3;
"LICENSED COMPUTER PROGRAMS" shall have the meaning given in paragraph
7.4.2(b) of Schedule 3;
"LOSS CALCULATION" means the adjustment for any loss which would be
recognised if the criteria in paragraph 5.2(e)(ii) of Schedule 7 were
applied on the last day of the month preceding the delivery of the
calculation pursuant to Clause 4.5;
8
"LOSS TERMINATION NOTICE" is defined in Clause 4.5.2;
"MAC MANAGEMENT ACCOUNTS" is defined in Clause 4.6.2;
"MAJOR CLAIM" means any Relevant Claim or a claim for a breach of Clause
6.4(a) which exceeds $6,000,000 (six million dollars);
"MANAGEMENT ACCOUNTS" means the Target Group's unaudited profit and loss
account for the period starting on the day after the Last Accounting
Date and ending on, and the Target Group's unaudited balance sheet as
at, 31 March 2002;
"MANAGEMENT AGREEMENT" means the agreement in the Agreed Form to be
entered into between the Manager, the Target Company and the Target
Subsidiary for the management of the run off of the Target Subsidiary;
"MANAGEMENT AGREEMENT VARIATION" is defined in Clause 3.11.1;
"MANAGEMENT FEE" means the gross amount of all payments (whether in
respect of fees, charges, interest, costs, disbursements or howsoever
otherwise characterised) made by the Target Subsidiary to the Manager,
the Target Company or any Affiliate of the Buyer whether pursuant to the
Management Agreement or any other agreement or arrangement whatsoever
including fees due to the Manager pursuant to paragraph 1.1 of Schedule
2 to the Management Agreement but excluding:
(i) third party costs and expenses incurred by the Target
Subsidiary in accordance with paragraph 3.1 of Schedule
2 to the Management Agreement provided that such costs
and expenses have been necessarily and properly incurred
and in the case of Affiliates are at rates no less
favourable to the Target Subsidiary than arms-length
rates;
(ii) costs necessarily and properly incurred by the Target
Company in providing services pursuant to the Management
Agreement and reimbursable by the Target Subsidiary to
the Target Company pursuant to paragraph 1.1 of Schedule
3 to the Management Agreement, provided that such costs
are at commercially reasonable rates;
(iii) any fees and expenses paid by the Target Subsidiary to
an Affiliate in respect of services (including legal
services) falling outside the scope of the Management
Agreement and which are necessarily and properly
incurred by the Target Subsidiary at rates no less
favourable to the Target Subsidiary than: (a)
arms-length rates; or (b) inter company rates charged
for similar services to other Affiliates of the Buyer
and provided such rates are commercially reasonable;
(iv) any amounts due under the VATA; and
(v) Distributions made by the Target Subsidiary, including
distributions as are otherwise made to the shareholders
of the Target Subsidiary, whether of
9
profits or capital, made by any unlawful means
(including pursuant to a members' voluntary winding-up).
For the purposes of this definition, "AFFILIATE" includes any associated
undertaking of the Buyer or any holding company of the Buyer;
"MANAGEMENT FEE SECURITY" means the security deed in the Agreed Form
pursuant to which the Manager assigns by way of security to the Seller,
and grants the Seller a first charge over, certain of its rights to
payment of the Management Fee;
"MANAGER" means Tawa Management Limited;
"MARK TO MARKET" is defined in paragraph 1(c) of Schedule 7;
"MATERIAL ADVERSE CHANGE" means either:
(a) any material adverse change in the business, operations, assets,
liabilities or financial condition of the Target Group Companies
taken as a whole but excluding:
(i) any adverse change or effect that is caused by or that
arises out of conditions affecting the economy or
financial, banking, currency or capital markets in
general; and
(ii) any adverse change or effect that is caused by or that
arises out of an event or conditions affecting the
insurance and reinsurance industry generally unless that
adverse change or effect falls outside paragraph (i) and
materially impairs the ability of the Seller or any of
the Seller's Affiliates or any other reinsurer of the
Target Subsidiary which individually represents 5% or
more of the reinsurers' share of the Target Subsidiary's
technical provisions as at the Last Accounting Date to
fulfill its obligations in respect of reinsurance
contracts ceded by the Target Subsidiary and remaining
in force at Completion; and
(iii) any adverse change or effect resulting from the proposal
or announcement of the transaction as contemplated by
this Agreement; or
(b) a material adverse change having been deemed to have occurred in
accordance with Clause 4.6; or
(c) where (i) the Net F/X Losses exceed $40 million and (ii) the
Seller has not, within two business days of the determination of
the Net F/X Losses, given an irrevocable undertaking to
contribute the Net F/X Losses in excess of $40 million
($40,000,000) as provided by Schedule 4;
"NET F/X LOSSES" shall mean the aggregate of (i) the Converted Revalued
Amounts, (ii) the Net Settled Gains and Losses and (iii) the Option Fee;
10
"NET SETTLED GAINS AND LOSSES" shall mean USD 1,501,175 or such other
figure as the parties shall agree in respect of the lines "Other forex
gains" and "Forex sales in 2002" in Appendix 1 of the First Amendment
Letter;
"NET SETTLEMENTS" is defined in Clause 4.6.3;
"NEW BUYER" is defined in Clause 13.1;
"NEWCO" is defined in Clause 14.1.1;
"NOK" shall mean Norway Krone;
"NON DEFAULTING PARTY" is defined in Clause 7.1;
"NON-UK PENSION ARRANGEMENT" is defined in paragraph 19.1 of Schedule 3;
"OPTION FEE" shall mean the fee, if any, paid by the Target Subsidiary
on option contracts comprised in the Hedge Transactions;
"OUTSTANDING COMPLETION BALANCE" is defined in Clause 3.1.1(e);
"OWNER" means in relation to each Real Property, the company that is
named as the owner in Schedule 5;
"PAYMENT AMOUNT" is defined in Clause 3.1.1(f);
"PAST SUBSIDIARIES" means CNA Underwriting Agencies Limited, CNA
Corporate Capital Limited and London Market Reinsurance Services
Limited;
"PERMIT" means a permit, licence, consent, approval, certificate,
qualification, specification, registration or other authorisation, or a
filing of a notification, report or assessment, necessary in any
jurisdiction for the effective operation of a Target Group Company's
business, its ownership, possession, occupation or use of an asset or
its execution or performance of this Agreement;
"POLICIES" is defined in paragraph 10.1 of Schedule 3;
"POST-COMPLETION 1987 AND PRIOR AMOUNTS" is defined in Clause 3.13.1(b);
"POST-COMPLETION OTHER AMOUNTS" is defined in Clause 3.1.1(h);
"PRE-COMPLETION 1987 AND PRIOR AMOUNTS" is defined in Clause 3.13.1(a);
"PRE-COMPLETION OTHER AMOUNTS" is defined in Clause 3.1.1(g);
"PRE-CONTRACT AGREEMENTS" means the letter of intent dated 15 March 2002
between the Seller and the Buyer, the confidentiality agreement dated 12
October 2001 between the Seller and the Buyer and the exclusivity
agreement (and each extension thereto), dated 29 January 2002 between
the Seller and the Buyer;
11
"PRESCRIBED EXCHANGE RATE" shall mean:
(i) for GBP and EUR, the weighted average strike value of
the Hedge Transactions for that Foreign Currency; or
(ii) for other Foreign Currencies, the foreign exchange rate
against USD provided by Bloomberg on the historical
pricing screen on the date the last Hedge Transaction is
effected;
"PRO FORMA BALANCE SHEET" means the pro forma balance sheet for the
Target Group Companies in the Agreed Form;
"REAL PROPERTY" means the property or properties details of which are
set out in Schedule 5 and includes an individual property and a part of
an individual property but for the purposes of paragraphs 11.2 to 11.9
of Schedule 3, means only the properties at the London Underwriting
Centre and the Corn Exchange London;
"REINSURANCE CONTRACT" means any contract, treaty or associated trust
agreement, by which a person has provided reinsurance to any ceding
insurer;
"REINSURANCE RECOVERABLES" is defined in Clause 3.1.1(i);
"RELEVANT CLAIM" means a claim by the Buyer in respect of a breach of
Clause 6.1;
"RELEVANT CONTRACT" is defined in paragraph 8.1.1 of Schedule 3;
"RELEVANT F/X PERIOD" shall mean the period from 1 January 2002 to 6
January 2003 inclusive, or, if any of the Hedge Transactions are
terminated prior to 31 December 2002 without the Seller's written
consent, the period from 1 January 2002 to the date three days after the
date of the first such termination;
"RELEVANT MONTH END" is defined in Clause 4.6.1;
"RELEVANT PERCENTAGE" is defined in Clause 3.1.1(j);
"RELEVANT PERIOD" means (i) the period from the Completion Date to the
last day of the Quarter in which the Completion Date occurs, inclusive
of each date; and (ii) each subsequent Quarter;
"RESTRUCTURING" is defined in Clause 14.1;
"RETROCESSION CONTRACT" means any contract, treaty or associated trust
agreement, by which any person has reinsured a Reinsurance Contract;
"SALE SHARES" means 332,067,741 fully-paid ordinary shares of Pound
Sterling 1.00 each of the Target Company comprising the whole of the
issued share capital of the Target Company;
12
"SECTION 107 TAX LOSSES" means the reduction in tax losses attributable
to the making of an election by the Target Subsidiary under Section 107
of the Finance Act 2000;
"SEK" shall mean Swedish Krona;
"SELLER'S ADDITIONAL CAPITAL" is defined in Clause 3.1.1(k);
"SELLER'S SCHEME" is defined in Clause 19.1 of Schedule 3;
"SELLER'S SOLICITORS" means Lovells of 65 Holborn Viaduct, London EC1A
2DY;
"SHRINK WRAP COMPUTER PROGRAMS" shall have the meaning given in
paragraph 7.4.2(c) of Schedule 3;
"STAKEHOLDER" is defined in Clause 3.7.1;
"STOP LOSS CONTRACT" means the stop loss contract between the Seller and
the Target Subsidiary in the Agreed Form;
"SUBSCRIPTION AMOUNT" is defined in Clause 3.1.1(l);
"TARGET COMPANY" means CNA Re Management Company Limited, a company
incorporated in England and Wales (registered number 1681059), whose
registered office is at Corn Exchange, Mark Lane, London EC3R 7NE;
"TARGET GROUP" means the Target Company and the Target Subsidiary;
"TARGET GROUP COMPANY" means the Target Company or the Target
Subsidiary;
"TARGET SUBSIDIARY" means CNA Reinsurance Company Limited, a company
incorporated in England and Wales (registered number 1086556), whose
registered office is at Corn Exchange, Mark Lane, London EC3R 7NE;
"TAX AUTHORITY" is defined in the Tax Deed;
"TAX DEED" means the tax deed between the Seller and the Buyer in the
Agreed Form;
"TERMINATION NOTICE" is defined in Clause 4.4.2;
"TERMINATION OBJECTION NOTICE" is defined in Clause 4.4.3;
"THRESHOLD AMOUNT" is defined in Clause 3.1.1(m);
"TOTAL CASH FLOW" is defined in Clause 4.6.2(a);
"TOTAL SETTLEMENTS" is defined in Clause 4.6.2(b);
"TRIGGER DISTRIBUTIONS" means Distributions (and distributions as are
otherwise made to the shareholders of the Target Subsidiary, whether of
profits or capital, made by any
13
lawful means, including pursuant to a members' voluntary winding-up)
which have actually been received by the Target Company and are either:
(i) paid by the Target Company to the Buyer; or
(ii) legally capable of being paid by the Target Company to the Buyer
and which the Target Company has resolved to distribute in
accordance with Clause 10.1;
"UNDERWRITERS RE CONTRACT" means the Agreement with respect to the
Underwriters Re Stop Loss Contract from the 2000 and 2001 accident years
in the Agreed Form;
"USD" shall mean United States Dollars;
"W" is defined in Clause 3.1.1(n);
"WARRANTY" means a statement contained in Schedule 3; and
"WTC SETTLEMENTS" is defined in Clause 4.6.2(c).
1.2 GENERAL DEFINITIONS
In this Agreement:
"AFFILIATE" means, in relation to a company:
(a) a company which is, on or after the date of this Agreement, its
subsidiary or holding company, or a subsidiary of such holding
company; and
(b) an undertaking which is, on or after the date of this Agreement,
its subsidiary undertaking or parent undertaking, or a
subsidiary undertaking of such parent undertaking;
an "AGREED FORM" document means the form of the document most recently
agreed by the parties and initialled and dated by them for
identification on or prior to the date of this Agreement;
"THIS AGREEMENT" means this agreement together with all its recitals and
its Schedules;
"BUSINESS DAY" means a day (other than a Saturday and a Sunday) on which
banks generally are open for business in London and Chicago, and (if the
phrase is used in the context of a reference to a day on which the
payment or purchase of any sum in any currency is due) in the principal
financial centre of the country of such currency;
"COMPANIES ACT" means the Companies Act 1985;
14
"COMPANIES ACTS" means the Companies Act 1985, the Companies
Consolidation (Consequential Provisions) Act 1985, the Companies Act
1989 and Part V of the Criminal Justice Act 1993;
"CONTROLLING INTEREST" means, with respect to a person that is a
corporation having voting securities, the beneficial ownership, directly
or indirectly, of more than 50 per cent of the voting securities of such
person or, with respect to a person that is not such a corporation, the
power to direct the management or policies of such person, whether by
operation of law, by contract or otherwise;
"CREDIT INSTITUTION" has the meaning attributed to it in section 262(1)
of the Companies Act;
"CRTP ACT" is defined in Clause 16.12.3;
"DAY" means a period of 24 hours beginning and ending on 00.00 midnight;
"DISPUTE" means a dispute between the parties under, arising out of or
in connection with this Agreement, including any question regarding its
existence, validity or termination;
"$" and "DOLLARS" denote the lawful currency of the United States of
America;
"ENCUMBRANCE" means a mortgage, charge, pledge, lien or other
encumbrance securing any obligation of any person or any other type of
preferential arrangement (including title transfer and retention
arrangements) having a similar effect;
"ERA" means Employment Rights Act 1996;
"EXPERT" means an independent firm of chartered accountants or
consulting actuaries agreed upon by the parties or (failing agreement)
selected (at the instance of either party) by, in the case of a firm of
chartered accountants, the President for the time being of the Institute
of Chartered Accountants for England and Wales, and in the case of a
firm of consulting actuaries, the President for the time being of the
Institute of Actuaries;
"FSA" means the Financial Services Authority;
"FSMA" means the Financial Services and Markets Act 2000;
"HOLDING COMPANY" is as defined in section 736 of the Companies Act;
"ICA" means the Insurance Companies Act 1982;
"INDEBTEDNESS" means and includes any obligation (whether incurred as
principal or surety) for the payment or repayment of money, whether
present or future, actual or contingent;
15
"INSURANCE REGULATIONS" means any regulations, orders or rules made
pursuant to the Companies Act, ICA or FSMA in each case insofar as they
apply to insurance companies or the carrying on of insurance business;
"IPT" means insurance premium tax;
"LIBOR" means, in respect of each Relevant Period, the rate per annum
equal to the arithmetic mean (rounded upwards, if not already such a
multiple, to the nearest whole multiple of one-sixteenth per cent.) of
the average of the offered quotations of the Reference Banks, which
appear on the relevant page (as defined in Clause 1.3.3) for a 12 month
period at or about 11.00 am on the second business day before the first
day of such Relevant Period;
"MONTH" means a calendar month;
"PART IV PERMISSION" means permission to carry on one or more regulated
activities pursuant to Part IV of FSMA;
"PAYMENT ACCOUNT DETAILS" means, in relation to any payment to be made
under or pursuant to this Agreement, the same account number, sort code,
account location and other details specified by the payee and necessary
to effect payment (whether by cheque, bankers draft, telegraphic or
other electronic means of transfer) to the payee;
"PARENT UNDERTAKING" shall be construed in accordance with section 258
of the Companies Act;
"PARTY" means, subject to any express contrary indication, a party to
this Agreement;
"PERSON" means any person, firm, company, corporation, society, trust,
government, state or agency of a state or any association or partnership
(whether or not having separate legal personality) or two or more of
these;
"PROCEEDINGS" means any suit, action or proceedings arising out of or in
connection with this Agreement;
"QUARTER" means each period of three months commencing on 1 January, 1
April, 1 July and 1 October in each year;
"REFERENCE BANKS" means the relevant principal offices of the National
Westminster Bank Plc, Barclays Bank PLC and HSBC Bank plc (or such other
bank or banks as the parties may from time to time select with the
approval of the other party, such approval not to be unreasonably
withheld, conditioned or delayed), provided that, if any Reference Bank
does not give a quotation required at the time relevant for the purposes
of calculating any exchange rate or interest rate hereunder, then such
exchange rate or, as the case may be, interest rate shall be determined
by reference to the quotations which are so given by the remaining
Reference Banks;
"REFERENCE EXCHANGE RATE" means the average of the quotations given, at
approximately 11:00 hours time 2 business days before the relevant date,
by the
16
Reference Banks for the rate (including all commission, charges, fees
and expenses payable) at which each of them would sell the first
currency (as defined in Clause 1.3.1(j)) in exchange for the second
currency (as defined in Clause 1.3.1(j)) on the relevant date, in the
relevant amount;
"SERVICE DOCUMENT" means a writ, application, claim, summons, petition,
order, award, judgment or other document relating to any Proceedings;
"POUND STERLING" and "STERLING" denote the lawful currency of the United
Kingdom;
"SUBSIDIARY" is as defined in section 736 of the Companies Act;
"SUBSIDIARY UNDERTAKING" shall be construed in accordance with section
258 of the Companies Act;
"TAX" and "TAXATION" each mean any form of tax or taxation as contained
in the definition of "Taxation" in the Tax Deed;
"TAXES ACT" means the Income and Corporation Taxes Act 1988;
"TCGA" means the Taxation of Chargeable Gains Act 1992;
"TRADE UNION" is as defined in section 1 TULRCA;
"TULRCA" means the Trade Union and Labour Relations (Consolidation) Act
1992;
"TUPE" means the Transfer of Undertakings (Protection of Employment)
Regulations 1981;
"VATA" means, in the United Kingdom, the Value Added Tax Act 1994 and,
in a jurisdiction outside the United Kingdom, any equivalent
legislation; and
"WEEK" means a period of 7 consecutive days from a defined date.
1.3 INTERPRETATION
1.3.1 In this Agreement, subject to any express contrary indication:
(a) words (including the definitions in Clauses 1.1 and 1.2)
importing the singular shall include the plural and vice versa;
(b) any reference to a person shall be construed as including a
reference to its successors, permitted transferees and permitted
assignees in accordance with their respective interests;
(c) any reference to this Agreement or any other agreement or
document shall be construed as a reference to that agreement or
document as it may have been, or may from time to time be,
amended, varied, novated, replaced or supplemented;
17
(d) any reference to a "CLAUSE" shall be construed as a reference to
a Clause of this Agreement;
(e) "INCLUDE" and "INCLUDING" shall be construed without limitation
and general words shall not be given a restrictive meaning by
reason of the fact that they are followed by particular examples
intended to be embraced by the general words;
(f) any references to "IN WRITING" shall include any modes of
reproducing words in a legible and non-transitory form;
(g) any reference to a "PARAGRAPH" shall be construed as a reference
to a paragraph of the Schedule in which such reference appears;
(h) any reference to a "SCHEDULE" shall be construed as a reference
to a Schedule to this Agreement;
(i) any reference to a statute or enactment shall be construed as a
reference to such statute as it may have been, or may from time
to time be, amended or re-enacted and any subordinate
legislation made or thing done, or may from time to time be
done, under the statute or enactment;
(j) any reference to the "EQUIVALENT" on any given date in any
currency (the "FIRST CURRENCY") of an amount denominated in
another currency (the "SECOND CURRENCY") is a reference to the
amount of the second currency which could be purchased with the
amount of the first currency at the Reference Exchange Rate;
(k) any reference to any English legal term for any action, remedy,
method of judicial proceeding, legal document, legal status,
court, official, or any legal concept or thing shall in respect
of any jurisdiction other than England be deemed to include what
most nearly approximates in that jurisdiction to the English
legal term;
(l) references to times of day are to London time; and
(m) where any of the Warranties is qualified by the expression "so
far as the Seller is aware" or any other similar expression in
determining whether the Seller has the knowledge referred to in
that Warranty it shall be treated as knowing only those matters
that are known to any of its directors or to the following
persons: Debra McClenahan, Ralph Richard Mueller, Cathy Pierce,
Marcia Munn, Kenneth S. De Vries, Edward J. Lavin, Dennis R.
Hemme, Stephen Baxter and Ron Swanstrom.
1.3.2 Tables of contents and all headings in this Agreement are for ease of
reference only and shall not affect the interpretation of this
Agreement.
1.3.3 For the purposes of the definition of LIBOR "RELEVANT PAGE" means the
page of the Reuters Monitor Rates Service designated for the display of
London Interbank Offered Rates for the currency of the relevant amount
(being currently "LIBO" in the case of Dollars) or, if such page or such
service ceases to be available, such other page or such
18
other service (as the case may be) for the purpose of displaying London
Interbank Offered Rates for such currency as the parties may agree or,
in the absence of agreement, as the Expert, after consultation with the
parties shall, on the application of either party, select.
19
2. SALE AND PURCHASE
2.1 AGREEMENT TO SELL THE SALE SHARES
2.1.1 The Seller agrees to sell with full title guarantee and the Buyer agrees
to buy the Sale Shares and all rights attaching or accruing to the Sale
Shares (including the right to receive all dividends, distributions or
any return on capital declared, paid or made by the Target Company) at
or after the date of this Agreement, free of any encumbrance.
2.1.2 The Seller waives all rights of pre-emption over any of the Sale Shares
conferred on it by the articles of association of the Target Company or
in any other way and undertakes to take, and procure the taking of, all
steps necessary to ensure that any rights of pre-emption are waived.
2.2 PURCHASE PRICE
2.2.1 The purchase price of the Sale Shares shall be the aggregate of the
Initial Consideration and, if any, the Additional Consideration.
2.2.2 The Initial Consideration shall be $1.00 payable on Completion to the
Seller in the manner prescribed by Clause 5.3(a).
2.2.3 The Additional Consideration (if any) shall be calculated in accordance
with Clause 3.2 or Clause 3.3.3 or Clause 2A.3(2) of the Tax Deed (as
appropriate) and be payable in accordance with Clause 3.6 provided that
the Additional Consideration and any interest thereon shall not exceed
$118,999,999 (one hundred and eighteen million, nine hundred and ninety
nine thousand and nine hundred and ninety nine dollars).
2.3 STAMP DUTY
2.3.1 The Seller shall pay any stamp duty in respect of the transfer of the
Sale Shares to the Buyer.
2.3.2 At Completion, the Seller shall retain the executed transfer(s) in
respect of the Sale Shares to the Buyer or its nominee(s). The Seller
undertakes that it shall within 10 business days of execution of the
transfer(s) of the Sale Shares apply for adjudication for stamp duty in
respect of the transfer(s). The Seller undertakes to discharge promptly
any stamp duty payable in respect of the transfer(s) and to deliver to
the Buyer the duly stamped transfer(s) on receipt of the same from the
Stamp Office.
2.3.3 The Seller shall have conduct of the application for adjudication in
respect of stamp duty on the transfer(s) of the Sale Shares and in
respect of any dispute in relation to such application subject to
considering any reasonable comments or requests of the Buyer. The Seller
shall provide copies of all correspondence with the Inland Revenue in
relation to the application and any related dispute to the Buyer. The
Buyer shall provide the Seller (at Seller's cost) with such assistance
as may be reasonably required for the purposes of the application and
any related dispute.
20
3. COMPLETION ADJUSTMENTS
3.1 DEFINITIONS
3.1.1 For the purposes of this Clause 3, the following definitions shall
apply:
(a) "BUYER'S ADDITIONAL CAPITAL" means any ordinary shares which may
be required to be subscribed by the Buyer pursuant to Clause
3.2;
(b) "COMPLETION BALANCE" means the amount by which the Completion
Adjustment is greater than zero;
(c) "INVESTMENT INCOME DEDUCTION" means the amount by which the
Investment Income Adjustment is greater than $15,000,000
(fifteen million dollars);
(d) "INVESTMENT INCOME ADJUSTMENT" means Investment Income (as
defined in paragraph 4.2.2(a) of Schedule 7) less Administrative
Expenses (as defined in paragraph 4.2.2(b) of Schedule 7) taken
into account in the Completion Accounts;
(e) "OUTSTANDING COMPLETION BALANCE" means, at any point in time:
(i) the Completion Balance which has not been paid by the
Buyer to the Seller under Clause 3.3.3; plus
(ii) interest which has been accrued at that time in
accordance with Clause 3.5.1 (if any); plus
(iii) any amount outstanding from the Buyer to the Seller
pursuant to clause 2A.3(2) of the Tax Deed; plus
(iv) the aggregate Post-Completion Other Amounts to be
included pursuant to clause 3.4; plus
(v) the amount of any net gain shown in the Closing F/X
Adjustment;
(f) "PAYMENT AMOUNT" means the amount by which the Investment Income
Adjustment is greater than $27,000,000 (twenty seven million
dollars);
(g) "PRE-COMPLETION OTHER AMOUNTS" means the amount of Reinsurance
Recoverables arising in relation to underwriting years 1988 and
subsequent received by the Target Subsidiary prior to or on the
Completion Date;
(h) "POST-COMPLETION OTHER AMOUNTS" means:
(i) 100 per cent. of the amount of any Reinsurance
Recoverables arising in relation to underwriting years
1988 and subsequent, where the reinsurer is the Seller
or an Affiliate of the Seller, which is received by the
Target Subsidiary after the Completion Date; and
21
(ii) 90 per cent. of the amount of any Reinsurance
Recoverables arising in relation to underwriting years
1988 and subsequent, where the reinsurer is an entity
other than the Seller or an Affiliate of the Seller,
which is received by the Target Subsidiary after the
Completion Date;
(i) "REINSURANCE RECOVERABLES" means any amount recoverable from a
reinsurer as a result of corrections to the Senator proportional
reinsurance module included in Schedule 11;
(j) "RELEVANT PERCENTAGE" means:
(i) 80 per cent., to the extent that the Buyer has
not yet paid to the Seller at least $25,000,000
(twenty-five million dollars) of the principal
of the Completion Balance; or
(ii) 50 per cent., to the extent that the Buyer has
paid to the Seller $25,000,000 (twenty-five
million dollars) or more of the principal of the
Completion Balance;
(k) "SELLER'S ADDITIONAL CAPITAL" is defined in Clause 3.3.2(a);
(l) "SUBSCRIPTION AMOUNT" means $25,000,000 (twenty five million
dollars), less the Pre-Completion Other Amounts;
(m) "THRESHOLD AMOUNT" shall be as provided in Clause 3.2.1(b),
3.2.2(b), 3.2.3(c) or 3.2.4(b), as appropriate; and
(n) "W" shall be as provided in Clause 3.2.1(c), 3.2.2(c), 3.2.3(d)
or 3.2.4(c), as appropriate.
3.2 INVESTMENT INCOME ADJUSTMENT
3.2.1 If the Investment Income Adjustment is equal to or less than $15,000,000
(fifteen million dollars):
(a) the Buyer shall subscribe for one ordinary share in the Target
Company at par for every Pound Sterling1.00 (or its equivalent)
of the Subscription Amount;
(b) the Buyer shall pay to the Seller an amount equal to the
Pre-Completion Other Amounts up to a maximum amount of
$25,000,000 (twenty five million dollars);
(c) the Threshold Amount shall be $12,000,000 (twelve million
dollars); and
(d) "W" shall be $20,200,000 (twenty million and two hundred
thousand dollars) plus an amount equal to the amount (if any) by
which the Pre-Completion Other Amounts exceeds $25,000,000
(twenty five million dollars).
3.2.2 If the Investment Income Adjustment is greater than $15,000,000 (fifteen
million dollars) but is less than or equal to $27,000,000 (twenty seven
million dollars):
22
(a) the Buyer shall subscribe for one ordinary share in the Target
Company at par for every Pound Sterling1.00 (or its equivalent)
of the Subscription Amount;
(b) the Buyer shall pay to the Seller an amount equal to the
Pre-Completion Other Amounts up to a maximum amount of
$25,000,000 (twenty five million dollars);
(c) the Threshold Amount shall be $12,000,000 (twelve million
dollars) less the Investment Income Deduction; and
(d) "W" shall be $32,200,000 (thirty two million two hundred
thousand dollars) less the Threshold Amount, and plus an amount
equal to the amount (if any) by which the Pre-Completion Other
Amounts exceeds $25,000,000 (twenty five million dollars).
3.2.3 If the Investment Income Adjustment is greater than $27,000,000 (twenty
seven million dollars) but is less than or equal to $52,000,000 (fifty
two million dollars):
(a) the Buyer shall subscribe for one ordinary share in the Target
Company at par for every Pound Sterling1.00 (or its equivalent)
of the Subscription Amount less the Payment Amount;
(b) the Buyer shall pay to the Seller an amount equal to the
aggregate of the Payment Amount and the Pre-Completion Other
Amounts up to an aggregate maximum of $25,000,000 (twenty five
million dollars);
(c) the Threshold Amount shall be nil; and
(d) "W" shall be $32,200,000 (thirty two million two hundred
thousand dollars) plus an amount equal to the amount (if any) by
which the sum of the Pre-Completion Other Amounts and the
Payment Amount exceeds $25,000,000 (twenty five million
dollars).
3.2.4 If the Investment Income Adjustment is greater than $52,000,000 (fifty
two million dollars):
(a) the Buyer shall pay to the Seller $25,000,000 (twenty five
million dollars);
(b) the Threshold Amount shall be nil; and
(c) "W" shall be $32,200,000 (thirty two million two hundred
thousand dollars) plus the amount by which the Investment Income
Adjustment exceeds an amount which is equal to the difference of
$52,000,000 (fifty two million dollars) less the Pre-Completion
Other Amounts.
3.2.5 If the Buyer is required to subscribe for the Buyer's Additional Capital
pursuant to this Clause 3.2, the Buyer shall procure that, immediately
upon the issue of the Buyer's Additional Capital, the Target Company
subscribes for ordinary shares in the Target Subsidiary of an amount
equal to the Buyer's Additional Capital.
23
3.3 COMPLETION ADJUSTMENT
3.3.1 The Buyer and the Seller shall agree and/or there shall be determined
the Completion Adjustment in accordance with Schedule 7.
3.3.2 If the Completion Adjustment is less than zero:
(a) the Seller shall subscribe for one ordinary share in the Target
Company at a premium equal to the absolute value of the amount
of the Completion Adjustment (or its equivalent) (the "SELLER'S
ADDITIONAL CAPITAL");
(b) the Buyer shall procure that the Target Company issues the
Seller's Additional Capital to the Seller upon payment.
Immediately upon issue of the Seller's Additional Capital the
Seller shall transfer the Seller's Additional Capital to the
Buyer in consideration for the payment by the Buyer to the
Seller of $1.00; and
(c) the Buyer shall procure that the Target Company subscribes for
one ordinary share in the Target Subsidiary at a premium equal
to the total amount received by the Target Company for the
Seller's Additional Capital.
3.3.3 If at any time following the Completion Date the Outstanding Completion
Balance is greater than zero and:
(a) the Target Subsidiary pays a Management Fee, then the Buyer
shall, subject to Clause 3.3.4, within 5 business days of the
receipt by the Manager of the Management Fee, pay to the Seller
an amount equal to 50 per cent. of the Management Fee; and/or
(b) the Target Subsidiary pays a Trigger Distribution, then the
Buyer shall, subject to Clause 3.3.4, within 5 business days of
such payment, pay to the Seller an amount equal to the Relevant
Percentage of such Trigger Distribution;
(c) the Buyer or any of its Affiliates disposes of a controlling
interest in the Target Company (other than pursuant to clause 13
or clause 14) then the Buyer shall, within 5 business days of
the receipt of the consideration, pay 100 per cent. of the
consideration received for any such controlling interest; and/or
(d) the Target Company or any of its Affiliates:
(i) disposes of a controlling interest in the Target
Subsidiary; and/or
(ii) disposes of all or substantially all of its
assets; and/or
(iii) procures that the Target Subsidiary disposes of
all or substantially all of its assets,
(in each case other than pursuant to clause 13 or clause 14)
then the Buyer shall, within 5 business days of the receipt of
the consideration, whether by the Buyer,
24
the Target Company or the Target Subsidiary, pay to the Seller
100 per cent. of the consideration received for any such
controlling interest or assets,
provided that, the aggregate of the payments made by the Buyer
to the Seller pursuant to this Clause 3.3.3 shall not exceed the
Outstanding Completion Balance.
3.3.4 The Buyer shall only be obliged to make payments to the Seller pursuant
to Clauses 3.3.3(a) and 3.3.3(b) to the extent that the aggregate of the
payments by the Target Subsidiary described in Clauses 3.3.3(a) and
3.3.3(b) exceed the Threshold Amount plus an amount in respect of
interest on the Threshold Amount calculated from the Completion Date and
in accordance with Clause 3.5.1.
3.4 POST COMPLETION OTHER AMOUNTS
3.4.1 If any Post Completion Other Amounts arise after the Completion Date,
the amount of those Post Completion Other Amounts shall be added to the
amount of the Outstanding Completion Balance on the day which is two
business days after the receipt of those Post Completion Other Amounts
by the Target Subsidiary.
3.5 INTEREST
3.5.1 The Outstanding Completion Balance and/or any Additional Consideration
will bear interest from the Completion Date to the date of payment
(inclusive of each date) at a rate equal to the one-year LIBOR plus 1.00
per cent. per annum. The interest shall accrue daily and be calculated
at the end of each Relevant Period on the actual number of days elapsed
in that Relevant Period and a 360 day year. The interest shall be
compounded quarterly in arrears on the last day of each Relevant Period.
The one-year LIBOR shall be re-set at the Completion Date and on each
anniversary date of the Completion Date and such rate shall be used for
all subsequent calculations until the next anniversary date. The Seller
shall determine the one-year LIBOR at each re-set date and shall give
the Buyer written notice of each such determination on the first
business day following the Completion Date and each anniversary
thereafter. Any payments in accordance with Clauses 3.3.2, 3.3.3 and
3.6.1 shall be applied first to outstanding interest calculated in
accordance with this Clause 3.5.1.
3.6 ADDITIONAL CONSIDERATION
3.6.1 Any amount payable by the Buyer to the Seller pursuant to Clause 3.2 or
Clause 3.3.3 or Clause 2A.3(2) of the Tax Deed is deemed to be
additional consideration for the purchase of the Sale Shares and is, in
each case, referred to as "ADDITIONAL CONSIDERATION".
3.7 PAYMENTS
3.7.1 Within 5 business days after the Completion Adjustment being agreed or
finally determined pursuant to the provisions of Schedule 7, the
Additional Consideration payable pursuant to clause 3.2 shall be paid
(net of any applicable withholding tax) in
25
accordance with Clause 16.15. The Additional Consideration will bear
interest calculated in accordance with Clause 3.5.1.
3.7.2 No withholding tax shall be deducted from any payment under this Clause
3.7 where the payor has been directed by the Inland Revenue under
Regulation 2 of the Double Taxation Relief (Taxes or Income) (General)
Regulations 1970 that tax shall not be deducted or may be deducted at a
lower rate of withholding tax or where the Inland Revenue has issued a
provisional authority for interest to be paid gross or at a lower rate
of withholding tax and whilst such provisional authority remains in
force.
3.7.3 The recipient of any payment shall cooperate with the payer in obtaining
any clearances and complying with any procedural formalities necessary
in order for the payer to make such payment without deduction of any
withholding tax or at a lower rate of withholding tax under the
applicable double taxation agreement. The recipient of the payment shall
provide to the payer copies of all documents obtained from the relevant
Tax Authority responsible for the double taxation agreement in both
countries which are relevant to the payer making such payment without
deduction of any withholding tax or at a lower rate of withholding tax
under the applicable double taxation agreement.
3.8 ESCROW
3.8.1 At Completion the Subscription Amount shall be paid by the Buyer to the
Buyer's solicitors as stakeholder (the "STAKEHOLDER"), who shall, at the
same time, be irrevocably instructed by the Seller and the Buyer:
(a) to place $25,000,000 (twenty five million dollars) (the "ESCROW
AMOUNT") in an interest bearing designated bank deposit account
maintained in a branch of an English high street clearing bank
in the name of the Stakeholder;
(b) within 5 business days after the Completion Adjustment being
agreed or finally determined pursuant to the provisions of
Schedule 7:
(i) if Clauses 3.2.1 or 3.2.2 apply:
(1) pay that part of the Escrow Amount which is
equal to the Subscription Amount to the Target
Company (which shall be deemed to be payment in
fulfilment of the Buyer's obligations under
Clauses 3.2.1(a) or 3.2.2(a) as appropriate);
(2) pay the balance of the Escrow Amount to the
Seller (which shall be deemed to be payment in
fulfilment of the Buyer's obligations under
Clauses 3.2.1(b) or 3.2.2(b) as appropriate)
(ii) if Clause 3.2.3 applies, pay that part of the Escrow
Amount which is equal to the amount calculated in
accordance with Clause 3.2.3(a) to the Target
26
Company (which shall be deemed to be payment in
fulfilment of the Buyer's obligation under Clause
3.2.3(a)), and pay the balance of the Escrow Amount to
the Seller (which shall be deemed to be payment in
fulfilment of the Buyer's obligations under Clause
3.2.3(b); and
(iii) if Clause 3.2.4 applies, pay the Escrow Amount to the
Seller (which shall be deemed to be payment in
fulfilment of the Buyer's obligations under Clause
3.2.4(a)); and
(c) to pay an amount equal to any interest received by the
Stakeholder on the Escrow Amount (less any tax thereon for which
the Stakeholder may be accountable and any charges and expenses
incurred by the Stakeholder) to the Buyer (or as it may direct)
and/or to the Seller (or as it may direct) in proportion to the
amounts finally payable to them respectively, otherwise than in
respect of costs.
3.9 SUBSCRIPTIONS
3.9.1 The Buyer's Additional Capital shall be subscribed for and paid for in
full within 5 business days of receipt of the amounts to be paid to it
by the Stakeholder under Clause 3.8.1(b)(i) or (ii), as appropriate.
3.9.2 The Seller's Additional Capital shall be subscribed for and paid for in
full within 5 business days after the Completion Adjustment being
finally agreed or finally determined pursuant to the provisions of
Schedule 7.
3.10 COMPLETION BALANCE SECURITY
3.10.1 If Clause 3.3.3 shall apply, the Buyer shall:
(a) execute the Distribution Security in favour of the Seller; and
(b) procure that the Manager executes the Management Fee Security in
favour of the Seller,
within 5 business days after the Completion Adjustment has been agreed
or finally determined pursuant to the provisions of clause 3.3.1 and
Schedule 7.
3.11 MANAGEMENT FEE
3.11.1 The Buyer shall provide a statement of the amounts paid to the
Affiliates of the Buyer (as defined in the definition of "MANAGEMENT
FEE") and of the amounts so paid not falling within the Management Fee
together with a copy of the audited accounts of the Target Subsidiary
within 120 days of the end of each financial year and a certificate of
an officer of the Target Subsidiary of the accuracy of the statement.
27
3.12 MANAGEMENT FEE VARIATION
3.12.1 If, at any time during the term of the Management Agreement, the board
of directors of the Target Subsidiary determines that the amount of the
Management Fee to be paid by the Target Subsidiary is too high having
regard to the financial condition of the Target Subsidiary or any
requirements of the Financial Services Authority, then the Buyer shall
immediately notify the Seller in writing and the Target Subsidiary may
seek to reach agreement with the Manager to reduce the Management Fee by
an agreed amount over an agreed period.
If the Target Subsidiary and the Manager reach such an agreement (a
"MANAGEMENT AGREEMENT VARIATION") the Buyer shall immediately notify the
Seller and shall provide the Seller with a detailed and reasoned
explanation for the Management Agreement Variation and the Seller hereby
agrees:
(a) to agree to the Management Agreement Variation in its capacity
as assignee of the rights to payment of the Management Fee under
the terms of the Management Fee Security; and
(b) not to enforce its rights under the Management Fee Security in
connection with the Management Agreement Variation,
Provided that the Seller shall not be obliged to agree to that variation
if:
(i) the result of the variation is that any provider of debt
or equity finance to the Target Subsidiary would rank
ahead of the Seller with respect to payments or
distributions;
(ii) any Affiliate of the Target Subsidiary receives payments
or distributions from the Target Subsidiary during the
period for which the variation is effective ("VARIATION
PERIOD") other than payments excluded from the
definition of Management Fee and permitted to be paid
under the Management Fee Security and the Distribution
Security; or
(iii) the Seller has not received $25,000,000 or more of the
Completion Balance and the financial condition of the
Target Subsidiary or the requirements of the Financial
Services Authority, which have brought about the
reduction in the Management Fee, has resulted from
requirements of operations in which the Target
Subsidiary was not engaged as at the date of Completion,
and provided also that, at the end of the Variation Period, the
Management Fee shall be restored to the original amount.
3.13 1987 AND PRIOR AMOUNTS
3.13.1 For the purposes of this Clause 3.13, the following definitions shall
apply:
(a) "PRE-COMPLETION 1987 AND PRIOR AMOUNTS" means the amount of
Reinsurance Recoverables arising in respect of the Target
Subsidiary's underwriting years
28
1987 and prior which is received by the Target Subsidiary after
the date of this Agreement but prior to or on the Completion
Date; and
(b) "POST-COMPLETION 1987 AND PRIOR AMOUNTS" means:
(i) 100 per cent. of the amount of any Reinsurance
Recoverables arising in respect of the Target
Subsidiary's underwriting years 1987 and prior, where
the reinsurer is the Seller or an Affiliate of the
Seller, which is received by the Target Subsidiary after
the Completion Date; and
(ii) 90 per cent. of the amount of any Reinsurance
Recoverables arising in respect of the Target
Subsidiary's underwriting years 1987 and prior where the
reinsurer is an entity other than the Seller or an
Affiliate of the Seller, which is received by the Target
Subsidiary after the Completion Date.
3.13.2 The Buyer acknowledges that prior to Completion the Seller may procure
that the Target Subsidiary shall pay to the Seller any Pre-Completion
1987 and Prior Amounts within two business days of receipt by the Target
Subsidiary of the same.
3.13.3 The Buyer agrees to procure that the Target Subsidiary shall pay to the
Seller any Post Completion 1987 and Prior Amounts within two business
days of receipt by the Target Subsidiary of the same.
3.13.4 The payments to be made pursuant to Clause 13.3.2 and 13.3.3 are to be
made to the Seller as corrections of billing errors which arose in
relation to the 100 per cent. quota share for 1987 and prior
underwriting years between the Seller and the Target Subsidiary.
29
4. CONDITIONS TO COMPLETION
4.1 CONDITIONS
Completion is conditional on the following conditions being satisfied,
or in the case of the conditions in paragraphs (b), (d) or (f) below,
waived by the Buyer, on or before the Completion Date:
(a) the Buyer having received a notice of approval from the FSA of
all persons who will acquire control of the Target Subsidiary on
Completion in accordance with section 184 FSMA (on such terms or
conditions, if any, as are reasonably acceptable to the Seller
and the Buyer in so far as such terms or conditions affect the
Seller and the Buyer respectively) and such approval not having
been revoked and being in full force and effect on the
Completion Date or, in the absence of receipt of such notice,
the period during which the FSA may serve notice of objection
pursuant to section 186 FSMA having elapsed without the FSA
having served any such notice of objection on the Buyer;
(b) subject to Clause 4.2.6 an application having been made by the
Target Subsidiary to the FSA to vary the Target Subsidiary's
permission under FSMA ("PART IV PERMISSION") so as to remove its
permission to effect contracts of insurance on the basis that
such variation shall only be effective if Completion takes
place;
(ba) the FSA having confirmed to the Target Subsidiary (on such terms
or conditions, if any, as are reasonably acceptable to the
Seller and the Buyer in so far as such conditions affect the
Seller and the Buyer respectively) that the FSA has no
objections to the Target Subsidiary and the Seller entering into
the Settlement of 100 per cent. quota share for 1987 and prior
underwriting years in the Agreed Form, the Settlement of
aggregate stop loss providing $125,000,000 of cover in respect
of underwriting years 1997, 1998, and 1999 in the Agreed Form,
the CRG Commutation in the Agreed Form and the BU2 Commutation
in the Agreed Form having been notified of the same pursuant to
the Notice of Requirements dated 26 November 2001 addressed to
the Target Subsidiary, and no condition of the FSA excludes or
unduly burdens performance by the Target Subsidiary of the
Allianz Contract and the Underwriters Re Contract;
(c) the FSA not:
(i) withdrawing or giving notice to withdraw any permission
(except in relation to the variation of the Target
Subsidiary's Part IV Permission referred to in paragraph
(b) above) required for, or in connection with, the
carrying on of the business of the Target Subsidiary;
(ii) imposing, or giving notice that it intends to impose,
any restriction or requirement on, or on the business
of, the Target Subsidiary other than that which (aa)
might reasonably be expected for a transaction of this
type and size and (bb) would not have a material adverse
effect on the ability of the
30
Buyer to carry on the business of the Target Subsidiary
after Completion in the same manner as it is carried on
at the date of this Agreement; or
(iii) requiring additional capital to be contributed to the
Target Subsidiary by Seller;
(d) the Target Subsidiary having made an election under section 107
of the Finance Act 2000 in respect of the years ended 31
December 2000 and 31 December 2001;
(e) the Seller having received a written notice of approval from the
Illinois Department of Insurance in respect of the matters
referred to in this Agreement, including, but not limited to,
approval of the entry by the Seller into any of the Agreed Form
documents for which Illinois regulatory approval is required (on
such terms or conditions, if any, as are reasonably acceptable
to the Seller and the Buyer in so far as such terms or
conditions affect the Seller and the Buyer respectively); and
(f) there having been no Material Adverse Change.
4.2 SATISFACTION OF CONDITIONS
4.2.1 The Buyer hereby undertakes to the Seller to make, as soon as is
reasonably practicable, an application to the FSA pursuant to section
178 FSMA in respect of all persons who will acquire control of the
Target Subsidiary on Completion.
4.2.2 Subject to Clauses 4.2.6 and 4.2.7, the Seller agrees that it will use
its reasonable endeavours to procure that the Target Subsidiary will
apply for the variation of the Target Subsidiary's Part IV Permission
described in Clause 4.1(b) above.
4.2.3 The Seller and the Buyer hereby undertake, each to the other, to use
their respective reasonable endeavours to procure that the conditions
set out in Clause 4.1(a), (b) and (ba) are fulfilled as soon as
reasonably practicable after the date hereof and in any event within 120
days of the date of this Agreement.
4.2.4 The Buyer shall give notice to the Seller of the satisfaction of the
condition of Clause 4.1(a) within two business days of becoming aware of
the same.
4.2.5 The Seller shall give notice to the Buyer of the satisfaction of the
conditions of Clauses 4.1(b), (ba), (d) and (e) within two business days
of becoming aware of the same.
4.2.6 If the Seller acting reasonably determines that in respect of Insurance
Contracts or Reinsurance Contracts which have been entered into by the
Target Subsidiary at or before the date of this Agreement there is a
requirement of the FSA that the Target Subsidiary's Part IV Permission
continue to include permission to effect contracts of insurance, the
Seller may give notice of this fact to the Buyer and upon the giving of
such notice:
(a) the condition in Clause 4.1(b) shall be deemed to have been
satisfied; and
31
(b) the Seller's obligations under Clause 4.2.2 shall cease to
apply.
In the event that the Seller makes such a determination, it shall
provide the Buyer with reasonable details of the basis upon which it has
made such a determination.
4.2.7 If the Seller or the Buyer acting reasonably determines that the
application to vary the Target Subsidiary's Part IV Permission pursuant
to Clause 4.1(b) having been made shall cause satisfaction of any of the
other conditions in Clause 4.1 to be delayed beyond the period that
would be expected if such application had not been made and that
withdrawal of the application would remove such delay, the party making
such determination may give notice of this fact to the other and upon
the giving of such notice the Seller shall procure that the Target
Subsidiary shall promptly notify the FSA of the withdrawal of its
application to vary its Part IV Permission. In the event that a party
makes such a determination, it shall provide to the other reasonable
details of the basis upon which it has made such a determination. For
the avoidance of doubt, the making of an application pursuant to Clause
4.1(b) shall be sufficient to satisfy the condition in Clause 4.1(b)
even if the application has been withdrawn pursuant to this Clause
4.2.7.
4.3 WAIVER OR TERMINATION
4.3.1 At any time the Buyer may waive a condition set out in paragraphs (b),
(d) or (f) of Clause 4.1 by notice to the Seller, on any terms it
decides.
4.3.2 If a condition set out in Clause 4.1 has not been satisfied (or, in the
case of the conditions set out in Clause 4.1(b), (d) or (f), waived by
the Buyer) by 5 pm on 31 December 2002 this Agreement shall terminate
and have no further effect (subject only to Clauses 15 (Governing law
and disputes) and 16 (Miscellaneous) which shall continue in force).
4.3.3 If this Agreement terminates pursuant to Clause 4.3.2 each party's
further rights and obligations under this Agreement will (save as
mentioned in Clause 4.3.2) cease immediately on termination, but
termination will not affect any liability of either party to the other
arising from a breach of this Agreement before the date of such
termination.
4.4 SELLER'S CONDITION
4.4.1 On any one occasion during the period from the date of this Agreement to
the tenth business day before the Completion Date the Seller may give
the Buyer its calculation of the Estimated Completion Adjustment,
together with the management accounts upon which the Estimated
Completion Adjustment is based and such working papers used in
connection with the preparation of the same as are necessary or
appropriate to understand and agree the calculation of the Estimated
Completion Adjustment.
4.4.2 If the Estimated Completion Adjustment is greater than $50,000,000
(fifty million dollars) or less than zero, the Seller may at the same
time as it provides the Buyer with its calculation of the Estimated
Completion Adjustment, give the Buyer notice that it wishes to terminate
this Agreement (the "TERMINATION NOTICE").
32
4.4.3 Unless the Buyer shall within seven business days of receipt of the
Termination Notice (and the related management accounts and working
papers) serve a notice in writing on the Seller that it objects to the
Estimated Completion Adjustment (identifying the reason for any
objection and the amount(s) or item(s) in the Estimated Completion
Adjustment calculation, the relevant management accounts and/or
associated working papers which is/are in dispute) (such notification
being, for the purposes of this Clause 4.4, a "TERMINATION OBJECTION
NOTICE") the Buyer shall be deemed to have agreed the Estimated
Completion Adjustment and this Agreement shall automatically terminate
in accordance with Clause 4.4.8.
4.4.4 The Buyer shall only be entitled to serve a Termination Objection Notice
if the basis of its objection is that the calculation of the Estimated
Completion Adjustment should result in an amount which is greater than
zero and equal to or less than $50,000,000 (fifty million dollars).
4.4.5 If, within the period referred to in Clause 4.4.3, the Buyer shall give
the Seller a Termination Objection Notice then the Buyer or the Seller
shall be entitled, within five business days of the date of such a
notice, to refer the matter(s) in dispute to Ernst & Young, unless Ernst
& Young are not at the relevant time independent of each of the parties
in which case the matter(s) shall be referred to an independent firm of
chartered accountants agreed upon between them or (failing agreement
within four days of one party giving notice to the other that it desires
an independent expert to be appointed) to be selected (at the instance
of either party) by the President for the time being of the Institute of
Chartered Accountants for England and Wales.
4.4.6 Ernst & Young or such other independent firm of chartered accountants
shall act as experts not as arbitrators and shall determine the matter
or matters in dispute and their decision shall, save in the event of
fraud or manifest error, be binding. The independent firm of accountants
shall have the right to seek such professional assistance and advice as
it may require in fulfilling its duties. The cost of the independent
firm of accountants shall be borne by the Seller and the Buyer equally.
4.4.7 Upon the resolution of any dispute by the independent firm of
accountants, the Estimated Completion Adjustment shall be amended to
accord with such resolution and the Estimated Completion Adjustment
shall thereafter be final and binding as between the parties, for the
purposes of this Agreement. If, on this basis, the Estimated Completion
Adjustment is less than zero or exceeds $50,000,000 (fifty million
dollars) this Agreement shall automatically terminate in accordance with
Clause 4.4.8. Otherwise this Agreement shall continue in full force and
effect.
4.4.8 If this Agreement terminates pursuant to Clause 4.4.3 or Clause 4.4.7
each party's further rights and obligations under this Agreement will
cease immediately on termination (subject only to Clause 15 (Governing
law and disputes) and 16 (Miscellaneous) which shall continue in force),
but termination will not affect any liability of either party to the
other arising from a breach of this Agreement before the date of such
termination.
4.4.9 If the Buyer serves a Termination Objection Notice and, but for the
provisions of this Clause 4.4.9, the Completion Date would have occurred
before the resolution of any
33
dispute as provided for in Clause 4.4.5, the Completion Date shall be
automatically postponed to the last business day in the month in which
the Estimated Completion Adjustment is finally determined in accordance
with Clause 4.4.5.
4.5 BUYER'S CONDITION
4.5.1 On any one occasion during the period from the date of this Agreement to
the tenth business day before the Completion Date the Buyer may require
the Seller to give the Buyer sufficient information (including the
management accounts for the Target Group Companies for the immediately
preceding month end) as will enable the Buyer to carry out the Loss
Calculation. Seller shall be allowed twenty days from the date of
Buyer's notice to provide the requested information. As soon as the
Buyer has received such information and calculated the loss calculation
the Buyer shall give the Seller its calculation of the Loss Calculation,
together with the management accounts upon which the Loss Calculation is
based and such working papers used in connection with the preparation of
the same as are necessary or appropriate to understand and agree the
calculation of the Loss Calculation.
4.5.2 If the Loss Calculation is greater than $14,000,000 (fourteen million
dollars) the Buyer may at the same time as it provides the Seller with
its calculation of the Loss Calculation, give the Seller notice that it
wishes to terminate this Agreement (the "LOSS TERMINATION NOTICE").
4.5.3 Unless the Seller shall within seven business days of receipt of the
Loss Termination Notice (and the related working papers) serve a notice
in writing on the Buyer that it objects to the Loss Calculation
(identifying the reason for any objection and the amount(s) or item(s)
in the Loss Calculation and/or associated working papers which is/are in
dispute) (such notification being, for the purposes of this Clause 4.5,
a "LOSS TERMINATION OBJECTION NOTICE") the Seller shall be deemed to
have agreed the Loss Calculation and this Agreement shall automatically
terminate in accordance with Clause 4.5.8.
4.5.4 The Seller shall only be entitled to serve a Loss Termination Objection
Notice if the basis of its objection is that the calculation of the Loss
Calculation should result in an amount which is equal to or less than
$14,000,000 (fourteen million dollars).
4.5.5 If, within the period referred to in Clause 4.5.3, the Seller shall give
the Buyer a Loss Termination Objection Notice then the Buyer or the
Seller shall be entitled, within five business days of the date of such
a notice, to refer the matter(s) in dispute to Ernst & Young, unless
Ernst & Young are not at the relevant time independent of each of the
parties in which case the matter(s) shall be referred to an independent
firm of chartered accountants agreed upon between them or (failing
agreement within four days of one party giving notice to the other that
it deserves an independent expert to be appointed) to be selected (at
the instance of either party) by the President for the time being of the
Institute of Chartered Accountants for England and Wales.
4.5.6 Ernst & Young or such other independent firm of chartered accountants
shall act as experts not as arbitrators and shall determine the matter
or matters in dispute and their decision shall, save in the event of
fraud or manifest error, be binding. The
34
independent firm of accountants shall have the right to seek such
professional assistance and advice as it may require in fulfilling its
duties. The cost of the independent firm of accountants shall be borne
by the Seller and the Buyer equally.
4.5.7 Upon the resolution of any dispute by the independent firm of
accountants, the Loss Calculation shall be amended to accord with such
resolution and the Loss Calculation shall thereafter be final and
binding as between the parties, for the purposes of this Agreement. If,
on this basis, the Loss Calculation exceeds $14,000,000 (fourteen
million dollars) this Agreement shall automatically terminate in
accordance with Clause 4.5.8. Otherwise this Agreement shall continue in
full force and effect.
4.5.8 If this Agreement terminates pursuant to Clause 4.5.3 or Clause 4.5.7
each party's further rights and obligations under this Agreement will
cease immediately on termination (subject only to Clause 15 (Governing
law and disputes) and 16 (Miscellaneous) which shall continue in force),
but termination will not affect any liability of either party to the
other arising from a breach of this Agreement before the date of such
termination.
4.5.9 If the Buyer serves a request for information to enable Buyer to carry
out the Loss Calculation, or if Seller serves a Loss Termination
Objection Notice and, but for the provisions of this Clause 4.5.9, the
Completion Date would have occurred before the completion of the Loss
Calculation and expiration of Seller's right to object thereto in
accordance with Clause 4.5.3, or, if applicable, the resolution of any
dispute as provided for in Clause 4.5.5, the Completion Date shall be
automatically postponed to the last business day in the month in which
the Loss Calculation is finally determined in accordance with Clause
4.5.5.
4.6 DEEMED MATERIAL ADVERSE CHANGE
4.6.1 The Seller shall procure that the Target Group Companies prepare and
provide the Buyer with the MAC Management Accounts within three business
days of the last business day of each month between the date of this
Agreement and the Completion Date (the "RELEVANT MONTH END"), provided
that where the last Relevant Month End is also the Completion Date, such
Relevant Month End shall be deemed to end five business days before the
Completion Date.
4.6.2 For the purposes of this Clause 4.6, the "MAC MANAGEMENT ACCOUNTS" shall
mean the management accounts prepared by the Target Group with due care
and attention which show an accurate view of:
(a) the actual cumulative cash flows (excluding those arising from
Invested Assets) of the Target Group in the form of the tab
"MAC" in the spread sheet entitled "MAC 4.6 ILLUSTRATION
19_6.XLS" set out in Schedule 9 from the end of the period
starting on the Last Accounting Date and ending on the relevant
Month End (the "TOTAL CASH FLOW");
(b) the aggregate amount of the Total Cash Flow which is
attributable to LPC, Other Inwards, Outwards Expenses/other
inwards in the format given in the tab "ACT CASH OUTFLOWS TO 17
MAY" in the spread sheet entitled "MAC 4.6 ILLUSTRATION
35
19_6.XLS" set out in Schedule 9 plus actual cash flows from 18
May through the Completion Date determined in the same manner as
that shown in the tab "ACT CASH OUTFLOWS TO 17 MAY" in that
spread sheet (collectively the "TOTAL SETTLEMENTS");
(c) the aggregate amount of the Total Settlements which has been
paid by the Target Group Companies in respect of claims arising
as a direct consequence of the terrorist attacks on the Pentagon
and the World Trade Centre on 11 September 2001 (the "WTC
SETTLEMENTS"); and
(d) the aggregate amount of the Total Settlements which have been
paid by the Target Group Companies:
(i) following the written approval of that payment by the
Buyer; or
(ii) in accordance with paragraph (n) of Schedule 4,
(the "APPROVED SETTLEMENTS").
4.6.3 For the purposes of this Clause 4.6, in respect of each set of MAC
Management Accounts, the Total Settlements, less the sum of the WTC
Settlements and the Approved Settlements, is referred to as the "NET
SETTLEMENTS".
4.6.4 If, either:
(a) the Seller fails to comply with its obligations under this
Clause 4.6; or
(b) the MAC Management Accounts for 30 June 2002 show that the Net
Settlements exceed $195m; or
(c) the MAC Management Accounts for 31 July 2002 show that the Net
Settlements exceed $227.5m; or
(d) the MAC Management Accounts for 31 August 2002 show that the Net
Settlements exceed $260m; or
(e) the MAC Management Accounts for 30 September 2002 show that the
Net Settlements exceed $292.5m; or
(f) The MAC Management Accounts 31 October 2002 show that the Net
Settlements exceed $325m; or
(g) The MAC Management Accounts for 30 November 2002 show that the
Net Settlements exceed $357.5m; or
(h) the MAC Management Accounts for 31 December 2002 show that the
Net Settlements exceed $390m,
then a material adverse change shall be deemed to have occurred.
36
5. COMPLETION
5.1 TIME AND VENUE
Completion shall take place at the London offices of the Seller's
Solicitors on the last business day of the month during which the
conditions set out in Clause 4.1 are satisfied or waived (or, if the
last of such conditions to be satisfied or waived is satisfied or waived
in the last five business days of such month) on the last business day
of the next following month.
5.2 SELLER'S COMPLETION OBLIGATIONS
5.2.1 At Completion the Seller shall:
(a) give to the Buyer each item specified in Schedule 2; and
(b) with the Buyer, give the Stakeholder the instructions set out in
Clause 3.7.
5.2.2 At Completion the Seller shall procure that:
(a) the Target Company's directors hold a meeting of the board of
directors of the Target Company at which the directors:
(i) vote in favour of the registration of the Buyer or its
nominee(s) as member(s) of the Target Company in respect
of the Sale Shares (subject to the production of
properly stamped transfers);
(ii) if requested by the Buyer, change the Target Company's
registered office to a place nominated by the Buyer; and
(iii) appoint a person nominated by the Buyer as secretary of
the Target Company with effect from the end of the
meeting;
(b) such persons as the Buyer may nominate are appointed as
directors of the Target Company;
(c) the Target Subsidiary's directors hold a meeting of the board of
directors of the Target Subsidiary at which the directors:
(i) if requested by the Buyer, change the Target
Subsidiary's registered office to a place nominated by
the Buyer; and
(ii) appoint a person nominated by the Buyer as secretary of
the Target Subsidiary with effect from the end of the
meeting; and
(d) such persons as the Buyer may nominate are appointed as
directors of the Target Subsidiary provided that the Buyer has
provided the Seller with evidence
37
acceptable to the Seller, acting reasonably, that such persons
have been approved by the FSA to perform such controlled
functions.
5.3 BUYER'S COMPLETION OBLIGATIONS
At Completion the Buyer shall give to the Seller evidence in a form
reasonably satisfactory to the Seller (by way of a certificate of the
Buyer's Solicitors or otherwise) of satisfaction of the conditions set
out in paragraph (a) of Clause 4.1 and shall:
(a) pay the amount stated in Clause 2.2.2 to the Seller or as the
Seller directs in writing in cash;
(b) with the Seller, give the Stakeholder the instructions set out
in Clause 3.7;
(c) pay the Subscription Amount to the Stakeholder in accordance
with Clause 3.7; and
(d) give the Seller the Tax Deed executed by the Buyer and the
Management Agreement executed by the parties thereto.
5.4 RIGHT TO DEFER OR TERMINATE
5.4.1 Neither the Seller nor the Buyer is obliged to complete this Agreement
unless:
(a) the other complies with all its obligations under Clause 5.2 or
5.3 (as the case may be); and
(b) the purchase of all the Sale Shares is completed simultaneously.
5.4.2 If Completion does not take place on the Completion Date because either
party (the "FIRST PARTY") fails to comply with any material obligation
under Clause 5.2 or 5.3 (as the case may be), the other party (the
"SECOND PARTY") may by notice to the First Party:
(a) postpone Completion to a date not more than 20 business days
after the Completion Date; or
(b) terminate this Agreement.
5.4.3 If the Second Party postpones Completion to another date in accordance
with Clause 5.4.2(a), the provisions of this Agreement apply as if that
other date is the Completion Date.
5.4.4 If the Second Party terminates the Agreement pursuant to Clause
5.4.2(b), each party's further rights and obligations under this
Agreement will cease immediately on termination (subject only to Clauses
15 (Governing law and disputes) and 16 (Miscellaneous) which shall
continue in force), but termination will not affect any liability of
either party to the other arising from a breach of this Agreement before
the date of such termination.
38
6. SELLER'S WARRANTIES
6.1 WARRANTIES
6.1.1 The Seller warrants to the Buyer in the terms of the Warranties.
Immediately before the time of Completion, the Seller is deemed to
warrant to the Buyer in the terms of the Warranties at the date of
Completion. For this purpose only, where in a Warranty there is an
express or implied reference to the "DATE OF THIS AGREEMENT", that
reference is to be construed as a reference to the "COMPLETION DATE".
6.1.2 Each Warranty is to be construed independently and (except where this
Agreement expressly provides to the contrary) is not limited by a
provision of this Agreement or another Warranty.
6.1.3 The Seller acknowledges that the Buyer is entering into this Agreement
in reliance on each Warranty.
6.2 DISCLOSURE LETTER
The Warranties other than those set out in paragraphs 1.1, 1.2, 3.1,
3.2.2 or 3.2.3 of Schedule 3 are qualified by the matters fairly
disclosed in the Disclosure Letter and/or in the Data Room in sufficient
detail to enable a reasonable purchaser to evaluate their relevance to
the Warranties. No other knowledge of the Buyer (or an agent or
Affiliate) relating to a Target Group Company (actual, constructive or
imputed) prevents or limits a claim made by the Buyer for breach of
Clause 6.1. The Seller may not invoke the Buyer's knowledge (or the
knowledge of the Buyer's agents or Affiliates) (actual, constructive or
imputed) of a fact or circumstances which might make a Warranty untrue,
inaccurate, incomplete or misleading as a defence to a claim for a
breach of Clause 6.1. However, the Buyer acknowledges and confirms that
it and its advisers have carried out such due diligence as is reasonably
necessary and at the time of entering into this Agreement it is not
aware of any matter or thing which constitutes a breach of any of the
Warranties as qualified in accordance with this Clause 6.2.
6.3 WAIVER OF RIGHTS
The Seller waives and may not enforce a right which it may have in
respect of a misrepresentation, inaccuracy or omission in or from
information or advice supplied or given by a Target Group Company or a
director, officer or employee of a Target Group Company for the purpose
of assisting the Seller to make a representation, give a Warranty,
prepare the Disclosure Letter or covenant under the Tax Deed.
6.4 SELLER'S OBLIGATIONS
Between the execution of this Agreement and Completion the Seller shall:
(a) procure that each Target Group Company complies with Schedule 4;
39
(b) notify the Buyer immediately if it becomes aware of a fact or
circumstance which constitutes a breach of Clause 6.1.1 or
paragraph (a) above or has caused, or will or might cause, a
Warranty to become untrue, inaccurate, incomplete or misleading
at any time before Completion;
(c) procure that the Buyer and its agents will, at the Buyer's
expense and upon reasonable notice, be allowed access to, and to
take copies of, the books and records of each Target Group
Company in the possession or control of either Target Group
Company or the Seller provided that the obligations of the
Seller under this Clause shall not extend to allowing access to
information which is reasonably regarded as confidential to the
activities of the Seller otherwise than in connection with the
Target Group Companies; and
(d) procure that such representatives and advisers as the Buyer
requests may be designated to work with the Seller at the sole
expense of the Buyer with regard to the management and
operations of the Target Group Companies. The Seller will
consult, and will cause the Target Group Companies to consult,
with such representatives and advisers with respect to any
action that may materially affect the Target Group. The Seller
will furnish and will cause the Target Group Companies to
provide to such representatives and advisers such information as
they may reasonably request for this purpose.
6.5 UPDATES TO DISCLOSURE LETTER
6.5.1 Each party shall give prompt notice to the other party of (i) the
occurrence, or failure to occur, of any event or the existence of any
condition that has caused or could reasonably be expected to cause any
of its representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time after the date
of this Agreement, up to and including the Completion Date (except to
the extent such representations and warranties are given as of a
particular date or period and relate solely to such particular date or
period), and (ii) any failure on its part to comply with or satisfy, in
any material respect, any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
6.5.2 The Seller may, no less than 5 business days prior to Completion by
written notice to the Buyer, supplement the Disclosure Letter to
reflect:
(a) retirements and replacements of a Target Group Company's assets,
including normal upgrades or replacements of Computer Programs
(other than replacements of Computer Programs constituting the
lead applications for key line operations such as in line
business functions of the business of the Target Subsidiary
including but not limited to processing Reinsurance Contracts,
underwriting and recording and processing losses);
(b) the hiring, resignation and termination of employees;
(c) any act which the Seller is required to perform under the terms
of this Agreement;
40
(d) any act which the Seller is required to perform in order to
comply with any applicable law; and
(e) actions specified in Schedule 4 which have been effected without
breaching the obligations of the Seller pursuant to Clause
6.4(a) and Schedule 4 in any material respect;
which:
(i) in the case of paragraphs (a) and (b) above are in the
normal course of business of the Target Group Companies;
(ii) occur after the date of this Agreement; and
(iii) in the case of paragraphs (a) and (b) above are
otherwise in accordance with terms of this Agreement,
and in particular the Seller's obligations under Clause
6.4(a) and Schedule 4; and
provided that any such supplements to the Disclosure Letter shall only
be effective to qualify the Warranties given at the date of Completion.
41
7. REMEDIES FOR BREACH
7.1 NON DEFAULTING PARTY'S RIGHTS
If, on or before the Completion Date, a party (the "NON DEFAULTING
PARTY") considers that the other party (the "DEFAULTING PARTY") is in
breach of any provision of this Agreement, the Non Defaulting Party
shall promptly notify the Defaulting Party in writing, specifying the
relevant breach. If the relevant breach is capable of being remedied the
Defaulting Party may prior to the Completion Date remedy such breach to
the satisfaction of the Non Defaulting Party, acting reasonably. If the
breach is not capable of remedy or, if capable of remedy, is not
remedied to the satisfaction of the Non Defaulting Party acting
reasonably prior to the Completion Date, then the Non Defaulting Party
may by notice to the Defaulting Party elect to proceed to Completion or,
if the breach would result in a valid Major Claim, terminate this
Agreement.
7.2 TERMINATION BY NON DEFAULTING PARTY
If the Non Defaulting Party terminates this Agreement pursuant to Clause
7.1:
(a) the Defaulting Party shall indemnify the Non Defaulting Party
against all its costs up to but not exceeding $1,500,000 (one
million five hundred thousand dollars) in the aggregate incurred
at any time after 15 March 2002 relating to the negotiation,
preparation, execution or termination of this Agreement or the
satisfaction of a condition set out in Clause 4.1; and
(b) each party's further rights and obligations under this Agreement
will cease immediately on termination (subject only to Clauses
15 (Governing law and disputes) and 16 (Miscellaneous) which
shall continue in force), but termination will not affect any
liability of either party to the other arising from a breach of
this Agreement before the date of such termination.
7.3 INDEMNIFICATION BY SELLER
7.3.1 If the Buyer proceeds to Completion and there is a breach of Clause 6.1
or there is a breach of Clause 5.2.1 and:
(a) the value of an asset of a Target Group Company is or becomes
less than the value would have been had the breach not occurred;
or
(b) a Target Group Company is subject to or incurs a liability or an
increase in a liability which it would not have been subject to
or would not have incurred had the breach not occurred,
the Buyer shall be entitled to recover from the Seller by way of
indemnity (as its sole remedy) in relation to the breach an amount equal
to the reduction in the value of the asset or, as the case may be, the
liability or increased liability.
42
8. LIMITATIONS ON SELLER'S LIABILITY
8.1 MINIMUM CLAIM THRESHOLD
The Seller shall not be liable in respect of any Relevant Claim or a
claim under Clause 2 of the Tax Deed unless:
(a) the amount payable in respect of that claim exceeds $100,000
(one hundred thousand dollars) in which case the whole amount of
that claim and not just the excess over $100,000 (one hundred
thousand dollars) shall, subject to the limitation in paragraph
(b) below, be recoverable; and
(b) the amounts payable in respect of that claim and all other
Relevant Claims and claims under Clause 2 of the Tax Deed in
aggregate exceed $2,000,000 (two million dollars) (the
"AGGREGATE THRESHOLD") and, subject to the limitation in
paragraph (a) above, the Seller shall only be liable in respect
of the amount by which the amounts payable in aggregate exceed
the Aggregate Threshold.
For the purposes of determining whether the Aggregate Threshold has been
reached or exceeded, there shall be disregarded:
(i) the limitation in paragraph (a) above; and
(ii) the first $10,000 (ten thousand dollars) of the amount
of any Relevant Claim or any claim under Clause 2 of the
Tax Deed.
8.2 MAXIMUM LIABILITY
The Seller's total liability in respect of all Relevant Claims and
claims under the Tax Deed is limited to an aggregate of $100,000,000
(one hundred million dollars) (or its equivalent), but the amount of a
claim under Clause 2A.1 of the Tax Deed is not counted for this purpose.
8.3 TIME LIMITS
The Seller is not liable for a claim for a breach of this Agreement or
the Tax Deed unless the Buyer has given the Seller notice of the claim,
stating in reasonable detail the nature of the claim and, if
practicable, the amount claimed:
(a) in respect of a claim under the Tax Deed or for breach of a
Warranty contained in paragraph 24 of Schedule 3:
(i) no later than one month after the expiry of the period
during which a Target Group Company may be assessed by a
Tax Authority in respect of Tax for which the Target
Group Company would not have been liable but for the
Target Group Company having been a member of a group for
Tax purposes, or controlled by any person, at any time
before Completion (and
43
for this purpose "control" has the same meaning as in
section 767A of the Taxes Act); and
(ii) except where Clause 8.3(a)(i) applies, on or before 31
January 2009; and
(b) in respect of any other Relevant Claim, on or before 30 June
2004,
and has in any such case served proceedings in respect thereof within 12
months of the date of such written notice.
8.4 RECOVERY FROM THIRD PARTIES
If the Seller pays to or for the benefit of the Buyer an amount in
respect of any Relevant Claim and any of the Buyer, or a Target Group
Company subsequently receives from any other person any payment in
respect of the matter giving rise to the Relevant Claim, the Buyer shall
thereupon pay to the Seller an amount equal to the payment received,
after having taken into account any cost, liability (including tax
liability) or expense in respect thereof and except to any extent that
the liability of the Seller in respect of the Relevant Claim was reduced
to take account of such payment.
8.5 NO REPRESENTATIONS
The Buyer confirms that it has not entered into this Agreement or any
document entered into hereunder or referred to herein in reliance upon
any representation, warranty or undertaking other than those expressly
contained herein and acknowledges that it has not relied on, and will
make no Relevant Claim in respect of any such representation, warranty
or undertaking made or supplied by or on behalf of the Seller. Without
limiting the general nature of the foregoing, the Buyer confirms that it
has not relied on and will make no claim in respect of any budget,
forecast or other projection of any nature made or supplied by or on
behalf of the Seller.
8.6 ACTIONS AFTER COMPLETION
The Seller shall have no liability in respect of any Relevant Claim to
the extent that such Relevant Claim arises or is increased in
circumstances in which the Buyer or a Target Group Company acts or omits
to act, other than pursuant to a legally binding commitment created on
or before Completion by a Target Group Company and it or any of its
advisers, employees, directors, officers or agents knows that such act
or omission would give rise to or increase such Relevant Claim and a
reasonable alternative course of action was available to the Buyer or
the relevant Target Group Company which could have been expected not to
have given rise to such Relevant Claim or to a Relevant Claim of such
amount and which would not require the Buyer to incur any expenditure or
any liability or otherwise materially prejudice it, on or after
Completion.
8.7 SUBSEQUENT LEGISLATION, ETC.
The Seller shall not be liable in respect of any Relevant Claim to the
extent that liability for such Relevant Claim occurs or is increased as
a result of any legislation,
44
regulation or regulatory requirement not in force on or prior to the
Completion Date or as a result of the withdrawal of any published
extra-statutory concession or other published agreement or arrangement
having general application on the Completion Date granted by or made
with any governmental or regulatory authority or any tax authority or as
a result of any change, after the Completion Date, of any generally
accepted interpretation or application of any legislation, regulation or
regulatory requirement or as a result of the introduction of, or any
change in, any enforcement policy, practice or requirement of any
relevant authority after the Completion Date or as a result of the
withdrawal after the Completion Date of any extra-statutory concession
or any other formal agreement or arrangements with any tax authority
(whether or not having the force of law) currently granted by or made
with any tax authority, unless in respect of any of the above events the
Seller was at the date of this Agreement actively supporting or
attempting to secure the enactment or adoption thereof.
8.8 INSURANCE CLAIMS
If, in respect of any matter that would give rise to a Relevant Claim,
either Target Group Company is entitled to coverage under any policy of
insurance, any net recovery on behalf of the Target Group Company shall
reduce the amount of the Relevant Claim which the Seller is obligated to
pay to the Buyer. The Buyer shall when giving notice of the Relevant
Claim to the Seller provide the Seller with notice of the policies of
insurance under which coverage of such Relevant Claim may be provided,
but the potential availability of insurance coverage shall not relieve
or delay the Seller's obligation to pay the Relevant Claim.
The appropriate member of the Buyer's group shall make a claim against
such insurer or insurers with respect to the Relevant Claim and shall
notify the Seller of such claim. The Buyer shall use reasonable
endeavours to collect such claim. The Seller may, upon not less than 5
business days' notice, assume the collection of the insurance claim and
upon such assumption the Buyer shall execute such assignments or other
documents as are necessary to enable the Seller to assume such
collection or, if such assignment is not recognised by the insurer, will
facilitate the Seller's collection in the Buyer's name, including, but
not limited to, representation in litigation.
8.9 RESERVES, ETC.
For the avoidance of doubt, none of the Warranties, nor the Tax Deed,
nor any other provision of this Agreement shall be construed as a
representation or warranty of any judgment based on actuarial principles
by whomsoever made or as to the fulfilment of any assumption. In
particular, and without prejudice to the generality of the foregoing,
the Buyer acknowledges and agrees with the Seller that based on
information provided by the Seller and its advisers the Buyer has made
its own assessment of the adequacy of the amount of the technical
reserves of the Target Subsidiary ("RESERVES") as at the Last Accounting
Date and thereafter. No representation or warranty is made by the Seller
or any of the Seller's Affiliates as to the adequacy of the Reserves to
meet the liabilities of the Target Subsidiary to which the Reserves
relate (the "RESERVING ADEQUACY"). Notwithstanding anything otherwise
contained in this Agreement, no provision of this Agreement or the Tax
Deed shall be construed as constituting or
45
implying, directly or indirectly, the Reserving Adequacy and neither the
Seller nor any of the Seller's Affiliates nor any of their respective
officers, employees or advisers shall be under any liability to the
Buyer or any other person if (for whatever reason) the amount of the
Reserves is not adequate. However, this Clause 8.9 shall not operate to
exclude any liability that the Seller may have in respect of the failure
of the records of the Target Subsidiary (in respect of the Reserves,
which the Seller has made available to the Buyer) to reflect each
contract and claim which should in accordance with generally accepted UK
actuarial standards have been reflected in such records. In the event of
any conflict between the provisions of this Clause 8.9 and any other
provision in this Agreement, the provisions of this Clause 8.9 shall
prevail.
8.10 DEBTORS
For the avoidance of doubt, none of the Warranties, nor the Tax Deed,
nor any other provision of this Agreement shall be construed as a
representation or warranty as to the recoverability of any amount from
any debtor of the Target Subsidiary. Neither the Seller nor any of the
Seller's Affiliates shall be under any liability to the Buyer or any
other person (for whatever reason) in respect of any sum not being
recoverable from any debtor of the Target Subsidiary. However, this
Clause 8.10 shall not operate to exclude any liability that the Seller
may have in respect of the failure of the records of the Target
Subsidiary (in respect of the debtors of the Target Subsidiary) which
the Seller has made available to the Buyer to record such debtors in
accordance with generally accepted UK accounting standards. In the event
of any conflict between the provisions of this Clause 8.10 and any other
provision in this Agreement, the provisions of this Clause 8.10 shall
prevail.
8.11 CONTINGENT LIABILITIES
If any breach of the Warranties arises by reason of some liability of
any Target Group Company which, at the time such breach or Relevant
Claim is notified to the Seller, is contingent only or otherwise not
capable of being quantified, then the Seller shall not be under any
obligation to make any payment in respect of such breach or Relevant
Claim unless and until such liability ceases to be contingent or becomes
capable of being quantified, as the case may be provided that this
clause shall not operate to avoid a claim made in reasonable
particularity in respect of a contingent liability within the applicable
time limit specified in Clause 8.3.
8.12 BUYER'S ASSISTANCE
If the Buyer becomes aware of any circumstance which gives rise to a
Relevant Claim and if the claim in question is as a result of or in
connection with a claim by or liability to a third party (a "THIRD PARTY
CLAIM"), the Buyer shall give written notice of that circumstance to the
Seller forthwith and, the Seller shall be entitled, by a notice in
writing addressed to the Buyer, to require the Buyer to take or to
procure that the Target Group takes all such reasonable steps and
proceedings as the Seller may consider necessary in order to obtain any
payment, or relief in respect of or in connection with the Third Party
Claim, and the Buyer will, at the request of the Seller allow the Seller
at its expense to have the conduct of all correspondence and/or
proceedings arising in connection with the Third Party Claim. The Seller
may
46
thereafter require the Target Group or the Buyer to take all such
reasonable steps or proceedings as the Seller may consider necessary in
order to mitigate any loss arising in connection with the Third Party
Claim and the Buyer undertakes to procure that the Target Group shall so
act. For the purpose of enabling the Seller to exercise its rights under
this Clause 8.12, the Buyer shall:
(a) make or procure to be made available to the Seller or its duly
authorised representatives, and (if so requested by the Seller)
provide copies of, all relevant books of account, records and
correspondence of the Target Group and permit the Seller to
ascertain or extract any relevant information therefrom; and
(b) not admit any liability or agree any Third Party Claim which may
give rise or has given rise to a Relevant Claim without the
prior written consent of the Seller
provided that:
(i) for the purposes of this clause 8.12, a "Relevant Claim"
does not include a Relevant Claim for a breach of a
warranty contained in paragraph 24 of Schedule 3; and
(ii) the Seller shall indemnify the Buyer or the Target Group
Companies concerned against all properly incurred costs,
charges and expenses and all liabilities that such
companies may incur as a result of the Seller exercising
its rights under this Clause 8.12. The Seller agrees to
keep the Buyer fully informed as to the progress of any
such Third Party Claim and the defence thereof.
8.13 NO DOUBLE COUNTING - TAX DEED
The Seller shall not be liable in respect of any breach of any Warranty
or in respect of any claim under the Tax Deed if and to the extent that
the loss occasioned thereby has been recovered under the same or any
other Warranty or under the Tax Deed or has otherwise been made good or
compensated for without cost to the Buyer or the Target Group.
8.14 NO DOUBLE COUNTING - ACCOUNTS AND COMPLETION ACCOUNTS
The Seller shall not be liable in respect of a Relevant Claim to the
extent of:
(a) any amount which is included as a liability which is the subject
matter of such Relevant Claim; or
(b) any amount by which the valuation of any asset has been reduced
to take account of the subject matter of such Relevant Claim;
in the Accounts or in the Completion Accounts. If any Relevant Claim is
made the Buyer shall use all its endeavours to procure that the Seller
and its advisers are given
47
reasonable access to the working papers underlying the Accounts and the
Completion Accounts for the purposes of ascertaining whether any, and if
so what, amount is applicable to the Relevant Claim for the purposes of
this Clause 8.14.
8.15 CHANGE IN ACCOUNTING POLICY
The Seller shall not be liable in respect of any Relevant Claim in
respect of any matters resulting from a change of accounting policy or
practice or the length of any accounting period of the Buyer or the
Target Group introduced after Completion.
8.16 EXCLUSION OF LIABILITY IN RESPECT OF IGI
Save as provided in the IGI Retrocession, the Seller shall have no
liability whatsoever whether to the Buyer, any Target Group Company or
otherwise under this Agreement including the Warranties (save in respect
of the Warranty contained in paragraph 1 of Schedule 3) or the documents
referred to herein (other than the IGI Retrocession) in respect of the
business referred to in the definition of "Business Covered" in the IGI
Retrocession. In the event of any conflict between the provisions of
this Clause 8.16 and any other provision in this Agreement, the
provisions of this Clause 8.16 shall prevail.
8.17 MITIGATION OF LOSS
Nothing contained in this Clause 8 shall limit the Buyer's obligation at
common law or the obligation of the Target Group to mitigate any loss or
damage resulting from or arising as a consequence of any circumstances
giving rise to any Relevant Claim.
8.18 UNLIMITED LIABILITY
8.18.1 This Clause 8 shall not apply in relation to any Relevant Claim arising
out of any fraud or dishonesty on the part of the Seller or its agents
or advisers or in respect of a Relevant Claim involving or relating to
breach of Clause 6.1 in respect of a Warranty contained in paragraphs 1
or 3 of Schedule 3.
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9. SELLER'S UNDERTAKINGS
9.1 CONFIDENTIAL BUSINESS INFORMATION
9.1.1 Before and after Completion the Seller shall:
(a) not disclose to a person Confidential Business Information it
has or acquires; and
(b) make every effort to prevent the disclosure by its employees of
Confidential Business Information.
9.1.2 The Seller shall procure that each of its Affiliates complies with
Clause 9.1.1.
9.1.3 Clause 9.1.1 does not apply to:
(a) disclosure of Confidential Business Information to a director,
officer or employee of the Buyer or a Target Group Company whose
function requires him to have the Confidential Business
Information;
(b) disclosure of Confidential Business Information required to be
disclosed by law or any applicable regulation having the force
of law;
(c) disclosure of Confidential Business Information to an adviser
for the purpose of advising the Seller but only on terms that
Clause 9.1.1 applies to disclosure by the adviser; or
(d) Confidential Business Information that becomes publicly known
except by the Seller's breach of Clause 9.1.1 or 9.1.2.
9.2 NON-COMPETITION
9.2.1 The Seller shall not directly or indirectly:
(a) seek to induce any reinsurer, cedent or other business relation
of a Target Group Company to cease doing business with a Target
Group Company or interfere with any such relationship; or
(b) for two years starting on the date of this Agreement engage,
employ, solicit, or contact with a view to his engagement or
employment by another person, any individual who is at that time
a director, officer, employee or manager of a Target Group
Company.
9.2.2 Each restriction in Clause 9.2.1 constitutes an entirely independent
restriction on the Seller.
9.2.3 The Seller shall use reasonable endeavours to procure that each of its
Affiliates complies with Clause 9.2.1.
49
9.2.4 On receiving the Buyer's reasonable request the Seller shall give to the
Buyer all information it possesses as at the date of this Agreement and
which it still possesses as at the date of such request relating solely
to a Target Group Company's business and allow the Buyer to copy any
document containing that information, provided the obligations of the
Seller under this Clause shall not extend to allowing access to, or the
copying of, information which is, in the reasonable opinion of the
Seller, regarded as confidential to the activities of the Seller
otherwise than in connection with the Target Group Companies. Each party
shall bear its own costs in respect of the provision of such information
to the Buyer, unless the Seller provides services beyond simply
supplying available information (such as processing or analysing such
information or preparing any reports) in which case the Buyer shall
reimburse the Seller for its reasonable costs.
9.3 POST COMPLETION ASSISTANCE
9.3.1 For the period of one year after the Completion Date, the Seller shall
allow, and procure that each Affiliate of the Seller shall allow, the
Buyer's representatives reasonable access, upon 48 hours' written
notice, to the Key Employees, and shall procure that such Key Employees
assist the Buyer with its enquiries and provide the Buyer with such
information about the Target Group Companies held by the Seller or its
Affiliates as the Buyer may reasonably require to assist it to run off
the business of the Target Subsidiary in an efficient manner or
otherwise conduct the affairs of the Target Group Companies properly,
provided the obligations of the Seller under this clause shall not
extend to allowing access to information which is in the reasonable
opinion of the Seller regarded as confidential to the activities of the
Seller otherwise than in connection with the Target Group Companies.
9.3.2 The Buyer shall:
(a) bear all of its own costs in implementing clause 9.3.1; and
(b) subject to clause 9.3.3 reimburse the Seller and/or its
Affiliates for its reasonable out-of-pocket expenses incurred in
implementing clause 9.3.1 provided that: (i) such costs are
agreed in advance in writing with the Buyer and the Seller
and/or its Affiliates, as applicable; and (ii) the Seller shall
provide reasonable evidence of such costs before the Buyer shall
be obliged to reimburse it or its Affiliates.
9.3.3 To the extent that the Buyer requires any Key Employees to prepare
reports or similar work beyond responding to brief routine enquiries,
the Buyer shall pay to the Seller or its Affiliates, as appropriate, the
then amount of the Key Employee's hourly pay rate multiplied by 130 per
cent. (for these purposes such hourly rate being equal to the employee's
then current annualised salary, including any target bonus, divided by
2080) for the services of the relevant Key Employees as agreed between
the Buyer and the Seller in writing in advance.
9.4 COMPUTER PROGRAMS
9.4.1 The obligations of the Seller and the Buyer with respect to Computer
Programs used in the business of the Target Subsidiary shall be
satisfied on Completion as follows:
50
(a) with respect to each Licensed Computer Program and Shrink Wrap
Computer Program that is licensed by the licensor thereof to the
Seller or any of the Seller's Affiliates (except those Computer
Programs that are solely licensed to a Target Group Company),
the Seller shall provide to the Target Subsidiary the rights
described in Paragraph 7.4.2(d) of Schedule 3;
(b) the Seller shall be responsible for 50% of the expenses related
to obtaining such rights provided that the aggregate of such
shared expenses, whether incurred prior to or after Completion
shall not exceed $500,000 unless the Buyer and Seller mutually
agree;
(c) the Target Group shall be exclusively responsible for payment of
continuing use charges, upgrade fees and maintenance fees, and
for performance of other contractual obligations arising with
respect to use by the Buyer and the Target Group after the
Completion Date of the Computer Programs licensed or assigned to
the Target Subsidiary pursuant to this Clause 9.4.
9.5 INTRA GROUP CONTRACTS
9.5.1 The Seller undertakes to the Buyer that, after the date of Completion in
respect of any Relevant Contracts entered into between the Target
Subsidiary and the Seller or any of the Seller's Affiliates, it will not
adopt a position in relation to any claim against the Target Subsidiary
or defence to a claim brought by the Target Subsidiary which is (i)
materially different to the position it has adopted before the date of
this Agreement; and (ii) detrimental to the position of the Target
Subsidiary.
9.5.2 The Buyer shall procure that, after the date of Completion in respect of
any Relevant Contracts entered into between the Target Subsidiary and
the Seller or any of the Seller's Affiliates, the Target Subsidiary will
not adopt a position in relation to any claim against the Seller or any
of the Seller's Affiliates or a defence to a claim brought by the Seller
or any of the Seller's Affiliates, which is: (i) materially different to
the position it has adopted before the date of this Agreement; and (ii)
detrimental to the position of the Seller, or, as the case may be, the
Seller's Affiliates.
9.6 ACCOUNTS
The Seller shall provide the Buyer with a copy of each bank mandate of
each Target Group Company and details of each bank account of each
Target Group Company at least three business days before Completion.
9.7 CLAIMS
9.7.1 From the date of this Agreement until Completion, in paying claims, the
Seller shall procure that the Target Subsidiary shall, unless prior
notice is given to the Buyer and the Buyer's consent is obtained:
(a) follow the claim settlements approved by the lead reinsurer on
any contract of Assumed Reinsurance;
51
(b) adhere to the Target Subsidiary's internal claim authorisation
limits as disclosed to the Buyer prior to the date of this
Agreement; and
(c) determine settlement amounts consistently with the Target
Subsidiary's practices in effect during the 2002 calendar year
prior to the date of this Agreement.
9.8 PRE-COMPLETION TRANSACTIONS
9.8.1 For the purposes of this Clause 9.8:
"LUC GUARANTEE" means the guarantee given by the Target Subsidiary (and
others) in respect of the obligations of Marketing Building Limited, LUC
Holdings Limited and London Underwriting Centre Limited contained in the
superior lease of the London Underwriting Centre dated 17 March 1994 and
made between (1) The Prudential Assurance Company Limited (2) Market
Building Limited and (3) the 20 guarantors listed therein, the
Development Agreement dated 27 February 1990 made between (1) The
Prudential Assurance Company Limited (2) Market Building Limited (3)
Market Building Management Services Limited (4) the 20 guarantors listed
therein and (5) Prudential Development Management Limited, the
underlease of the Common Parts dated 17 March 1994 made between (1)
Market Building Limited and (2) The London Underwriting Centre Limited
and in the Shareholder's Agreement relating to LUC Holdings Limited
(registered number 3182700) and in any documents supplemental or
collateral to them;
"OVERSEAS PROPERTIES" means the Real Property situated outside the UK,
the details of which are set out in Schedule 5;
"RESIDENTIAL PROPERTIES" means those properties at Millers Wharf in
London registered under Title Numbers EGL 299483 (6 Miller's Wharf) and
EGL 271573 (11 Miller's Wharf); and
"COMPAQ LEASE AGREEMENT" means the Master Lease Agreement number
UKCHQ0206 dated 22 August 2000 between Compaq Financial Services Company
and the Target Subsidiary (including each schedule and any amendments to
that agreement).
9.8.2 Prior to Completion the Seller shall use reasonable endeavours to
procure that:
(a) each Target Group Company:
(i) transfers any interests that it may have in the Overseas
Properties to the Seller, one of the Seller's Affiliates
or a third party, or surrenders any interest it holds in
any such Overseas Properties back to the owner of the
superior interest in that Overseas Property;
(ii) transfers any interests that it may have in the
Residential Properties to the Seller, one of the
Seller's Affiliates or a third party for an aggregate
price equal to $2,300,000;
52
(iii) obtains a release from any obligations that it may have
under the LUC Guarantee; and
(iv) transfers all of the shares held by any Target Group
Company in LUC Holdings Limited to the Seller or as the
Seller shall direct and obtains a complete discharge and
release of the relevant Target Group Company from any
liabilities and claims under the shareholders agreement
referred to in the definition of LUC Guarantee in Clause
9.8.1 above (the "SHAREHOLDERS AGREEMENT") in
consideration for the payment by the Target Subsidiary
to the Seller (or an Affiliate of the Seller) of
$1,000,000 (one million dollars); and
(b) the Target Subsidiary obtains consent from Compaq Financial
Services Company to the change in control of the Target
Subsidiary pursuant to Clause 17.1(e) of the Compaq Lease
Agreement.
9.8.3 If, at Completion, notwithstanding the use of its reasonable endeavours,
the Seller has been unable to procure any of the events described in
Clause 9.8.2 (the "OUTSTANDING EVENTS") the Seller shall be required to
continue to use reasonable endeavours, after Completion, to enable the
Target Subsidiary and/or the Target Company, as appropriate to fulfil
the Outstanding Events on terms not materially adverse to the Buyer.
9.8.4 If, following Completion, the Buyer or a Target Group Company incurs or
is subject to any costs, claims, damages, expenses, losses, liabilities
or penalties or is required to make any payment (including any rent or
other outgoings) in connection with the Overseas Properties, the
Residential Properties, the LUC Guarantee, the Shareholders Agreement or
the failure of the Seller to obtain the consent referred to under Clause
9.8.2 in relation to the Compaq Lease Agreement, the Seller hereby
agrees to pay to the Buyer on demand an amount equal to any such costs,
claims, damages, expenses, losses, liabilities, penalties or payments.
The Seller shall be entitled to deduct from such amount such sums as the
Buyer has received from any third parties in respect of the same matters
and shall be entitled to recover from the Buyer any amounts paid by the
Seller to the Buyer that the Buyer recovers from any third parties in
respect of the same matters.
9.8.5 The Buyer shall at the request and cost of the Seller provide the Seller
with and procure that the Target Subsidiary offers the Seller all
reasonable assistance in connection with the fulfilment of any
Outstanding Event.
9.8.6 The Seller's obligation to use its reasonable endeavours to procure the
release referred to in clause 9.8.2(c) shall include the obligation to
enter into a guarantee in the place of the Target Subsidiary on the same
or similar terms to the LUC Guarantee.
9.9 INVESTED ASSETS
9.9.1 Seven days before Completion the Seller shall provide the Buyer with a
list of the Invested Assets in which the Target Subsidiary has a
beneficial interest. The list shall include details of the issuer, the
relevant security, its CUSIP, its nominal value, its
53
credit ratings by the Credit Raters as at the date of the list, and such
other information as the Seller shall reasonably require.
9.9.2 The Seller shall procure that on the Completion Date the Target
Subsidiary does not have a beneficial interest in any Invested Asset
which has a rating of below BBB- by Standard & Poor's a division of the
McGraw-Hill Companies and Baa3 by Moody's Investors Services, Inc
(together the "CREDIT RATERS") .
54
10. BUYER'S UNDERTAKINGS
10.1 POLICY FOR DISTRIBUTIONS
The Buyer agrees that, following Completion, and until the payment in
full of the Completion Balance, it will use all reasonable endeavours to
maximise the amount of Distributions and as and when Distributions or
such distributions as are otherwise made to the shareholders of the
Target Subsidiary, whether of profits or of capital, made by any lawful
means, including pursuant to a members' voluntary winding-up are paid by
the Target Subsidiary to the Target Company, it will use its best
endeavours in its capacity as a shareholder in the Target Company to
procure that the Target Company pays such amounts to the Buyer either by
way of dividend or by a share repurchase or reduction and repayment of
capital, but in each case subject to applicable laws and after making
appropriate provision for its tax and appropriate reserves for working
capital and provided always that if it is not possible for a Target
Group Company to pay a Distribution by way of dividend, the Buyer's
obligations under this Clause 10.1 shall be subject to the Buyer's
reasonable discretion in determining the timing of the implementation of
any other mechanism for the payment of the Distribution having regard to
the amount of the potential Distribution and the time and cost of
implementing the relevant mechanism.
10.2 CHANGE OF NAME
10.2.1 The Buyer shall procure that as soon as reasonably practicable after the
Completion Date, and in any event within 30 days of the Completion Date,
all of the business letters, notices, bills, cheques, orders, invoices,
receipts and other correspondence of the Target Group Companies are
amended so as to remove any trading name or trade mark which: (i)
includes the acronym "CNA" or any acronym or words similar thereto; or
(ii) is likely to cause a third party to believe that the Target Group
Companies are connected with or have an interest in the business of the
Seller. The Buyer shall further procure that, as soon as reasonably
practicable after the Completion Date (but in no event more than 30 days
after the Completion Date), the names of the Target Group Companies are
changed so as not to include the acronym "CNA" or any acronym or words
similar thereto.
10.2.2 The Seller shall grant the Buyer the right to use the acronym "CNA" on
the terms of the Trade Mark Licence Agreement in the Agreed Form for the
specific use set out therein.
10.2.3 The Buyer agrees that prior to the Completion Date the Seller shall be
entitled to arrange for the transfer from the Target Group Companies to
the Seller or its Affiliates of any and all registered trade marks and
domain names currently registered or held in the name of the Target
Company or the Target Subsidiary.
10.3 SELLER'S ACCESS TO RECORDS
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For a period of one year after the Completion Date, the Buyer shall
procure that the Target Group Companies shall allow the Seller's
representatives reasonable access upon 48 hours written notice, to the
books and records of the Target Group to the extent that such access may
reasonably be required by the Seller in connection with matters related
to or affected by the operations of the Target Group prior to the
Completion Date (provided that such access shall be procured by the
Buyer for a period of six years after Completion where such access may
be required by the Seller in connection with the taxation of the Seller
or any of its Affiliates). Such access shall be afforded during normal
business hours. The obligations of the Buyer under this clause shall not
extend to allowing access to information which is in the reasonable
opinion of the Buyer regarded as confidential to the activities of the
Target Group or is otherwise than in connection with the Target Group
Companies. The Seller shall:
(a) bear all of its own costs in implementing this Clause 10.3; and
(b) reimburse the Buyer and/or its Affiliates for its out-of-pocket
expenses properly incurred in implementing this Clause 10.3
provided that:
(i) such costs are agreed in advance in writing with the
Seller and/or its Affiliates, as applicable; and
(ii) the Buyer shall provide reasonable evidence of such
costs before the Seller shall be obliged to reimburse it
or its Affiliate.
If the Buyer wishes to dispose of any of such books and records prior to
the expiration of the six year period referred to above the Buyer shall,
prior to doing so, give the Seller a reasonable opportunity, at the
Seller's expense, to segregate and remove such books and records as the
Seller may select.
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11. BUYER'S WARRANTIES
The Buyer warrants that:
11.1 INCORPORATION AND EXISTENCE
The Buyer is a limited company incorporated under English law and has
been in continuous existence since incorporation.
11.2 RIGHT, POWER, AUTHORITY AND ACTION
11.2.1 The Buyer has the right, power and authority and has taken all action
necessary to execute and deliver, and to exercise its rights and perform
its obligations under, this Agreement and each document to be executed
at or before Completion.
11.2.2 The Buyer has the right, power and authority to conduct its business as
conducted at the date of this Agreement.
11.3 BINDING AGREEMENTS
The Buyer's obligations under this Agreement and each document to be
executed at or before Completion are, or when the relevant document is
executed will be, enforceable in accordance with their terms.
11.4 WINDING UP AND ADMINISTRATION
No order has been made, petition presented or resolution passed for the
winding up of the Buyer or for the appointment of a provisional
liquidator to the Buyer or for an administration order in respect of the
Buyer.
11.5 RECEIVERSHIP
No receiver or receiver and manager has been appointed of the whole or
part of the Buyer's business or assets.
11.6 VOLUNTARY ARRANGEMENTS
No voluntary arrangement has been proposed under section 1 of the
Insolvency Act 1986 in respect of the Buyer. No compromise or
arrangement has been proposed, agreed to or sanctioned under section 425
of the Act in respect of the Buyer.
11.7 INSOLVENCY
The Buyer is not insolvent or unable to pay its debts within the meaning
of section 123 of the Insolvency Act 1986.
11.8 PAYMENT OF DEBTS
The Buyer has not stopped paying its debts as they fall due.
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11.9 DISTRESS ETC.
No distress, execution or other process has been levied on an asset of
the Buyer.
11.10 UNSATISFIED JUDGMENTS
There is no unsatisfied judgment or court order outstanding against the
Buyer.
11.11 STRIKING OUT
No action is being taken by the registrar of companies to strike the
Buyer off the register under section 652 of the Companies Act.
11.12 FSA
In respect of the Buyer's application to the FSA which is to be made
pursuant to Clause 4.2.1 of this Agreement, the Buyer knows of no matter
not described in the letter from the Buyer to the Seller of even date
herewith relating to any proposed controller, director of a proposed
controller or proposed approved person in respect of whom details are to
be given to the FSA by the Buyer which might cause the FSA to refuse to
give its approval for the purposes of Clause 4.1(a) of this Agreement.
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12. PENSIONS
12.1 A deed substituting CNA Europe Holdings Limited for the Target Company
as principal employer in relation to the CNA Re Management Company
Limited Retirement Benefits Plan (1977) is attached to this Agreement,
signed by the trustees of the Seller's Scheme and will take effect on
Completion. The Seller shall procure that the Target Company and CNA
Europe Holdings Limited execute this deed before Completion. The Seller
shall use its best endeavours and take whatever steps may be necessary
to procure that the approval of the Inland Revenue is given to the
substitution prior to Completion.
12.2 If the Inland Revenue shall confirm that the substitution is
satisfactory from their point of view and does not affect the Seller's
Scheme's exempt approved status then, following Completion, the Seller
shall procure that the Inland Revenue Contributions Agency is notified
of the cessation of participation of the Target Company and that the
contracting out certificate held by the Target Company shall, from
Completion, be held by CNA Europe Holdings Limited. The Buyer shall, and
shall procure that the Target Company shall, co-operate with the Seller
to procure this result.
12.3 If the Inland Revenue confirms that the substitution is not satisfactory
from their point of view, then the Target Company shall remain the
principal employer of the Seller's Scheme. However:
(a) accrual of benefits under the Seller's Scheme shall cease
effective on Completion and the parties shall give (or procure
the giving of) such notices to effect this as may be required;
(b) the Buyer shall procure that the Target Company shall take such
steps, sign such notices and deeds and resolutions as the Seller
shall require in relation to the Seller's Scheme and shall
generally act in accordance with the instructions of the Seller
in relation to the Seller's Scheme, in each case provided that
such actions would not be in breach of any applicable laws,
Inland Revenue requirements or any duties of the Target Company
to the members of the Seller's Scheme.
12.4 In either case (but provided, if Clause 12.3 applies, that the Target
Company has materially complied with the Seller's instructions) the
Seller shall indemnify the Buyer and the Buyer as trustee for the Target
Company against any liability (including any liability under section 75
of the Pensions Act 1995) on the Buyer or the Target Company to make any
further payments to the Seller's Scheme or to the trustees of the
Seller's Scheme on or after the Completion Date and, if clause 12.3
applies, against any liability which may otherwise arise on the Target
Company in relation to the Seller's Scheme, including the Target
Company's own reasonable costs and expenses and any liability to pay
expenses incurred by the trustees.
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13. NOVATION
13.1 If, following Completion, the Buyer at its sole election notifies the
Seller that it intends to transfer the Sale Shares to one of its
Affiliates (the "NEW BUYER") and to exercise its rights if it so desires
to novate this Agreement to the New Buyer in accordance with Clause
16.5.4, notwithstanding any other provision of this Agreement:
13.1.1 at the request of the Buyer the Seller shall promptly take all steps
necessary to release the Sale Shares from the Distribution Security; and
13.1.2 upon the transfer of the Sale Shares to the New Buyer the Buyer shall
procure that the New Buyer executes a security deed pursuant to which
the New Buyer will grant the Seller a first charge over the Sale Shares
in the same form as the Distribution Security,
Provided that the Seller shall not be obliged to agree to that novation:
(a) if the result of the novation is that any provider of debt or
equity finance to the Target Subsidiary would rank ahead of the
Seller with respect to payments or distributions; and
(b) unless the Buyer provides the Seller with a legal opinion of a
reputable law firm in terms reasonably satisfactory to the
Seller confirming that the new distribution security to be
granted by the New Buyer will be a valid first charge and
enforceable in accordance with its terms.
13.2 In the event that the Buyer transfers the Sale Shares to the New Buyer
and exercises its rights to novate this Agreement to the New Buyer
pursuant to Clause 13.1 (the "BUYER'S TRANSFER"), then where:
13.2.1 the New Buyer is required by law to make a deduction or withholding when
the Buyer would not have been required by law to have made such
deduction or withholding had the Buyer made the payment where the
Buyer's Transfer had not occurred, then the New Buyer shall pay to the
Seller a sum equal to the amount that the Seller would otherwise have
received in the absence of any such deduction or withholding; and
13.2.2 any payment made by the New Buyer to the Seller is subject to tax in the
hands of the Seller, then where such payment would not have been subject
to tax if it had been made by the Buyer where the Buyer's Transfer had
not occurred, then the New Buyer shall pay to the Seller such amount as
will ensure that the net amount received in respect of such payment by
the Seller after such tax is the same as it would have been were the
payment not so subject to such tax.
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14. RESTRUCTURING
14.1 Following Completion, the Buyer may wish at its sole election to
implement a restructuring involving one or more of the following actions
(the "RESTRUCTURING"):
14.1.1 the incorporation of a new company ("NEWCO") by the Buyer or one of its
Affiliates;
14.1.2 the novation of the Management Agreement from the Manager, the Target
Company and the Target Subsidiary to the Manager, NewCo and the Target
Subsidiary;
14.1.3 the transfer of employees and certain operating assets of the Target
Company to NewCo;
14.1.4 the transfer by the Target Company to the Buyer of all of the shares it
holds in the Target Subsidiary; and
14.1.5 the member's voluntary winding-up of the Target Company.
14.2 The Seller acknowledges that the Buyer may wish to implement the
Restructuring, and the parties hereby agree that, in connection with a
Restructuring and, notwithstanding any other provision of this
Agreement:
14.2.1 at the request of the Buyer, the Seller shall promptly take all steps
necessary to release the Sale Shares from the Distribution Security;
14.2.2 promptly following the Restructuring, the Buyer shall execute a Security
Deed pursuant to which the Buyer will grant to the Seller a first charge
over the entire issued share capital of the Target Subsidiary in the
same form as the Distribution Security;
14.2.3 if appropriate the definition of "MANAGEMENT AGREEMENT" in Clause 1.1 of
this Agreement shall be substituted by the following:
""MANAGEMENT AGREEMENT" means the agreement entered into between the
Target Subsidiary, the Manager and NewCo;"
14.2.4 at the request of the Buyer, the Seller shall take all steps necessary
to re-assign the rights assigned by the Manager to the Seller pursuant
to the Management Fee Security and shall release and discharge the
Management Fee Security;
14.2.5 if appropriate promptly following the Re-structuring, the Manager shall
execute a security deed pursuant to which the Manager will assign by way
of security to the Seller, and grant the Seller a first charge over,
certain of its rights to payment of the Management Fee in the same form
as the Management Fee Security;
14.2.6 if appropriate the definition of "MANAGEMENT FEE" in Clause 1.1 of this
Agreement shall be amended by substituting paragraph (ii) of that
definition by the following:
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"costs necessarily and properly incurred by NewCo in providing services
pursuant to the Management Agreement and reimbursement by the Target
Subsidiary to NewCo pursuant to Paragraph 1.1 of Schedule 3 to the
Management Agreement provided that such costs are at commercially
reasonable rates;"
14.2.7 if appropriate the definition of "TRIGGER DISTRIBUTIONS" in Clause 1.1
of this Agreement shall be substituted by the following:
"TRIGGER DISTRIBUTIONS" means Distributions (and distributions as are
otherwise made to the shareholders of the Target Subsidiary, whether of
profits or capital, made by any lawful means, including pursuant to a
members' voluntary winding-up);"
14.2.8 if appropriate Clause 10.1 of this Agreement shall be substituted by the
following:
"The Buyer agrees that, following Completion and until the payment in
full of the Completion Balance, it will use all reasonable endeavors to
maximize the amount of Distributions provided always that if it is not
possible for the Target Subsidiary to pay a Distribution by way of
dividend, the Buyer's obligations under this Clause 10.1 shall be
subject to the Buyer's reasonable discretion in determining the timing
of the implementation of any other mechanism for the payment of the
Distribution having regard to the amount of the potential Distribution
and the time and cost of implementing the relevant mechanism."
14.2.9 The Seller shall not be obliged to agree to any restructuring:
(a) if the result of the Restructuring is that any provider of debt
or equity finance to the Target Subsidiary would rank ahead of
the Seller with respect to payments or distributions; and
(b) unless the Buyer provides the Seller with a legal opinion of a
reputable law firm in terms reasonably satisfactory to the
Seller confirming that the new distribution security to be
granted by the Buyer and the new management fee security will
each be a valid first charge and enforceable in accordance with
its terms.
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15. GOVERNING LAW AND DISPUTES
15.1 GOVERNING LAW
This Agreement and all matters arising from or connected with it are
governed by, and shall be construed in accordance with, the laws of
England.
15.2 RESOLUTION BY THE COURTS
15.2.1 Save where this Agreement provides for the reference of disputed matters
to an Expert, the courts of England shall have exclusive jurisdiction to
settle any Disputes and hear and decide any Proceedings.
15.2.2 The parties agree that the courts referred to in Clause 15.2.1 are the
most appropriate and convenient courts to settle any Disputes and hear
and decide any Proceedings and, accordingly, that they will not argue to
the contrary.
15.3 SERVICE OF PROCESS
15.3.1 The Seller irrevocably agrees with the Buyer that any Service Document
may be sufficiently and effectively served on it in connection with any
Proceedings in England and Wales by service on its process agent
provided that a copy of the Service Document is also sent by fax on the
same day and in accordance with Clause 16.16 to the General Counsel of
the Seller.
15.3.2 For the purposes of this Clause, the Seller appoints as its process
agent in connection with Proceedings in England and Wales, Sisec Limited
of 21 Holborn Viaduct, London EC1A 2DY.
15.3.3 The Seller agrees to maintain the appointment of its process agent (and
any replacement process agent appointed pursuant to this Clause) and
that it shall not withdraw the appointment of any such process agent
until its replacement shall have been validly appointed and the name and
address of the replacement process agent notified to the Buyer.
15.3.4 If the process agent referred to in Clause 15.3.2 (or any replacement
process agent appointed pursuant to this Clause) at any time ceases for
any reason to act as such, the Seller shall appoint a replacement
process agent with an address for service in England or Wales, and shall
notify the Buyer of the name and address of the replacement process
agent. If the Seller fails to appoint a replacement process agent or
notify the Buyer of the name and address of a replacement process agent
as required by this Clause, the Buyer shall be entitled by notice to the
Seller to appoint such a replacement process agent to act on the
Seller's behalf. The Seller shall bear all the costs and expenses of
appointing a replacement process agent by the Buyer in these
circumstances.
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15.3.5 Any Service Document served pursuant to this Clause shall be marked for
the attention of the process agent appointed pursuant to this Clause and
addressed to the address set out in Clause 15.3.2 or to his address
notified pursuant to Clause 15.3.4.
15.3.6 Any Service Document marked for the attention of the process agent and
addressed to the address set out in Clause 15.3.2 or at the address
notified pursuant to Clause 15.3.4 shall be deemed to have been duly
served if:
(a) left at such address, when it is left; or
(b) sent by first class post to such address, 2 business days after
the date of posting.
15.3.7 The Buyer shall send by post to the Seller in accordance with Clause
16.16 a copy of any Service Document served by it (or on its behalf) on
a process agent pursuant to this Clause, but no failure or delay in
doing so shall prejudice the effectiveness of service of the Service
Document in accordance with this Clause.
15.3.8 The Seller agrees that failure by any process agent to give notice of
any process to it or give a copy of any Service Document served on it
shall not impair the validity of such service or of any Proceedings
based on that process.
15.3.9 Nothing contained in Clause 15.3.1 affects the right to serve a Service
Document in another manner permitted by law.
15.4 CONSENT TO ENFORCEMENT
Each party hereby consents generally in respect of any Proceedings to
the giving of any relief or the issue of any process in connection with
such Proceedings including the making, enforcement or execution against
any property (irrespective of its use or intended use) of any order or
judgment which may be made or given in such Proceedings.
15.5 CURRENCY INDEMNITY
15.5.1 If any sum due from one party (the "FIRST PARTY") to the other party
(the "SECOND PARTY") under this Agreement or any award, order or
judgment given or made in relation to this Agreement has to be converted
from the currency (the "FIRST CURRENCY") in which it is payable under
this Agreement or under such order or judgment into another currency
(the "SECOND CURRENCY") for the purposes of:
(a) making or filing a claim or proof against either party; or
(b) obtaining an award, order or judgment in any court or other
tribunal; or
(c) enforcing any award, order or judgment given or made in relation
to this Agreement,
then, the first party shall, if practicable, on the day of receipt of
such sum paid to it in satisfaction, in whole or in part of such award,
order or judgment, or if not practicable
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on such day, as soon as is reasonably practicable thereafter, convert
such sum from the second currency into the first currency at the best
rate or rates of exchange (taking into account the amount to be
exchanged and the location in which such exchange is effected)
reasonably available to the second party on the day of conversion, and
if the amount resulting from such conversion (net of all commissions,
charges, fees and expenses paid):
(i) is less than the amount of the award, order or judgment in the
first currency, then the second party shall pay such difference
to the first party within 15 days of a demand for it; or
(ii) is more than the amount of the award, order or judgment in the
first currency, then the first party shall pay such difference
to the second party within 15 days of a demand for the same.
15.5.2 Each demand submitted by a party pursuant to Clause 15.5.1 shall be
accompanied by a calculation of the computation made together with such
supporting evidence to substantiate the demand.
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16. MISCELLANEOUS PROVISIONS
16.1 ANNOUNCEMENTS
16.1.1 Neither party may, during the period commencing on the date of this
Agreement and ending on the Completion Date or earlier termination of
this Agreement, make or send a public announcement, communication or
circular concerning the transactions referred to in this Agreement or in
relation to its provisions unless it has first obtained the other
party's written consent.
16.1.2 The restrictions in this Clause shall not apply to a public
announcement, communication or circular:
(a) if made or sent to any Affiliate of such party; or
(b) if made or sent to any outside consultants or advisers engaged
by or on behalf of such party and acting in that capacity; or
(c) to the extent required by the rules of a relevant and recognised
stock exchange or regulatory or governmental body to which the
relevant party submits, whether or not the requirement for
information has the force of law, if the party required to make
or send it has, if practicable, first consulted and taken into
account the reasonable requirements of the other party; or
(d) to the extent required by any applicable laws or pursuant to an
order of any court of competent jurisdiction if the party
required to make or send it has, if practicable, first consulted
and taken into account the reasonable requirements of the other
party; or
(e) if made or sent to any insurer under a policy of insurance; or
(f) if made or sent to directors, employees and officers of such
party or of its Affiliates.
16.2 CONFIDENTIALITY
16.2.1 Each party shall at all times:
(a) use its reasonable endeavours to keep all data or information
(whether technical, commercial or financial) acquired under or
pursuant to this Agreement (including information relating to
the other party's products, operations, processes, plans or
intention, product information, know-how, trade secrets, market
opportunities and business affairs) strictly confidential and
shall not disclose this to any other person; and
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(b) not use any data or information referred to in paragraph (a)
above for any purpose other than in relation to the proper
performance of its obligations and exercise of its rights under
this Agreement.
16.2.2 The provisions of this Clause shall not apply to:
(a) any information in the public domain at the time of disclosure,
otherwise than by breach of this Agreement;
(b) information which passes into the public domain after disclosure
through no act or default of the recipient party;
(c) information in the possession of, or independently generated by,
a party before that information was disclosed to it by or on
behalf of the other party and which was not obtained under, or
generated in breach of, any obligation of confidentiality; and
(d) information obtained from a third party who is free to disclose
the same, and which is not obtained under any obligation of
confidentiality.
16.2.3 Following Completion, the Buyer shall not, and shall procure that its
Affiliates do not, disclose information contained in the CNA Re Pricing
Handbook, an example of which, dated October 2000, has been made
available to the Buyer during its investigation of the Target Group to
any third party or use such information other than for the purpose of
running off the business of the Target Subsidiary.
16.2.4 A party shall be entitled to disclose any data or information referred
to above without the prior written consent of the other party if such
disclosure is made in good faith:
(a) to any Affiliate of such party, having made it aware of the
requirements of this Clause; or
(b) to any outside consultants or advisers engaged by or on behalf
of such party and acting in that capacity, having made them
aware of the requirements of this Clause; or
(c) to the extent required by the rules of a relevant and recognised
stock exchange or regulatory or governmental body to which the
relevant party submits, whether or not the requirement for
information has the force of law; or
(d) to the extent required by any applicable laws or pursuant to an
order of any court of competent jurisdiction; or
(e) to any insurer under a policy of insurance; or
(f) to directors, employees and officers of such party having made
them aware of the requirements of this Clause,
provided that:
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(i) any such information disclosed pursuant to paragraph (c)
or (d) above, shall be disclosed only if the party has,
if practicable, first consulted and taken into account
the reasonable requirements of the other party; and
(ii) such disclosure is necessary to enable such party to
perform this Agreement or to protect or enforce its
rights under this Agreement or any other agreement
referred to in it.
16.2.5 The restrictions contained in this Clause 16.2 shall continue to apply
after the date of this Agreement without limit in time.
16.3 THE EURO
16.3.1 In this Clause:
(a) the "EURO" means the single or unified European currency
(whether known as the euro or otherwise) as contemplated in the
Treaty of Rome of 25 March 1957, as amended by the Single
European Act 1986 and the Treaty on European Union which was
signed at Maastricht on 1 February 1992;
(b) the "EMU REGULATIONS" means Regulation No. 1103/97 adopted by
the European Council on 20 June 1997 and Regulation No. 974/98
adopted by the European Council on 2 May 1998; and
(c) the expression "EXTENSION OF EMU" means:
(i) the extension of European economic and monetary union to
any part of the European Union;
(ii) the extension of the introduction at any time of the
euro to any part of the European Union; or
(iii) any events associated with any of the matters described
in paragraphs (a) and (b) above,
in each case, as contemplated in the Treaty of Rome of 25 March 1957, as
amended by the Single European Act 1986 and the Treaty on European union
which was signed at Maastricht on 1 February 1992 and "NON-EXTENSION OF
EMU" shall be construed accordingly.
16.3.2 The parties agree that the extension of EMU (or the non-extension of
EMU) shall not result in the discharge, cancellation, rescission or
termination, in whole or in part, of this Agreement or give any party
the right to cancel, rescind, terminate or vary this Agreement, in whole
or in part.
16.3.3 Unless the parties agree otherwise, at any time at which it is so
permitted under any relevant law (including the EMU Regulations), a
party may not make any payment under or in connection with this
Agreement which is expressed to be payable in dollars in euro.
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16.3.4 If at any time the euro is introduced to the United Kingdom and as a
result sterling is replaced by the euro, then the amounts of sterling
referred to in this Agreement shall be deemed converted into units of
the euro at the rate prescribed by the EMU Regulations or any other
implementing regulation or directive which prescribes the rate of such
conversion.
16.3.5 The parties shall from time to time amend the provisions of this
Agreement, if either party notifies the other that any amendments are
necessary (including with respect to the definitions of "Business Day",
"Reference Banks", and "Reference Exchange Rate") as a result of the
occurrence of EMU. All such amendments shall be made on the basis that,
following such amendments, each party will be in the same financial
position as it would have been had the occurrence of EMU not taken
place.
16.3.6 If the parties are unable to agree any amendments to this Agreement to
be made pursuant to this Clause, either party may refer the matter in
dispute to the Expert for determination in accordance with this
Agreement.
16.4 LATE PAYMENTS AND DEFAULT INTEREST
If a party fails to pay any amount payable by it under this Agreement,
it shall forthwith on demand by the party to whom the payment was due to
be made pay interest on the overdue amount from the due date up to the
date of actual payment, after as well as before judgment, at LIBOR plus
3 per cent. Such interest shall accrue on a daily basis and be
compounded quarterly.
16.5 ASSIGNMENTS AND NOVATION
16.5.1 Except as provided in Clauses 16.5.2, 16.5.3 and 16.5.4, a party shall
not assign, transfer, create any encumbrance in or over, or deal in any
other manner with this Agreement or a right or obligation under this
Agreement (or purport to do any of these things) without having first
obtained the other party's written consent (which consent shall not be
unreasonably withheld, conditioned or delayed). Each party is entering
into this Agreement for its benefit and not for the benefit of another
person.
16.5.2 The Buyer shall be entitled at any time after Completion to assign its
rights under this Agreement to any of its Affiliates provided that such
party shall procure that any such Affiliate to whom it assigns any of
its rights under this Agreement shall assign such rights back to that
party immediately prior to it ceasing to be an Affiliate. Any assignment
by a party under this Clause shall:
(a) be subject to the condition that the assigning party shall not
be relieved of any of its obligations under this Agreement; and
(b) be made on terms that the assignee acknowledges that the other
party may continue to deal exclusively with the assigning party
in respect of all matters relating to this Agreement at all
times unless and until the assignee notifies both parties that
it is exercising its rights as assignee.
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16.5.3 This Agreement shall be binding upon, and inure to the benefit of the
parties and their respective successors and their permitted assignees.
16.5.4 Subject to Clauses 13 and 14, the Seller agrees that, upon the request
of the Buyer of its successors or permitted assignees, this Agreement
may be novated (in whole) in favour of any Affiliate of the Buyer
(which, if such novation is completed after the Completion Date, is the
beneficial owner for the time being of the Sale Shares) and the Seller
shall execute a novation agreement substantially in the terms set out in
Schedule 8.
16.6 FURTHER ASSURANCE
Each party shall do and execute, or arrange for the doing and executing
of, each necessary act, document and thing reasonably within its power
and as may be reasonably requested of it by the other party by written
notice to implement this Agreement.
16.7 COSTS
Except where this Agreement provides otherwise, each party shall pay its
own costs relating to the negotiation, preparation, execution and
implementation by it of this Agreement and of each document referred to
in it.
16.8 AMENDMENTS
This Agreement may not be amended except by written agreement between
the parties and no other purported amendment shall be effective.
16.9 NO WAIVER
16.9.1 No waiver by either party of any default or defaults by the other party
in the performance of any of the provisions of this Agreement:
(a) shall operate or be construed as a waiver of any other or
further default or defaults whether of a like or different
character; or
(b) shall be effective unless in writing duly executed by a duly
authorised representative of such party.
16.9.2 Neither the failure by either party to insist on any occasion upon the
performance of the terms, conditions, and provisions of this Agreement
nor time or other indulgence granted by one party to the other shall act
as a waiver of such breach or acceptance of any variation or the
relinquishment of any such right or any other right under this
Agreement, which shall remain in full force and effect.
16.10 DISCRETION
Except where this Agreement expressly requires a party to act fairly or
reasonably (including any provision which does not allow a party to
unreasonably withhold,
70
condition or delay its consent or approval), a party may exercise any
discretion given to it under this Agreement in its absolute discretion
and the exercise of that discretion shall not be challengeable on
grounds that the party did not exercise its discretion fairly or
reasonably and shall not be subject to the dispute resolution procedures
in this Agreement.
16.11 ENTIRETY
16.11.1 This Agreement and the Schedules are intended by the parties as the
final expression of their agreement and are intended also as a complete
and exclusive statement of the terms of their agreement.
16.11.2 All prior written or oral understandings, offers or other communications
of every kind pertaining to this Agreement are abrogated and withdrawn.
16.11.3 The Pre-Contract Agreements shall cease to have effect from the date of
this Agreement except that termination does not affect any liability of
either party to the other arising from a breach of any legally binding
provision of a Pre-Contract Agreement before the date of such
termination.
16.12 LIABILITIES, RIGHTS AND REMEDIES
16.12.1 Except where this Agreement expressly provides to the contrary, the
rights and remedies contained in this Agreement are cumulative and not
exclusive of rights and remedies provided by law.
16.12.2 Except to the extent they have been performed and except where this
Agreement expressly provides to the contrary, the obligations (including
all warranties, representations and indemnities) contained in this
Agreement remain in force notwithstanding Completion of this Agreement.
16.12.3 The parties do not intend any term of this Agreement to be enforceable
pursuant to the Contracts (Rights of Third Parties) Act 1999 (the "CRTP
ACT") by any person who is not a party to this Agreement.
16.13 COUNTERPARTS
16.13.1 This Agreement may be executed in any number of counterparts each of
which when executed and delivered is an original, but all the
counterparts together constitute the same document.
16.13.2 If this Agreement is subject to stamp duty and counterparts or
duplicates of this Agreement are executed, the Buyer shall, as soon as
practicable after the date of this Agreement, procure that all the
counterparts or duplicates are duly stamped and as soon as they are so
stamped shall deliver a counterpart or duplicate to the Seller.
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16.14 SEVERABILITY
If any provision of this Agreement is held to be illegal or
unenforceable, wholly or partly, under any applicable law, such
provision, or, as the case may be, part of such provision, shall to that
extent be deemed not to form part of this Agreement. The enforceability
of the remainder of this Agreement, however, shall not be affected.
16.15 PAYMENTS
Wherever in this Agreement provision is made for the payment by one
party to another, such payment shall be effected by crediting the
account specified in the Payment Account Details of the party entitled
to payment by way of CHAPS on or before the due date for payment unless
the payee by notice to the payer, not later than three business days
prior to the due date for payment, elects to be paid by banker's draft
drawn on any international bank reasonably acceptable to the payer and
having an office in London. Payment of such sum shall be a good
discharge to the payer of its obligation to make such payment.
16.16 NOTICES
16.16.1 Save as otherwise provided in this Agreement, all notices which are
required or permitted under this Agreement shall:
(a) be in writing;
(b) be in the English language; and
(c) be delivered personally or sent by registered post or pre-paid
recorded delivery or fax, addressed as follows:
If to the Seller: CNA Plaza
333 South Wabash Avenue
Chicago
Illinois 60685
USA
Attention: The Secretary
Fax No.: 001 312 822 1297
If to the Buyer: Tawa UK Limited
10 Fenchurch Avenue
London EC3M 5BN
72
Attention: (1) The Chairman; and (2) The Chief Executive Officer
Fax No.: +44 20 7665 6501
with a copy to: LeBoeuf, Lamb, Greene & MacRae
No. 1 Minster Court
Mincing Lane
London EC3R 7AA
Fax No.: +44 20 7459 5099
Attention: William C. Marcoux
16.16.2 In the absence of evidence of earlier receipt, a notice or communication
shall be deemed given:
(a) if delivered personally, when left at the address referred to
above;
(b) if sent by prepaid recorded delivery, or registered post at
10.00 a.m. on the third business day following the date of
posting; and
(c) if sent by fax, at the time of transmission (provided that the
transmission is validly receipted).
16.16.3 A party may by notice of at least 10 business days to the other party
change the address or fax numbers to which such notices and
communications to it are to be delivered.
16.17 EXECUTION AND DELIVERY OF DOCUMENTS
All agreements or certificates delivered in connection with the
transactions contemplated by this Agreement shall be deemed to be
delivered by the companies executing the same, and the individual
officers executing the same shall not be personally liable thereon.
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SCHEDULE 1
INFORMATION ABOUT THE TARGET COMPANY AND THE TARGET SUBSIDIARY
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 2
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
ITEMS FOR DELIVERY BY THE SELLER AT COMPLETION
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 3
WARRANTIES
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 4
ACTION PENDING COMPLETION
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 5
THE REAL PROPERTIES
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 6
INTELLECTUAL PROPERTY
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
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SCHEDULE 7
PART I
COMPLETION ADJUSTMENT
1. INTERPRETATION
In this Schedule, where the context admits:
(a) the "ACCOUNTS" and the "PRO FORMA BALANCE SHEET" and any
other defined term used in this Schedule shall have the
same meanings as in the Agreement and the Schedules;
(b) "COMPLETION ACCOUNTS" means the accounts prepared in
accordance with Clause 2 and agreed or determined in
accordance with Clause 3.5;
(c) the "MARK TO MARKET" of Invested Assets on any
particular day means the determination of a market price
of Invested Assets agreed or determined in accordance
with Clause 3.2:
(i) in a consistent process to that employed by the
Seller at 31 December, 2001, by reference to the
respective pricing source (trustee or money
manager), except that all such pricing sources
shall be directed to utilize a bid price
methodology ; or
(ii) to the extent that the pricing source is unable
to provide a bid price they shall be directed to
utilize a generally recognised approximation of
a bid price methodology
and "MARKED TO MARKET" shall be construed accordingly;
and
(d) "CLAUSE" refers to the relevant paragraph of this
Schedule 7, unless otherwise stated.
2. COMPLETION ACCOUNTS
2.1 PREPARATION
The Buyer shall as soon as practicable, and in any event within 45 days
after Completion, procure that accounts be prepared as of the Completion
Date (which shall be as of the last day of a calendar month) for the
Target Group Companies in accordance with this Schedule 7.
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2.2 DESCRIPTION
The Completion Accounts shall consist of a consolidated balance sheet
(which shall be in the form of the Pro Forma Balance Sheet, analysed
between the relevant headings/columns as shown in tab "Treatment of
Proforma Balance Sheet" in the Worked Example, unless agreed otherwise
in writing by the Buyer and the Seller) of the Target Company and the
Target Subsidiary as at the close of business on the Completion Date and
a consolidated profit and loss account of the Target Company and the
Target Subsidiary in respect of the period from 1 January 2002 to the
Completion Date (both dates inclusive).
2.3 REQUIREMENTS
2.3.1 Except to the extent otherwise expressly required or provided in the
Agreement, or in the Pro Forma Balance Sheet, the Completion Accounts
shall:
(a) subject to Clauses 2.3.1(f) to (h), 2.3.2 and 2.3.3:
(i) be prepared on a proper basis and consistent
with the bases and policies of accounting as
applied or adopted in preparing the Accounts
(including, for the avoidance of doubt, those
bases and policies applied or adopted in
establishing the bad debt allowance in the
Accounts);
(ii) be prepared in accordance with the law and
applicable standards, principles and practices
generally accepted in the United Kingdom
(including the Statement of Recommended Practice
on Accounting for Insurance Business issued by
the Association of British Insurers in 1998);
and
(iii) be prepared in accordance with the applicable
requirements of the Companies Act applying to
insurance companies as interpreted by the Target
Company and Target Subsidiary as at 31 December
2001, excluding required notes and related
disclosures thereto (subject to Clause 2.3.1(d)
below);
(b) show a true and fair view of the consolidated assets,
liabilities and state of affairs of the Target Group as
at the Completion Date and the consolidated profit (or
loss) of the Target Company and the Target Subsidiary
for the period from 1 January 2002 to the Completion
Date;
(c) contain the reconciliation between the consolidated
audited balance sheet of the Target Group as at 31
December 2001 and the Pro Forma Balance Sheet and the
Completion Accounts shall assume the opening position as
at 1 January 2002 for calculating the consolidated
profit (or loss) of the Target Group for the period 1
January 2002 to the Completion Date as the Pro Forma
Balance Sheet;
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(d) include the information necessary for the calculation of
the Completion Adjustment, including a version of tab
"Illustrative unwinding of proforma balance sheet" in
the worked example using actual data;
(e) identify and take into account inwards payments and
outwards receipts arising from all commutations;
(f) value the Invested Assets (excluding accrued but unpaid
interest) of the Target Group Companies as at the
Completion Date at their Marked to Market value as
determined in accordance with Clause 3.2;
(g) not include any deferred tax assets; and
(h) not include any equalisation provision as required by
Schedule 9A to the Companies Act 1985.
2.3.2 The liability for restructuring of $6,500,000 (six million and five
hundred thousand dollars) included in the Target Group's Accounts will
be recalculated in the Completion Accounts as follows:
(a) the provisions in respect of the continuing obligations
under or related to Overseas Properties will be released
to the profit and loss account (as the Buyer and the
Seller have reached an agreement) in respect of such
obligations as set out in Clause 9.8 of the Agreement);
(b) the provisions in respect of all of the leases of space
in the London Underwriting Centre shall be included at
$151,000 per month multiplied by the number of months
remaining on the relevant lease, discounted at a rate of
5.0%;
(c) the provision in respect of the book loss on sales of
excess Hardware and payments to be made by the Target
Company in respect of lease obligations in relation to
Hardware shall be included at $200,000; and
(d) the provision for employee redundancy payments will be
calculated to take into account employees (if any) that
the Buyer has determined, prior to Completion, will be
made redundant within ninety days (or their contractual
notice period if longer) after Completion. The
redundancy payment calculation will be consistent with
Target Group's policy in effect prior to Completion, and
the Buyer will represent that actual payments to the
relevant employees will be so calculated. Settlement of
all employee redundancy and other termination benefits
paid in the period 1 January 2002 to the Completion Date
will be charged against the portion of the provision for
restructuring included in the Target Group's Accounts
that relates to redundancy and other termination
benefits (totalling $1.8 million). Any amounts paid
relating to this Clause 2.3.2(d) that exceed such
provision as at 31 December 2001 will be provided for in
the Completion Accounts;
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2.3.3 The only employee incentive costs accrued in the Completion Accounts
will be as follows:
(a) amounts accrued as at the Completion Date under the
Annual Incentive Bonus Plan, the Supplemental Annual
Incentive Bonus Plan, Staff Incentive Plan, the
Supplementary Staff Incentive Plan, the Deferred Profit
Sharing Plan, and the Long Term Incentive Plan which
will be determined by the Seller for each employee
employed by the Target Group at the Completion Date and
will be communicated to the Buyer within five business
days after the Completion Date. Such amounts will be
paid to employees in accordance with their entitlement
under the relevant scheme or plan as and when due
following the Completion Date;
(b) amounts accrued as at the Completion Date under the
Performance Incentive and Loyalty Scheme will be limited
to any unpaid amounts achieved, and not deferred, in
accordance with the relevant scheme (being the 4% of
base salary achieved during the quarter in which
Completion occurs). Amounts achieved for each employee
will be determined by the Seller and will be
communicated to Buyer within five business days after
the Completion Date. Such amounts will be paid to the
employees in accordance with their entitlement under the
Performance Incentive and Loyalty Scheme as and when due
following the Completion Date; and
2.3.4 No accruals will be made in the Completion Accounts for amounts payable
under the Performance Incentive and Loyalty Scheme for amounts achieved
after the Completion Date (being the 20% of base salary achieved after
the Completion Date) and those amounts achieved prior to the Completion
Date but which payments are deferred. Amounts achieved for each employee
will be determined by the Buyer and will be communicated to the Seller
15 days prior to payment to the relevant employee. Such amounts will be
paid to the employees in accordance with their entitlement under the
Performance Incentive and Loyalty Scheme as and when due following the
Completion Date. The Seller will reimburse the Target Group for these
amounts payable under these schemes within 14 days after payment to the
relevant employees.
2.3.5 Any unreconciled difference between the Peoplesoft general ledger and
the Senator broker ledger systems as at the Completion Date will be
eliminated through adjustment of the Peoplesoft general ledger. The
Comfort letter provided by the Seller to the Target Subsidiary in
respect of such unreconciled difference will be terminated.
2.3.6 The Completion Adjustment shall not be taken into account in preparing
the Completion Accounts.
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3. PROCEDURE
3.1 SUBMISSION OF DRAFT
(a) As soon as the Completion Accounts have been prepared,
the Buyer shall calculate the Completion Adjustment and
the Buyer shall send a copy of the Completion Accounts
and the calculation of the Completion Adjustment to the
Seller together with such working papers used in
connection with the preparation of the same to
understand and agree the Completion Accounts and the
calculation of the Completion Adjustment.
(b) Unless the Seller shall within 28 days of receipt of the
Completion Accounts and Completion Adjustment
calculation (and associated papers as provided in Clause
3.1(a)) serve a notice in writing on the Buyer that it
objects to the Completion Accounts and/or the Completion
Adjustment calculation (identifying the reason for any
objection and the amount(s) or item(s) in the Completion
Accounts and/or Completion Adjustment calculation which
is/are in dispute, provided always that no objection
shall be raised in relation to the Mark to Market and
Realised Investment Gain/Loss Adjustment in the
Completion Accounts other than pursuant to, and in
accordance with Clause 3.2 below), (such notification
being, for the purposes of this Clause 3, an "OBJECTION
NOTICE") the Seller shall be deemed to have agreed to
the Completion Accounts and the Buyer's calculation of
the Completion Adjustment for all purposes of this
Agreement.
3.2 AGREEMENT OF MARKED TO MARKET VALUATIONS
(a) As soon as practicable after Completion, however in any
event within 14 days, the Buyer shall determine and/or
shall procure Marked to Market valuation of each of the
Invested Assets as at the Completion Date. Upon receipt
of the Marked to Market valuations of each of the
Invested Assets, the Buyer shall aggregate those
valuations (the "INITIAL PRICING");
(b) As soon as the Buyer has the Initial Pricing it shall
send a copy of the Initial Pricing to the Seller,
together with such working papers used in connection
with the preparation of the same as are necessary or
appropriate to understand the Initial Pricing. Unless
the Seller and/or the Buyer shall within 14 days of the
Seller's receipt of the Initial Pricing serve a notice
in writing on the other (a "PRICING NOTICE") that it
wishes to obtain an independent Marked to Market
valuation of the Invested Assets (an "INDEPENDENT
PRICING"), the Seller and the Buyer shall be deemed to
have agreed to the Initial Pricing for the purposes of
the Mark to Market and Realised Investment Gain/Loss
Adjustment in the Completion Accounts, and the Initial
Pricing shall be final and binding on the parties.
(c) If the Buyer and/or the Seller serves a Pricing Notice
the Buyer and/or Seller may, as appropriate, within 14
days of the service of the Pricing Notice obtain a
Marked to Market valuation of the Invested Assets from
an independent reputable investment manger, bank or
securities house (such
79
valuation being the "BUYER'S PRICING" or the "SELLER'S
PRICING", as appropriate). If the aggregate difference
between the Initial Pricing on the one hand and either
the Buyer's Pricing or the Seller's Pricing on the
other:
(i) exceeds 25 basis points of the aggregate value
of the Initial Pricing then either the Buyer
and/or the Seller, as appropriate, may elect to
follow the procedure under Clause 3.2(d) below
to determine the Marked to Market valuation of
the Invested Assets; or
(ii) does not exceed 25 basis points of the aggregate
value of the Initial Pricing, then the Initial
Pricing shall be used for the purposes of Mark
to Market and Realised Investment Gain/Loss
Adjustment in the Completion Accounts and the
Initial Pricing shall be final and binding on
the parties.
(d) If Clause 3.2(c)(i) applies, and the Buyer and/or the
Seller elects to implement this Clause:
(i) the Buyer and Seller shall appoint two mutually
acceptable independent third parties (the
"INDEPENDENT VALUERS"). For the avoidance of
doubt, each party is not prohibited from
proposing the entity it used to obtain its own
pricing under paragraph (c) above as an
Independent Valuer, Independent Valuers may
obtain prices or pricing information from other
third party professionals in their absolute
discretion;
(ii) if the parties fail to reach agreement on the
identity of either one or both of the
Independent Valuers within 10 days of an
election to implement this Clause, then, at the
instance of each party such Independent Valuers
that have not been agreed shall be selected by
the President for the time being of the
Institute of Chartered Accountants for England
and Wales;
(iii) a list of individual securities prioritised
based on the absolute difference measured in
market value and with a price difference in
excess of 25 basis points between the Initial
Pricing and the Buyer's Pricing and/or the
Initial Pricing and the Seller's Pricing will be
provided by the Buyer and/or Seller to the
Independent Valuers (the "RELEVANT SECURITIES");
(iv) the Independent Valuers will each Mark to Market
each of the Relevant Securities as at the
Completion Date in sequence starting with the
largest absolute market value difference,
subject to the following, for each Relevant
Security the average of the two Independent
Valuers' valuations will become the new
valuation for that Relevant Security and the
Initial Pricing will be recalculated to reflect
that valuation;
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(v) the Initial Pricing as adjusted by the valuation
of each such Relevant Security is referred to as
the "ADJUSTED INITIAL PRICING". The process of
such valuation will continue until the sooner of
(x) the difference between the Initial Pricing
and the Adjusted Initial Pricing becomes less
than 25 basis points, and (y) all of the
Relevant Securities have been priced (the "FINAL
ADJUSTED INITIAL PRICING"); and
(vi) the Final Adjusted Initial Pricing shall be
deemed to have been agreed upon completion of
this process and for the purposes of the Mark to
Market and Realised Investment Gain Loss
Adjustment in the Completion Accounts and the
Final Adjustment Initial Pricing shall be final
and binding on the parties.
3.3 REPORT
If the Seller accepts, or is deemed to accept, that the said draft
Completion Accounts comply with Clause 2, and the draft Completion
Adjustment is correctly calculated in accordance with Clauses 4 and 5,
the Seller shall sign a report to that effect and any Completion
Accounts and Completion Adjustment so reported on, or (if Clause 3.6
shall apply) the final draft of the Completion Accounts and the
Completion Adjustment as determined by the independent accountant, shall
be the Completion Accounts and the Completion Adjustment for the
purposes of this Agreement and shall be final and binding on the
parties.
3.4 INFORMATION AND EXPLANATIONS
The Buyer shall provide such cooperation, information, documentation and
written and verbal explanations from appropriate personnel relating to
the draft Completion Accounts and the Completion Adjustment and their
preparation as the Seller, or any independent chartered accountant
appointed pursuant to Clause 3.6, shall reasonably require.
3.5 AGREEMENT OF DRAFT
If within the period referred to in Clause 3.1(b), the Seller shall give
the Buyer an Objection Notice then the Buyer and the Seller shall use
their best endeavours to reach agreement upon adjustments to the draft
and the value of the Completion Adjustment.
3.6 INDEPENDENT ACCOUNTANT
If the Seller and the Buyer are unable to reach agreement within 28 days
following service of the Objection Notice, either the Seller or the
Buyer shall be entitled to refer the matter or matters in dispute, only
to the extent that such matters may potentially impact the Completion
Adjustment, to Ernst & Young, unless Ernst & Young are not at the
relevant time independent of each of the parties in which case the
matter or matters shall be referred to an independent firm of chartered
accountants agreed upon between them or (failing agreement within seven
days of one party giving notice to the other that it desires an
independent expert to be appointed) to be selected (at the
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instance of either party) by the President for the time being of the
Institute of Chartered Accountants for England and Wales. Ernst & Young
or such other independent firm of chartered accountants shall act as
experts not as arbitrators and shall determine the matter or matters in
dispute and their decision shall, save in the event of fraud or manifest
error, be binding.
The parties will use all reasonable endeavours to co-operate with the
independent firm of accountants in resolving such disagreement or
dispute. The independent firm of accountants shall have the right to
seek such professional assistance and advice as it may require in
fulfilling its duties. The costs of the independent firm of accountants
shall be borne by the Seller and the Buyer equally.
Upon the resolution of any dispute by the independent firm of
accountants, the Completion Accounts and the calculation of the
Completion Adjustment shall be amended to accord with such resolution
and the Completion Accounts and the Completion Adjustment as so amended
shall thereafter be final and binding as between the parties for all
purposes of this Agreement.
4. COMPLETION ADJUSTMENT
4.1 GENERAL
4.1.1 The following provisions of this Clause 4.1.1 set out the general
methodology relating to the calculation of the Completion Adjustment
which is subject to the specific calculations and methodology provided
for in Clauses 4.2, 5.2 and 5.3.
(a) The Buyer's purchase price for the Target Group is
predicated upon:
(i) the Target Group holding at the Completion Date
Invested Assets (which, on Marked to Market
valuations, could be used to purchase Risk Free
Investments, exclusive of transactional costs),
cash and net Non-Technical Assets and
Liabilities sufficient to meet the Buyer's
estimate of the net present value, as at the
Completion Date, of the Actual Matched
Portfolio, and
(ii) Adjustment "W" in Clause 4.2.
(b) The amount of any difference between:
(i) the aggregate Marked to Market value of the
Invested Assets, cash and Non-Technical Assets
and Liabilities at the Completion Date, and
(ii) the Actual Matched Portfolio,
is to be a completion adjustment, calculated in
accordance with this Clause 4 and settled in accordance
with Clause 3 of the Agreement.
(c) This is achieved through Adjustment "W" and the Mark to
Market and Realised Investment Gain / Loss Adjustment
set out in this Clause 4 and the Matched Portfolio
Adjustment set out in Clause 5;
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(d) The Assumed Matched Portfolio was calculated as at 31
December 2001 in accordance with Clause 5.2(a). The
Target Group has continued to trade in the period 1
January 2002 to the Completion Date inclusive. During
this period, it is agreed that profits and losses of the
Target Group are for the Buyer's account, except as
provided in this Agreement.
(e) Profits and losses recognised in the period 1 January
2002 to the Completion Date inclusive with respect to
Non-Technical Assets and Liabilities (except to the
extent that such profits and losses arise from accrued
Investment Income, which is dealt with in Adjustment "W"
in Clause 4.2, and commutations, which are for the
Buyer's account) are for the Seller's account, in
accordance with Clause 5 below.
4.2 CALCULATION
4.2.1 Upon preparation of the Completion Accounts, the Buyer shall calculate
the completion adjustment (the "COMPLETION ADJUSTMENT") as follows:
W + X + Y = Z
where:
"W" is as provided in Clause 3.2.1(d), 3.2.2(d), 3.2.3(d) or 3.2.4(c) of
the Agreement as appropriate
"X" is the Matched Portfolio Adjustment
"Y" is the Mark to Market and Realised Investment Gain / Loss Adjustment
"Z" is the Completion Adjustment
A worked example of the above formula, together with certain schedules
relevant in format and/or content to the Agreement, is set out in Part
II of this Schedule 7 (the "WORKED EXAMPLE"). The Completion Adjustment
shall be calculated in accordance with the principles and definitions
described in Clause 2.3 above, and amounts determined shall therefore be
gross of any withholding or other taxes.
4.2.2 For the purposes of this Clause 4.2:
(a) "INVESTMENT INCOME" is the amount disclosed as such in
the notes to the Completion Accounts, which comprises
income received from Invested Assets, plus the change in
accrued investment income between 31 December 2001 and
Completion Date inclusive, gross of any withholding or
income tax;
(b) "ADMINISTRATIVE EXPENSES" is the amount disclosed as
such in the notes to the Completion Accounts (which
includes depreciation, but this shall exclude any profit
and loss in respect of Non-Technical Assets and
Liabilities of the Target Group as at 31 December 2001,
recognised in the
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period from 1 January 2002 to the Completion Date which
is adjusted in accordance with Clause 5.2(e)(ii) below);
(c) "MATCHED PORTFOLIO ADJUSTMENT" means the adjustment
determined in accordance with Clause 5 below;
(d) "MARK TO MARKET AND REALISED INVESTMENT GAIN / LOSS
ADJUSTMENT" means the aggregate of unrealized investment
gains / losses and realised investment gains / losses as
disclosed in consolidated profit and loss of the
Completion Accounts, where a net credit to the profit
and loss account is treated as a positive and a net
debit to the profit and loss account is treated as a
negative; and
(e) "NON-TECHNICAL ASSETS AND LIABILITIES" means those items
identified as such in the tab "Treatment of Proforma
Balance Sheet" in the Worked Example.
5. MATCHED PORTFOLIO ADJUSTMENT
5.1 GENERAL
For the purposes of this Clause 5, "RISK FREE INVESTMENT" means
investments in US Dollars which are bonds, debentures, treasury bills,
notes or any other security representing a first rank debt of, and
issued or directly and unconditionally guaranteed by the government of
the United States of America.
5.2 METHODOLOGY
The Buyer and Seller agree that the following is the methodology to be
used to calculate the Matched Portfolio Adjustment:
(a) The Buyer has estimated, as at 31 December 2001, all
future cash flows of the Target Subsidiary, but
excluding those arising from Investment Income and
realizations of Invested Assets and Non-Technical Assets
and Liabilities, after taking into account the
adjustments made in deriving the Pro Forma Balance Sheet
(the "ASSUMED PAYMENT PROFILE").
(b) On the basis of the Assumed Payment Profile, the Buyer
has assumed a portfolio consisting of Risk Free
Investments and cash the cashflows of which (together
with the assumed cashflows arising from realizations of
the Non-Technical Assets and Liabilities of the Target
Subsidiary) will exactly match the Assumed Payment
Profile (the "ASSUMED MATCHED PORTFOLIO").
(c) The Buyer has calculated the net present value of the
Assumed Matched Portfolio as $1,519,800,000 (one
billion, five hundred and nineteen million and eight
hundred thousand dollars), being the net present value
of the Assumed Matched Portfolio based on an average
weighted investment yield of 4.5 per cent per annum as
at 31 December 2001 (the "NPV OF THE ASSUMED MATCHED
PORTFOLIO").
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(d) The Buyer shall calculate the Actual Matched Portfolio
(in accordance with Clause 5.2(e) below) and the NPV of
the Actual Matched Portfolio (in accordance with Clause
5.2(g) below).
(e) The "ACTUAL MATCHED PORTFOLIO" shall be calculated in
the same way as the Assumed Matched Portfolio using:
(i) the Assumed Payment Profile; and
(ii) an adjustment for the profit or loss recognised
in respect of Non-Technical Assets and
Liabilities as at 31 December 2001 of the Target
Subsidiary in the period from 1 January 2002 to
the Completion Date (excluding the change in
accrued investment income in that period, which
is adjusted through Clause 5.2(g)(iii) below) so
that any such profit reduces, and any such loss
increases, the amount of the Actual Matched
Portfolio.
(f) For the purposes of Clause 5.2(e)(ii) above:
(i) an adjustment for profit or loss in respect of
Non-Technical Assets and Liabilities in relation
to bad debts will only be recognised if:
(1) the principal debtor or creditor
concerned becomes Insolvent ("INSOLVENT"
shall mean a reinsurer that has been
declared insolvent by any court with
competent jurisdiction or has been
placed into liquidation or receivership
(whether voluntary or involuntary) or
there has been instituted against the
reinsurer proceedings for the
appointment of a receiver, liquidator
(including a provisional liquidator),
administrator (subsequent to formal
court proceedings, and only for the time
that such reinsurer is in
administration), rehabilitator,
conservator, or trustee in bankruptcy,
or other agent known by whatever name,
to take possession of the reinsurer's
assets or control of the reinsurer's
operation) between 1 January 2002 and
the Completion Date inclusive;
(2) it arises due to a new claims position
that the London market has adopted
between 1 January 2002 and the
Completion Date;
(3) it arises in accordance with Clause
2.3.5 above;
(4) it arises from an amount due from or to
an Affiliate of the Seller not being
realised at book value as at 31 December
2001 (except to the extent recognised
under Clause 5.2(f)(i)(3);
(ii) The stipulated accounting treatment of
restructuring provisions and employee incentive
payments set out in Clauses 2.3.2 and 2.3.3
above applies.
(iii) Except in relation to 5.2(f)(i)(4) and (ii)
above, the maximum net loss to be taken into
account will be $14 million, with the first $7
million of loss to
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be disregarded (i.e., the maximum loss
adjustment to the Completion Adjustment is $7
million).
(g) The "NPV OF THE ACTUAL MATCHED PORTFOLIO" shall be the
net present value of the Actual Matched Portfolio as at
31 December 2001, calculated as the sum of (i) and (ii)
less (iii) below:
(i) for years 2003 and subsequent the respective
assumed cash flows, which are assumed to occur
on 30 June of each calendar year, contained in
the Actual Matched Portfolio, discounted as at
the Completion Date using the U.S. Government
Treasury strip yield curve (interpolated on a
straight-line basis for dates not identified on
the curve), annualized, as reported by Bloomberg
on the Fair Market Yield Curve History Page as
at close of business on the Completion Date or
the last business day prior to the Completion
Date if the Completion Date is not on a business
day;
(ii) for 2002 the Assumed Payment Profile cash flow
of $376,800,000 (three hundred and seventy six
million and eight hundred thousand dollars),
will be divided equally into 12 amounts of
$31,400,000 (thirty one million and four hundred
thousand dollars) ("MONTHLY Payment"). For 2002
the net present value is the sum of (a) the
numbers of months in 2002 through completion
multiplied by the undiscounted Monthly Payment,
and (b) the remaining Monthly Payments assumed
to occur on the fifteenth day of the month,
discounted to the Completion Date using the U.S.
Government Treasury strip yield curve, derived
as in Clause 5.2(g)(i) above, except using the
relevant monthly rate (interpolated on a
straight line basis as appropriate);
(iii) the amount of the actual Investment Income
reported in the Completion Accounts for the
period from 1 January 2002 to the Completion
Date inclusive.
5.3 CALCULATION
5.3.1 If the NPV of the Assumed Matched Portfolio is:
(a) greater than the NPV of the Actual Matched Portfolio,
then the amount of the difference shall be the Matched
Portfolio Adjustment, which for the purposes of the
formula in Clause 4.1 shall be deemed to be a positive;
or
(b) less than the NPV of the Actual Matched Portfolio, then
the amount of the difference shall be the Matched
Portfolio Adjustment, which for purposes of the formula
in Clause 4.1 shall be deemed to be a negative.
5.4 PAYMENT
The Completion Adjustment shall be paid by the Buyer or the Seller (as
appropriate) in accordance with the provisions of Clause 3 of this
Agreement.
5.5 MANIFEST ERROR
In the event of a manifest error in the Pro Forma Balance Sheet or
Worked Example, correcting adjustments will be made.
5.6 INTERACTION WITH OTHER PROVISIONS
5.6.1 Subject to the due performance of Clause 3.6, if either party shall have
any claim against the other party under this Agreement in respect of any
liability or deficiency which is taken into account in the Completion
Accounts the amount of such liability or deficiency so taken into
account shall be deducted from the amount of such party's claim but,
save as aforesaid, preparation and acceptance of the Completion Accounts
by either party shall be without prejudice to any claim which either
party may have against the other party under or in respect of any breach
of this Agreement.
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PART II
WORKED EXAMPLE
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 8
NOVATION AGREEMENT
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 9
MAC THRESHOLDS - (MAC 4.6 ILLUSTRATION 19_6.XLS)
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
SCHEDULE 10
PENSION SUBSTITUTION DEED
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
87
SCHEDULE 11
REINSURANCE RECOVERABLES
[Exhibit/Schedule omitted. Registrant undertakes to provide a copy of said
Exhibit/Schedule to the Commission upon request.]
EXECUTED by the parties:
Signed by
ROBERT DEUTSCH
duly authorised representative
of /for and on behalf of
CONTINENTAL
CASUALTY COMPANY
Signed by
COLIN GRAHAM BIRD
duly authorised representative
of /for and on behalf of
TAWA UK LIMITED
LN235275.15
88